SperryUNIVAC

The occasion for this article was my mention of Hong Kong in a review of a longread on the utility of dictators, in the context of the fact that not all Asian tigers were examples of economic dirigisme. Generally agreeing with the thesis, Sperry felt it important to recount the Hong Kong miracle fully enough so that it would not remain a mere footnote to the story of Korean microelectronics — note by Ancap-tyan.

The beginning of the story

Before WWII, the most advanced and developed city in Asia was Shanghai. It was called the Paris of the East thanks to its luxurious architecture, fashion, boulevards, cafes, and theaters; the New York of the East due to its economic power, the growth of skyscrapers, and its status as a financial center; the London of the East because of its role as a center of colonial activity, its huge port, and colossal trade volumes; the Berlin of the East because of its cutting-edge cultural and intellectual activity, experiments in art, theater, and cinema; and even the Marseille of the East due to its multinational population and every kind of vice, mafia, and crime. Hong Kong, meanwhile, was a dreary and small naval-trade base for the British fleet. Everything changed with the arrival of the Japanese. Shanghai was captured almost immediately in 1937, brutally destroyed in the process, and the occupation lasted 8 years until the end of the war. The city lost 40% of its population: out of 3.5 million residents, 1.5 million were killed by the Japanese, died from torture, in concentration camps, from hunger, or diseases. After the war, Shanghai presented a post-apocalyptic landscape; several decades passed before its restoration as a vital economic and cultural center of Asia. The Japanese arrived in Hong Kong four years later, but they were no less cruel. Of the pre-war population of 1.6 million, no more than 600,000 remained alive by the end of the occupation. Some were lucky enough to escape; the other unfortunate souls were worked to death by the Japanese through slave labor, starvation, disease, and systematic purges. China itself was incredibly devastated; the atrocities of the Japanese were unprecedented since the invasion of Genghis Khan and were just as shamelessly and overtly brutal.

Until the very end, Hitler was extremely embarrassed by the theme of the Endlösung and preferred to do everything in secret, to the extent that no genuine (even secret) written order from him regarding the start or course of the Holocaust has been found to this day, nor does any documentary evidence of its existence exist among the documents of high-ranking NSDAP officials, even those directly responsible for its implementation. The Japanese did not suffer from such sentimentality: the commander of the Japanese Expeditionary Army in China, General Yasuji Okamura, a cynical maniac, proclaimed the “Three Alls Strategy” (三光作戦) for the occupied territories: “Kill all, burn all, loot all.” In accordance with this, the entire civilian population was exterminated, everything useful, from grain to nails, was confiscated and shipped to Japan, and everything else remaining was burned and destroyed. For four years, the occupied territories were subjected to this procedure; more than 10 million Chinese were killed, all industry and agriculture were destroyed, and entire cities and villages were wiped off the map. No other territory experienced such a destructive effect from WWII on such a horrifying scale. The consequences for China were comparable to a massive nuclear bombardment; wherever the Imperial Army passed, nothing survived. A third of Shanxi literally turned into a scorched desert; in Changchao district, 90% of villages were completely destroyed along with all their inhabitants. The Shanghai tribunal… eventually found Yasuji Okamura not guilty of war crimes because he cooperated with the American occupation administration, and he was repatriated to his homeland, where he died a hero in 1966, surrounded by honor and respect. It is not hard to guess what joy this fact still evokes in the PRC today.

However, in the case of Hong Kong, WWII ultimately had a positive effect: as soon as the British restored control over the city, a flow of refugees from the devastated territories began in 1945, as there was a port, there was life, and at least some order and an opportunity to earn a living. By 1949 and Mao’s victory over the Kuomintang, the number of refugees reached its peak: everyone who could not escape to Taiwan but did not want to live under the communists tried to take refuge in Hong Kong. The second wave of refugees occurred during the Great Leap Forward of 1958–1960, and the third and final wave during the Cultural Revolution. In 1945, about 600,000 people lived in the half-destroyed city, and by 1946, the pre-war 1.6 million had already returned. 1949 added another 500,000; by 1960, there were already 3 million residents, and by 1970, more than 4 million. The British administration wisely managed this incredible influx of labor: colonial factories in Bangladesh, India, and Pakistan were lost to them (temporarily, of course; from the 1960s, production for white owners began to return there), and Hong Kong, although small, was strategically very conveniently located and had almost countless labor resources begging for work. So, was there the coveted ultra-liberalism that brought Hong Kong its prosperity, finally proving the superiority of the capitalist system over the socialist one? Yes and no. The history of Hong Kong can be clearly divided into three parts: before the Financial Secretary (someone like the colony’s finance minister) John Cowperthwaite, during Cowperthwaite, and after him; this is where we will begin.

The economic rise of Hong Kong through the massive influx of cheap labor was not the original British plan (in the spirit of “let’s build an ideal machine for producing cheap Chinese workers”), but rather an evolutionary adaptation of the colonial administration to circumstances. As mentioned above, a simple British naval base, moreover one ravaged by the Japanese, effectively received three huge waves of migration from the mainland over 15 years, and the state faced a choice: allow the city to turn into a giant system of slums or somehow socialize the costs of industrialization. Logically, it chose the latter. From this arises the famous Hong Kong combination: very cheap labor + very cheap state social infrastructure + very low taxes + absence of wide income redistribution. In the end, a highly unusual scheme was born, which would have been difficult to scale to any other city or country because the starting conditions were radically different. No other place in the world could boast that 70 years ago, a couple of million Chinese burst in shouting, “Me work good for bowl of rice and roof over head, money not need.” The British simply played the cards they were dealt masterfully, squeezing maximum profit out of them. Workers were brutally exploited, especially in the early period, but simultaneously the state reduced the cost of their reproduction. In essence, in the early stages, the British turned the entire city into a colossal state barracks for millions of workers, from which corporations could freely draw manpower.

How did this even work? Initially, the British concerned themselves with housing, and since all land in the city was owned by the colonial administration (and the population was destitute), housing automatically became social and state-owned (and almost all of it). Restoring Hong Kong after the Japanese occupation, the British did a lot to ensure workers lived humanely: infrastructure developed at an incredible pace in the city, houses, hospitals, and roads were built, and shops opened. Hong Kong was never a pure laissez-faire society because all the land was owned exclusively by the British government and was only leased. Even in the early 1950s, a huge number of people lived in makeshift slums. After a monstrous fire in the Shek Kip Mei area in December 1953, 53,000 people were left without a roof over their heads; it was this catastrophe that forced the administration to begin mass construction of state housing. By 1965, the population of such housing had reached about a million people, and Hong Kong became a colossal Asian metropolis.

Benevolent Dictators Not For Life

The city was led during this time successively by Sir Robert Black (who had been Governor of Singapore for 2 years before that, then headed Hong Kong from 1958 to 1964) and Sir David Trench (former Governor of the Solomon Islands from 1961 to 1964, then headed Hong Kong until 1971), and the Financial Secretary from 1961 to 1971 was a Scotsman (who else, for the British, the Scots played the role of the Jews) John Cowperthwaite. This trio was at the helm of the city’s modernization and its transformation into a modern economic center. Cowperthwaite was a very interesting man, one of the great titans of the Asian economic miracles, alongside Park Chung Hee and Lee Kuan Yew. His philosophy, which is often incorrectly called pure laissez-faire at the suggestion of Milton Friedman, was actually completely different. First, he was not a dogmatist, but a pragmatist and didn’t give a damn about ideology, not fitting life into ideology, but fitting ideology into life. That is why he cannot (like all truly great leaders) be simply classified, because Cowperthwaite combined everything at once: from fascism and socialism to unrestricted capitalism, as long as it functioned. He was not a slave to any specific philosophy; he took various pieces from everywhere and inserted them into the right places to make the system work.

The basic approach to the problem (there is a metropolis of several million poor people, how do you make it work effectively?) for Cowperthwaite was a clear understanding that some things the state does much better than any private business, and some things business does much better than the state (and he was not a fanatic and calmly shifted the boundaries of who could do what better, looking at real life). The state, from his point of view, is completely incapable of managing any business. An official is not a businessman; he has completely different competencies and a different mindset, and moreover, the very rigid administrative structure of bureaucracy is opposite to the idea of business. Therefore, business should be handled by businessmen, and the state should not tell them how to do it. This includes the fact that the state should not tell them how to treat workers, how much to pay them, in what conditions they should work, etc., etc. They will figure it out themselves. As a result, the average working day of a typical Hong Konger was 12 hours without days off or vacations (a 14-day vacation could generally be obtained only after 10 years on the job). The average German works about 1,370 hours a year, a Frenchman 1,500, a Russian 1,900; for comparison, in Japan, a typical worker toils even less — 1,700 hours a year. In South Korea, under the hyper-capitalism of the chaebols, they slog through an absolutely inhuman 2,100 hours, and in Hong Kong under Cowperthwaite, they toiled… more than 2,600.

What did they get in return? From business — absolutely nothing, only minimum wages (not always enough to keep from starving). Hurrah, laissez-faire has arrived? Far from it. On the contrary, Hong Kong was an extremely rigid developmental state of the colonial type, a benchmark of the British approach to managing a state’s labor resources. A funny seeming paradox: British Hong Kong can be described simultaneously as one of the most liberal economies in the world and as a city where the state intervenes very deeply in the reproduction of human capital. The solution to this paradox is simple: the British government intervened in places where state socialism is not usually sought. It did not engage in redistributing income from capitalists to workers through taxes, social contributions, benefits, and other rigid labor legislation. It simply provided workers at its own expense with everything that socialists usually demand from the bourgeois-capitalist, while leaving wages and working conditions to the free market.

Cowperthwaite believed that the state should and must engage in what it is strong at and where business is weak: the creation of a unified infrastructure. He built roads, bridges, and ports, social housing and social hospitals, maintained a clearly functioning police force, uncorrupted courts, and effectively took upon itself all those problems that welfare states shift to the employer. Usually, socialism is understood as a situation where the exploiter-bourgeois exploits as little as possible because the state hinders him in every way: presses him with trade unions, a rigid labor code, minimum wage laws, vacations, social security, medical packages, and so on. Cowperthwaite considered this heresy and communism. From his point of view, business owes the worker nothing, but the state does. And therefore, the state takes all these expenses upon itself. A reasonable question: wait, where does the money for all this splendor come from? We have low taxes, too? The answer is very simple: Cowperthwaite, as befits a British administrator and a Scottish economist, believed that the state is obliged to do everything so that no one dies of hunger, but is not obliged to do anything beyond that. As a result, all his social services operated at the absolute minimum survival threshold, but held to it firmly. Everyone had housing (even the legendary “coffin homes” for 20–30 people in the same number of square meters), everyone had medicine (even if the most basic; for example, Queen Elizabeth Hospital opened in 1963; after that, from 1971, a significant turning point occurred: medicine became universal in access with very strong subsidization), and those who were dying received targeted financial aid and stopped dying. Thanks to such a scheme, Hong Kong’s budget balanced with a surplus every year (moreover, since the 1970s, it even began to lend to the metropolis, which by that point had slid into the total darkness of crooked socialism), corporate taxes were minimal, and social security was still guaranteed.

I will emphasize this thought once more. Cowperthwaite was not an opponent of a strong state in the physical sense. He was an opponent of a state trying to replace the market where the market would clearly cope (from his point of view) more professionally. Cowperthwaite was irritated by the very idea that an official is capable of better than an entrepreneur of determining which industry to develop, which enterprises to subsidize, where to direct capital, which technology to implement, which industries to consider strategic, which economic indicators to optimize (by the way, this is his fundamental difference from the PRC, although they are similar in many views on the relationship between business, social services, and the state). Cowperthwaite disliked economic planning so much that he didn’t even want to collect economic statistics, as he considered them unnecessary for the practical work of the government. In the 1960s, Hong Kong for a long time lacked a full set of national accounts, and Cowperthwaite was very skeptical of the idea of systematically calculating economic aggregates. Hence the anecdote that he later allegedly told Milton Friedman, “if you give officials statistics, they will start using them for planning.” His main idea was not to let the state turn into a socialist or Keynesian economic system. Ironically, in Great Britain itself at the time, roughly the opposite movement was occurring.

Taxes remained extremely low all the time, but there was a trick and a subtlety to this. Hong Kong was not, like Singapore, Japan, or South Korea, an independent state. It was a dot on the map that generated half of Britain’s overseas income through developed business. In the end, the government acted very wisely, making a deal with everyone. To the resident of Hong Kong, the state did not promise high income, but promised police on the streets, courts and order, a simple school, a simple hospital and simple housing, and if a person can no longer work — a minimum ration saving them from starving to death. To Hong Kong’s entrepreneurs, the state promised to take on all the hassle of social security for their workers and, essentially, a well-breeding, unpretentious workforce for any task in huge quantities. At the same time, as industrialization progressed, real incomes of the population did, albeit slowly, grow; therefore, low wages in Hong Kong coexisted with a generally higher real standard of living than one would expect looking at those wages. This surprising Hong Kong socio-economic model largely explains why, after 1997, the PRC had no need to break the existing system: it was already a very effective compromise between the interests of capital and social stability, characteristic of China itself. It did not bring a welfare state to Hong Kong — a significant part of it was created by the British administration before the handover; rather, the PRC inherited an already formed system and then gradually began to expand and restructure it.

Cowperthwaite’s model was not anti-state, but a peculiar division of labor. Under him, the state strictly controlled the police, courts, port, roads, land (100% of it, actually) and provided all basic social services: education, medicine, housing, and financial aid in case of force majeure. The market controlled production, investment, trade, allocation of capital, wages, the choice of technologies, and what happened to workers behind the walls of the factories. If by laissez-faire we mean “the state does not interfere in entrepreneurial decisions” — practically yes, that’s how Hong Kong worked. If we mean literally “the state does almost nothing” — absolutely not. At the same time, Cowperthwaite had a flexible understanding of where the state would intervene and where it would not, and he determined this not dogmatically, but as he went along and empirically, based on common sense and the common good.

For example, Hong Kong had a chronic problem with fresh water: its own resources were few, and dependence on supplies from the mainland created a serious risk. Cowperthwaite recognized that here the market on its own does not fully solve the problem because water supply possesses the properties of a natural monopoly, and realized that the state must ensure a minimally necessary water supply system (which was built at state expense). Then he switched back to market logic: not to subsidize water just for the sake of making it cheaper for the consumer, but to strive for tariffs reflecting marginal costs. That is, his logic was not “water is vital, therefore the state must make it cheap,” but “water is a natural monopoly, therefore the state must provide the infrastructure, but the price must still provide an economic signal.” Similarly, he could, conversely, remove regulation if he felt the market was capable of handling it better; for example, he relaxed regulation of the telephone industry because he believed excessive control there was unjustified.

One of Copthorne’s most odious decisions as Financial Secretary was his fight against the government schools that already existed in Hong Kong, though they were few. Until the very end of his tenure, he resisted the introduction of universal subsidized education, even as reformists demanded the expansion of state funding for schools. In the end, he nearly destroyed public education, and to this day, a generation of Hongkongers born during his rule remains illiterate. It cannot be said that he was infallible in other areas; for example, Copthorne killed a railway project because he considered any public transport to be socialism (the railway was built only after he left office, and the fact that it is now the busiest and most profitable railway line in the world speaks to how necessary it was). In some ways, he was a convinced “mega-nesian” (and realistically, this philosophy would perhaps have suited him best). Copthorne shot down, for instance, a bunch of useful tunnel projects (which were built in the future) on the simple grounds that if a project cannot be sufficiently justified economically here and now, one should not automatically assume the state should build it. Why the state specifically? Why now? And why should the taxpayer pay for it?

His government regulations always pushed the very limits of human biological capability; precisely because he destroyed labor and housing regulations, Hongkongers toiled in ways that even Koreans did not, and huddled in three-tier cages (massively fleeing Copthorne to Kowloon—a Chinese enclave where the British government had no power—and living there in anarchy). The free universal education of the 1970s was largely a departure from the Copthorne model, linked to the subsequent course of Governor Murray MacLehose, who became generous enough to introduce free 9-year education in 1978. In the 1960s, Hong Kong was industrializing rapidly, and the question seemed natural: should the government select promising industries and help them? Copthorne rejected industrial policy in that sense. Even when it was proposed to select just a few industries and develop human capital for them, he preferred general business conditions over supporting specific winners. Worker education? Well… perhaps, although it still needs to be justified why a smart worker works better and why the state should pay for it; maybe it’ll manage without. Worker education specifically for “national industry X”? Smells suspiciously like a commie!

In effect, every decision of his passed through a peculiar filter of questions and answers. Can the market do this itself? If yes—do not interfere. Are we facing a natural monopoly or a fundamental public function? If yes—the state takes it over for management. Is intervention inevitable? If yes—make it as market-driven as possible. Is there solid evidence that the proposed state intervention will improve the situation? If no—do nothing. This logic explains well why he could simultaneously be an opponent of subsidizing education, rent control, and railway construction, while calmly accepting state water supply, infrastructure, police, courts, and social programs. He could have been called a minarchist, but Copthorne was not a fanatic, but a radical institutional skeptic. A minarchist says, “here is the correct list of state functions,” while Copthorne says, “prove to me that the state is actually capable of doing this better than the market, and I will do it.” Furthermore, he did not believe the state should sit passively with its arms folded. It should create the conditions, infrastructure, and legal environment—and then get out of the way. Even his successor, Haddon-Cave, later emphasized that it was not about literal non-interference, but about the state’s refusal to plan the distribution of private sector resources.

Interestingly, the old British tradition of private banking issuance still persists in Hong Kong. The Hong Kong government only issues the smallest banknote, HK$10, and mints coins, while banknotes of HK$20, 50, 100, 500, and 1000 are issued by three commercial banks: HSBC, Standard Chartered Bank, and Bank of China Hong Kong; they even differ in design. This is an ancient British model of paper money issuance. According to it, the state does not necessarily produce the money itself; it simply creates the rules, the reserve mechanism, and convertibility, while commercial banks carry out the direct issuance of banknotes. In the 19th century, many private banks handled Hong Kong’s banknotes. For example, the Chartered Mercantile Bank began issuing banknotes in 1857; various banks entered and exited the system, some went bankrupt, and eventually two remained, while the Bank of China began issuing Hong Kong banknotes in 1994.

Overall, it cannot be said that Copthorne rooted out socialism and was a proponent of pure laissez-faire; rather, he consciously prevented Hong Kong from following the path of British postwar economic planning and the welfare state, while simultaneously maintaining significant state influence where he believed it created conditions for the market. All this led to Hong Kong truly becoming the most corporation-friendly city in the world, a real Night City from the game Cyberpunk 2077. Consequently, Hong Kong’s economic growth rates surpassed those of the USA, Japan, and South Korea; even now, it is one of the wealthiest cities on the planet (only Singapore, London, and Moscow are comparable), the city has more skyscrapers than New York or Tokyo, and the GDP of this tiny territory is comparable to the entire EU. It is no wonder that Milton Friedman considered Hong Kong the best city in the world, vividly demonstrating the superiority of capitalism over a planned economy, although, as we see, the system actually worked much more subtly and, most importantly, under state control.

Ultra-authoritarian constitutional bureaucracy with the rule of law

Finally, let’s answer the question: was Hong Kong a dictatorship? Oh yes, and quite a one. The primary documents regulating its political life were the Letters Patent and Royal Instructions, issued in 1843 and almost unchanged since then. They defined the colonial Governor of Hong Kong as the person representing the British monarchy and possessing full military, judicial, and administrative power. The Governor relied on two councils, the Executive Council and the Legislative Council, but was the chairman of both, simultaneously acting as something of a president, prime minister, commander-in-chief of the army, and chief judge of the colony. He personally appointed almost all colonial officials, personally approved the budget, administered justice, and dealt with the defense and order of the colony. In general, this was a fairly typical 19th-century British colonial scheme. Only in 1888 were the rules changed so that passing laws required not just recommendations, but the consent of the Legislative Council; however, this was not hard to obtain, as most council members were appointed by the Governor himself. The Executive Council served as the colony’s government, though there is a small nuance: the Governor was not automatically obligated to follow the advice of the ExCo and similarly appointed its members.

In the era of Copthorne, democratic elections were nowhere to be found, let alone any power held by the city’s residents or even business representatives. British principles were inviolable: since the state does not meddle in business, business must not stick its hands into the administration of the colony. Obviously, there was a slight ironic asymmetry in this matter: the state did not meddle in business solely out of goodwill and its own philosophical principles, whereas business could not meddle in state affairs even in theory, because the Governor had soldiers. The Financial Secretary was appointed by the Crown and reported only to the King and the Governor (he was not even required to do so before Parliament in London), and he held control over budgets, taxes (he could remove or raise them, and no residents or corporations had any say in this whatsoever), government spending, money issuance (he could permit or forbid it for any commercial bank at his whim, and contesting it was almost impossible), and overall economic management.

To explain the above in a few words: Copthorne had practically unlimited rights to squeeze anyone and however he liked, imposing or removing fines, regulations, taxes, and subsidies, and no one could influence his decision except His Majesty and the Governor. Ordinary Hongkongers had British common law for their lives, British courts and police, property rights, limited rights of assembly and freedom of speech, and practically unlimited freedom of commercial activity (although standard licensing practices were applied in medicine and the food industry; in Kowloon, by the way, these naturally did not apply, so underground doctors and butchers flocked there). Furthermore, every resident had the full right at any time to complain to the Governor about the injustice of life, and the Governor had the full right to tell them where to go.

If Copthorne wanted to implement some fundamental change in the budget, the only question that truly interested him was: does his immediate boss, i.e., the Governor, agree? Considering that the colonial administration was generally composed of experienced people with roughly similar backgrounds and understandings of the problems who worked well together, such a problem practically never arose. The Governor would not appoint a Financial Secretary from people he did not trust, could not work with, or whose advice he did not value.

Suppose Copthorne wants to change the tax system of the entire colony. Since we have the full rule of law, we cannot do this arbitrarily, but since we also have an authoritarian bureaucracy, the issue becomes purely technical. So, Copthorne prepares his proposal and receives the Governor’s sanction. After this, he puts it forward to the LegCo and, since the council members are appointed by the Governor, Copthorne, having his blessing, easily obtains formal consent and the tax is changed. And what if the LegCo begins to object? Then Copthorne must defend the proposal publicly before the Council; however, during his time in office, the Council never once voted against the Financial Secretary. This is especially evident in his famous resistance to the expansion of economic statistics: Council members asked him about national accounts, and he replied directly that the government did not have the necessary data and, in his opinion, did not need it in the volume requested by the advisors. Amusingly, they received no statistics at all during his tenure.

The LegCo consisted of the following members. In addition to the Financial Secretary, it included the Colonial Secretary, the Attorney General, the Secretary for Chinese Affairs, the Director of Public Works, the Director of Medical and Health Services, the Labour Commissioner, the Director of Social Welfare, the Director of Trade and Industry, the Director of Urban Services, and the District Commissioner. All were appointed by the Governor, and each was responsible for their own front of administrative work. That is, if the Director of Public Works appeared before the LegCo and asked for another HK$50 million for roads, he competed with the Financial Secretary before the Council, proving that it was necessary. As we know, under Copthorne such things happened rarely; no matter how much they begged for money for education, he never gave any. Copthorne was obliged to explain his policy, but only to the Governor and his colleagues—the administrators from the LegCo—and was not obliged to receive any democratic approval. In the end, Hong Kong did not smell of liberalism at all. Economically it had immense freedom, but that freedom was delegated to it by the colonial administration and could be taken back at any moment. Politically, none of its residents had freedom, including even the Governor himself, who was a mere hired administrator and could be dismissed by the King just as he was appointed. The city was ruled by bureaucrats who were limited only by the Crown, common law, and the administrative procedures they had adopted. Hong Kong was a free market not because society had much political power, but because society had no political power at all, and the bureaucracy itself was ideologically predisposed toward non-interference.

From Barbie dolls to microelectronics

Who, by the way, did Copthorne attract to Hong Kong from the corporations? Virtually all of them. The heart of the city’s industry was initially, of course, the famous British textiles. In 1966, it constituted 40% of Hong Kong’s industry and 25% of total exports. A tiny dot on the globe produced about 5% of the world’s textile products and 30% of all British production. The second important (and often underrated) industry was toys. By 1969, while Soviet children played with cast-iron cars and creepy dolls, their happy American, European, and British peers entertained themselves with all kinds of toy soldiers, construction sets, Barbies, etc., with 10% of all toys in the world being manufactured in Hong Kong (only 1.5% in Britain itself). Hong Kong was an industry leader for decades, trailing only Japan. By 1969, the city also exported 15% of all cheap quartz watches. In general, the entire industry of the small city was approximately 7.5% of the capacity of British industry.

What interests us most is electronics, and there was plenty of it in Hong Kong—in fact, it was the first point in Asia where the West opened assembly branches. Europeans (and amusingly—the Japanese!) rushed in almost simultaneously with the Americans. In 1952, Texas Instruments opened its very first branch in Asia, and it was in Hong Kong. It was soon joined by Motorola (1954), RCA and Philips (1955), General Electric (1956), and Sylvania Electric Products (1958). The first Japanese on Chinese soil was NEC (1957), then Sony (1958), Toshiba Corporation (1959), and Sharp Corporation (1959). Initially, these companies outsourced only the production of the simplest components, mainly vacuum tubes, for which monstrous volumes were required in the 1950s for everything from radio receivers to military radars and mainframes.

Of course, vacuum tube plants did not remain alone for long. As early as 1960, Philips moved the complete assembly of radio receivers to Hong Kong; in 1961, Sylvania built a lighting fixture plant; General Electric added a television assembly plant in 1962; in 1962, Canon built a camera plant; and in 1963, Sony Corporation itself came to Hong Kong to assemble audio equipment! Full-scale assembly lines sprouted like mushrooms after rain: 1963 Toshiba and Zenith Electronics (an elite American company for TV and audio equipment), 1964 Sharp (the largest plant for calculators and quartz watches) and Olympus Corporation, 1964 Mitsubishi Electric, and in 1965 a landmark event occurred: the move of Fairchild Semiconductor and Western Electric microelectronics plants to Hong Kong. In the same year, Hewlett-Packard began assembling its famous oscilloscopes there, and the German company Grundig began assembling audio equipment. A year later, Hitachi, Nippon Columbia (under the famous Denon brand), and RCA began manufacturing it as well.

In 1967, Matsushita Electric joined them (assembling the Panasonic and National brands there), and Texas Instruments, Signetics, and Honeywell followed the competitors from Fairchild by opening semiconductor plants. Smaller firms also arrived, such as Emerson Radio (1968), and the Japanese continued to arrive in the same year (Fujitsu built a home appliance plant) as did the Germans (Siemens did the same). By 1969, ITT Corporation and Teledyne began producing telecommunications equipment, and from 1970 Casio assembled watches and calculators, and another American microelectronics firm—National Semiconductor—arrived. A kind of hallmark of quality and trust in Hong Kong assembly is the fact that the major Pentagon contractor Bendix Corporation, which assembled avionics and military computers, also moved its plants to Hong Kong in 1969.

So the claim that Hong Kong did not deal in microelectronics is slightly erroneous: Texas Instruments, Signetics, Fairchild Semiconductor, National Semiconductor—these are powerful microelectronics corporations (some, admittedly, in the past tense) and all were present and worked in Hong Kong, while Chinese and Japanese corporations work in this field there even now. It is just that the results of their labor are less visible than a smartphone.

Naturally, far from all of their products initially went for export to Europe and the USA: the emerging Asian markets wanted televisions, radios, vinyl players, watches, calculators, and vacuum cleaners no less than white people did. The Japanese were the first to find an elegant way out of the brand positioning problem, dictated by their historical experience with the zaibatsu, where one Mitsubishi corporation produced absolutely everything: from refrigerators to torpedoes and methamphetamine. They carved out a whole bunch of sub-brands from each manufacturer: some strictly for the domestic Japanese market, others for the Asian market, and others for Europe and the USA. Furthermore, they were clever enough to divide each into premium and ordinary, and in some places crossed them with European and American ones.

Sony, for example, produced equipment under the Aiwa label besides its own native brand (it bought a controlling stake in the original Aiwa company in 1969) and the Aiwa sub-brand—Excelia (recording equipment), as well as Esprit, and for the German market—WEGA. Akai produced ordinary tape recorders under its native brand and professional ones under the A&D brand (Akai & Diatone, where Diatone was itself a Mitsubishi sub-brand for audio equipment); it was supplied to Europe as Tensai and to the USA as Roberts. Alps Electric, in 1967, began producing Alpage cassette decks for Europe in collaboration with Motorola, Alpine car electronics, and from 1984, elite Luxman audio equipment. Nipponophone Phonograph Company Ltd. produced the brands Columbia, Onkyo, and DENON. Hitachi Ltd. produced the brands Lo-D and Maxell. Many Japanese firms produced not only home appliances but even computers, for example, the SANYO MBC-550 of 1982. NEC had the Authentic sub-brand, and Toshiba had Aurex. TEAC Corporation sold its professional audio equipment in the USA as TASCAM, high-quality home audio as Esoteric, and on the domestic market as Uesugi. Trio Corporation worked under its own Trio brand for Japan and as KENWOOD for the West; their elite vinyl record players were produced by the MICRO-SEIKI division.

The super-corporation Matsushita Electric Industrial Co. owned the brands Technics, Panasonic, National, JVC, Victor, Nivico, RAMSA, Quasar, NAiS, SANYO, and a bunch of others. While SANYO was still independent, it produced audio equipment under its own brand, as well as the European OTTO; after its purchase in 1975 by the American company Emerson Electric, products for the US market were produced as Fisher. Much of this equipment was assembled in Hong Kong. Interestingly, when a massive wave of bankruptcies of Japanese electronics brands occurred between 1990 and 2000 (the result of a trade war with the USA and a general recession wiped out monsters like Akai Electric, Pioneer, Sharp, JVC, Toshiba, and even the almighty Matsushita), their trademarks were bought up cheaply by the Chinese from Hong Kong! For example, the Grande Group of Hong Kong acquired the legend of cassette decks Nakamichi, AKAI, and Sansui; Li & Fung bought Toshiba and Panasonic in 2009, and Haier bought Sharp. Ironically, the famous Japanese Hi-Fi was initially only assembled by the Japanese in Hong Kong, and now the brands themselves are Hongkongese.

End of story

The problem with Hong Kong was that it was divided into several parts that were significantly unequal in their geographical location. First, there are the so-called Outlying Islands; there are plenty of them around, and they are not of particular interest to us. Second, there is the large island of Lantau, a legendary place in Chinese history—the last refuge where the Song dynasty retreated to escape the Mongol invasion (and where the last two underage emperors of that dynasty passed away). During the British era, it remained for a long time a huge, sparsely populated peripheral island, significantly less integrated into urban life than Hong Kong Island and Kowloon. Next is Hong Kong Island itself, separated from the mainland by Victoria Harbour (and it is also home to Victoria Peak)—this is where the original British naval base was located. Finally, on the mainland, there is the Kowloon district, where the old Chinese fortress of the same name was situated, generally opposite the British one across the harbor (this is the part that remained extraterritorial when the British seized this piece of land, and from the 1950s onwards, the legendary cyberpunk slum-city grew there). The British took Hong Kong Island first, after the First Opium War, entirely, completely, and in perpetuity; formally, it was a full-fledged part of the British Empire. They seized South Kowloon under similar terms shortly after, as part of the reparations following the Second Opium War (leaving the small fortress enclave to the Chinese).

Hong Kong developed rapidly, and available and convenient space on the seized lands ran out very quickly. Consequently, in 1898, the English leased all the Outlying Islands, Lantau, and a piece of territory beyond South Kowloon on the mainland—the so-called New Kowloon—from the Qing Empire for a term of 99 years, until June 30, 1997. All of this was collectively called the New Territories, and this is where the primary economic activity unfolded in the 1960s. The New Territories accounted for about 92% of the total area of Hong Kong. In 1982, Margaret Thatcher went to Beijing for negotiations with the Chinese leadership about the future of Hong Kong, because it was the last jewel of the crumbling empire and the issue needed to be settled quickly—businesses were starting to worry, and the clock was ticking. Formally, the British had every right to keep South Kowloon and Hong Kong Island itself; however, in such a case, they would have faced an insoluble logistical problem. The majority of the population lived in the New Territories, water and electricity came from there, the airport and the main cargo port were located there, not to mention 90% of all valuable industries. Deng Xiaoping understood this perfectly and immediately told Thatcher that when the lease expired, China would take everything. In general, there was absolutely nothing to bargain about; Britain was in an extremely vulnerable position because without the New Territories, Hong Kong would have remained a proudly British, gnawed-at, and useless enclave, where even water would have to be brought in by tankers from the metropole, receiving nothing in return.

The only thing Thatcher managed to negotiate (and only because Deng was extremely cunning and did not intend to kill the goose that laid the golden eggs and receive an empty city in 1997 from which all residents and all precious banks and factories had fled) was a formal agreement that the PRC would not interfere in the political and economic system of Hong Kong for another 50 years, until 2047. This reassured everyone who feared that as soon as the British left, angry mainland Chinese would arrive with the Little Red Book and portraits of the Great Helmsman to build communism for them. The Sino-British Joint Declaration was signed on December 19, 1984, ratified and approved even by the UN, and the parties parted ways, moderately satisfied with each other. The PRC pledged not to change anything in Hong Kong—neither the economic nor the political system, nor even land rights—for another 50 years. In exchange, the English did not formally fuss and agreed to give them even what they had not leased but had conquered (although, as we understand, no one was offering them a choice). The British side still regards the SBJD today as a legally binding treaty, although it lacked an enforcement mechanism in the event of a conflict between the parties.

As a result, after 1997, Hong Kong did not actually turn into a mainland economy immediately; on the contrary, until 2003, it maintained the British model under the slogan “One Country, Two Systems.” It retained maximum free movement of capital, a private Hong Kong dollar, the absence of VAT, ultra-low income and profit taxes, the absence of capital gains tax, an independent judicial system in commercial matters, huge foreign exchange reserves, and extremely limited direct state participation in most industries. In fact, even today, Hong Kong’s tax regime is significantly softer than almost any other state on the planet (but this is not surprising, as the PRC can easily subsidize any social programs there). Until 1997, Hong Kong worked almost 100% for the West, but after 1997, its economy began to pivot toward China; this process accelerated particularly after the PRC joined the WTO in 2001. The Red Chinese immediately granted their Hong Kong brethren CEPA—an economic partnership agreement between Hong Kong and the mainland, facilitating easier access for Hong Kong companies to the mainland market, and connected them directly with the exchanges in Shanghai and the colossal SEZ Shenzhen, created in 1980 and currently one of the most economically powerful regions on the planet (with a budget, population, and production exceeding the EU combined).

Hong Kong’s economic freedom did not disappear, but its function changed: from an independent capitalist economy, it became a special economic infrastructure of China itself. Even the logic of construction changed. The old Hong Kong, for obvious reasons, leaned toward the sea; the current one leans toward the mainland. In this regard, the PRC inherited an extremely neglected situation: as of 1997, a huge population was trapped on a tiny piece of land, real estate was becoming increasingly expensive, and the phenomenon of super-divided apartments turned into those notorious “coffin homes” had long existed. The PRC continued to actively build social housing—the famous Hong Kong “candles” of 40-50 stories in blocks of 10-15 houses. Resettling every city resident into a normal apartment from British coffin homes became one of the main tasks of the Chinese government in Hong Kong, a process that continues in full swing today. Furthermore, as of 2026, social security and healthcare account for more than 40% of the PRC’s expenditures on Hong Kong (the rest mostly goes toward housing).

Overall, since 1997, Hong Kong has become socially many times more expensive, and this is linked not only to communism but also to the simple aging of the population and the rise in real estate prices. The PRC introduced pensions and benefits for the elderly, elder care services, medical support, disability benefits, and other things that the British had never bothered with. This, by 2019, became a certain problem: how to maintain the increased welfare and low taxes? Therefore, the Chinese did not try to have it both ways and simply passed the National Security Law of 2020 and carried out the electoral reform of 2021, which ultimately fully integrated the city with the mainland in political and economic terms. Of course, there were other prerequisites for this. China is famous for its dictatorship in a velvet glove: you can do practically anything except criticize the CCP. Hongkongers mass-abused this, having relaxed during a century of British rule and reassured by the SBJD, and mainland China did not intend to tolerate this. Since the 2010s, Chinese intelligence services and police simply began to mass-kidnap bookstore owners who sold subversive literature in Hong Kong, critics of the Party, and other unconscious elements, taking them to the mainland and doing various things to them there.

The people, naturally, were wildly outraged, appealing to that very law and crying out—what the hell? In 2014, a massive “Occupy Central” action took place, which was also directed against the planned reform of the electoral system for the upcoming 2017 executive power elections in Hong Kong. It ended predictably; people pushed around for 2.5 months, about 1,000 people were arrested, and the law was eventually passed. In 2019, the communist authorities additionally signed an extradition law, allowing all Hong Kong enemies of the people to be sent straight to China without any kidnappings or other improprieties. Here, the people could not take it again and tried to revolt. Protests continued for about a year, to which Chairman Xi responded by rolling out another law—”On the Establishment of a Legal System and Enforcement Mechanisms in the Hong Kong Special Administrative Region for the Safeguarding of National Security,” under which all traces of the “One Country, Two Systems” concept and Hong Kong autonomy were erased. From now on, anyone who calls for any autonomy for Hong Kong is to be considered a terrorist, an extremist, etc., etc., and sent for “re-education” on the mainland. The end of the protests coincided fortunately with the coronavirus epidemic—the PRC established the most brutal lockdowns in Hong Kong, the likes of which the world had not yet seen. First, the entire city was closed to entry and exit. Second, entire neighborhoods were periodically declared quarantined, and no one was allowed in or out; moreover, people were not allowed out not only from the neighborhood or their house, but even from their apartments, leaving residents as if in prison. A basic ration of instant noodles and a bottle of water was delivered to them by special services. Of course, it was not as brutal as in Shanghai, where apartment building doors were welded shut with blowtorches and the city lived like besieged Leningrad, but the protests were suppressed extremely effectively.

Currently, the city represents a kind of mixture of old British Hong Kong, the Singaporean model, and the state capitalism of the PRC. This became especially noticeable in industrial policy, which Hong Kong had none of under the British (that’s communism!). The PRC changed this approach not only in terms of the attitude toward labor but also in the sense that the government actively subsidizes the industries it needs. As a result, Hong Kong currently specializes in financial instruments, biotech, medicine, and computer technologies, having completely transitioned into the post-industrial era. In the 1980s, the state did not interfere in business at all; in the 2000s, the state helped business use the Chinese market; in the 2020s, the state expects business to have a strategic orientation toward the national interests of the Chinese economy. We shall see what comes of this.