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. Agreeing with the thesis in general, Sperry felt it important to recount the Hong Kong miracle fully enough so that it would not remain a mere footnote to a story about Korean microelectronics — note by Ancap-chan.

The Beginning of the History

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 because of its economic power, the growth of skyscrapers, and its status as a financial center; the London of the East because of its center of colonial activity, huge port, and colossal volumes of trade; the Berlin of the East because of its advanced cultural and intellectual activity, experiments in art, theater, and cinema; and even the Marseille of the East because of its multinational population and all sorts of vices, mafia, and crimes. Hong Kong, meanwhile, was a dreary and small naval-trade base for the British fleet. The arrival of the Japanese changed everything. Shanghai was captured almost immediately, in 1937, and was brutally destroyed in the process; 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 destroyed 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 key economic and cultural center of Asia. The Japanese arrived in Hong Kong 4 years later, but were no less cruel. Of the pre-war population of 1.6 million, no more than 600 thousand remained alive by the end of the occupation. Some were lucky enough to escape; the other wretches were starved by the Japanese through slave labor, hunger, diseases, 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 cruel.

Until the very end, Hitler was extremely embarrassed by the topic of the Endlösung and preferred to do everything in secret to such an extent that to this day not a single genuine (even secret) written order of his regarding the start or course of the Holocaust has been found, nor do any documentary evidences of its existence exist among the documents of the highest 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 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 terrifying scale. The consequences for China were comparable to massive nuclear bombing; where 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. In the Shanghai tribunal, Yasuji Okamura was… ultimately found not guilty of war crimes, as he cooperated with the American occupation administration, and 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 to this day.

However, for Hong Kong, WWII ultimately had a positive effect: as soon as the British regained control of the city, a flow of refugees from the devastated territories began arriving 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 communists, tried to take shelter in Hong Kong. The second wave of refugees coincided with the Great Leap Forward of 1958–1960, and the third and final one with the Cultural Revolution. In 1945, about 600 thousand people lived in the semi-destroyed city, and by 1946, the pre-war 1.6 million were already back. 1949 added another 500 thousand; by 1960, there were already 3 million residents, and by 1970 — more than 4 million. The British administration wisely handled such an incredible influx of labor: the colonial factories of Bangladesh, India, and Pakistan had been lost to them (temporarily, of course, from the 1960s production for the white masters began to return there), and Hong Kong, though small, was strategically very conveniently located and had almost countless labor resources begging for work. So, was there that 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 Financial Secretary (someone like the colony’s finance minister) John Cowperthwaite, during Cowperthwaite, and after him; that is where we will begin.

The economic rise of Hong Kong through the huge influx of cheap labor was not the original British plan (in the spirit of “let’s build the perfect machine for producing cheap Chinese workers”); rather, it was an evolutionary adaptation of the colonial administration to circumstances. As already mentioned above, a simple British naval base, moreover one ransacked by the Japanese, effectively received three huge waves of migration from the mainland over 15 years, and the state found itself faced with 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. This is where the famous Hong Kong combination arises: very cheap labor + very cheap state social infrastructure + very low taxes + the absence of broad income redistribution. As a result, a maximally unusual scheme was born, which would be 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 with the cry: “Me good work for bowl of rice and roof over head, money not needed.” The British simply played the cards they were dealt masterfully, squeezing the maximum profit out of them. Workers were brutally exploited, especially in the early period, but simultaneously the state lowered the cost of their reproduction. In essence, in the early stages, the British turned the entire city into a colossal state barrack for millions of workers, from which corporations could freely draw manpower.

How did this even work? First, 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 practically all of it). Rebuilding Hong Kong after the Japanese occupation, the British did much so that 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 out. As late as the early 1950s, a huge number of people lived in makeshift slums. After a monstrous fire in the Shek Kip Mei district in December 1953, 53 thousand 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 already 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 sequentially by Sir Robert Black (who had been Governor of Singapore for 2 years before that, then led Hong Kong from 1958 to 1964) and Sir David Trench (former Governor of the Solomon Islands from 1961 to 1964, then led Hong Kong until 1971), and the Financial Secretary from 1961 to 1971 was a Scotsman (who else, for the British, Scots played the role of 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 person, one of the great titans of the Asian economic miracles, alongside Park Chung Hee and Lee Kuan Yew. His philosophy, which at the prompting of Milton Friedman is often incorrectly called pure laissez-faire, was actually completely different. Firstly, he was not a dogmatist but a pragmatist and spat on ideology entirely, not fitting life to it, but fitting it to life. That is exactly why he cannot (like all truly great leaders) simply be 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 so that the system would work.

The basic approach to the problem (meaning a metropolis of several million poor people, how to make it work effectively?) for Cowperthwaite became 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 (moreover, he was not a fanatic and calmly shifted the boundaries of what someone could do better, looking at real life). The state, from his point of view, is completely unable to manage any business. A bureaucrat is not a businessman; he has completely different competencies and a mindset, and in general, the very rigid, 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 deal with workers, how much to pay them, under what conditions they should work, etc. and so on. They’ll figure it out themselves. As a result, the average workday of a typical Hongkonger 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 1370 hours a year, a Frenchman — 1500, a Russian — 1900; for comparison: in Japan, a typical worker toils even less — 1700 hours a year. In South Korea, under the hyper-capitalism of the chaebols, they slave away for an absolutely inhuman 2100 hours, and in Hong Kong under Cowperthwaite, they toiled… more than 2600.

What did they get in return? From business — absolutely nothing, only minimum wages (not always sufficient to not starve to death). Hurrah, laissez-faire has arrived? Far from it. On the contrary, Hong Kong was an extremely rigid colonial-type developmental state, a benchmark of the British approach to managing the state’s labor resources. A funny apparent 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 the redistribution of 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, but left wages and working conditions to the free market.

Cowperthwaite believed that the state should and must engage in what it is strong in 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 generally effectively took upon itself all those problems that welfare states shift onto 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, and 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 were at the absolute minimum boundary of survival, but he held them there with an iron grip. Everyone had housing (even the legendary “dog cages” for 20–30 people in the same number of square meters), everyone had medicine (even if the most basic, for example, in 1963 the Queen Elizabeth Hospital opened; already after it, from 1971, a significant turning point occurred: medicine became universal in access, with very strong subsidization), and the dying did indeed receive targeted financial assistance and stopped dying. Thanks to such a scheme, Hong Kong’s budget balanced with a surplus every year (moreover, from the 1970s it even began to lend to the metropole, which had by that point slid into 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 attempting to replace the market where the market would unambiguously handle things (from his point of view) more professionally. Cowperthwaite was irritated by the very idea that a bureaucrat 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 should be optimized (by the way, this is his fundamental difference from the PRC, although in many ways they are similar in views on the ratio of 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 it 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 quite skeptical of the idea of the systematic calculation of economic aggregates. This gave rise to the anecdote that he later allegedly told Milton Friedman, “if you give bureaucrats 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, roughly the opposite movement was happening at the time.

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 point on the map that generated half of Britain’s overseas income through developed business. In the end, the government acted very wisely by 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 — then a minimum ration saving them from starving to death. To the entrepreneurs of Hong Kong, the state promised to take on all the hassle with the social security of their workers and, essentially, a well-breeding, unpretentious workforce for any tasks in huge quantities. At the same time, as industrialization developed, the real incomes of the population did, albeit slowly, grow, so low wages in Hong Kong coexisted with a generally higher real standard of living than one would expect looking at those wages. Such a surprising Hong Kong socio-economic model in large part explains why after 1997 the PRC had no need to break the existing system: it already represented a very effective compromise between the interests of capital and social stability, characteristic of China itself. It did not bring the welfare state to Hong Kong — a significant part of it the British administration had created before the transfer of the territory; rather, the PRC inherited an already formed system and then gradually began to expand and rebuild 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 assistance in case of force majeure. The market controlled production, investment, trade, allocation of capital, wages, choice of technologies, and what happened to workers behind the factory walls. If laissez-faire is understood as “the state does not interfere in entrepreneurial decisions” — practically yes, Hong Kong worked this way. If understood literally as “the state does almost nothing” — absolutely not. At the same time, Cowperthwaite possessed a flexible understanding of where the state would intervene and where it would not, and 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 indeed built at state expense). Then he again switched 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 vitally necessary, 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 send an economic signal.” Also, conversely, he could remove regulation if he felt the market was capable of handling it better; for example, he loosened regulation of the telephone industry because he believed that excessive control here was unjustified.

One of Cowperthwaite’s most odious decisions as Financial Secretary was his struggle 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 an expansion of state funding for schools. In the end, he nearly destroyed public education, and to this day, a generation of Hong Kongers born under his rule remains illiterate. It cannot be said that he was infallible in other matters; for example, Cowperthwaite killed a railway project because he considered any public transport to be socialism (the road 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 much it was needed). In some ways, he was a convinced meganese (and really, that philosophy, perhaps, would have suited him best). Cowperthwaite axed, for instance, a bunch of useful tunnel projects (which were built in the future) on the simple grounds that if a project cannot be convincingly justified economically here and now, one should not automatically assume the state should build it. Why exactly the state? Why exactly now? And why should the taxpayer pay for it?

His government regulations always skirted the very edge of human biological possibilities, and precisely because he destroyed labor and housing regulations, Hong Kongers slogged in ways that even the Koreans didn’t, and huddled in three-tier cages (and fled en masse from Cowperthwaite to Kowloon—a Chinese enclave where the British government had no power—and lived there in anarchy). Free universal education in the 1970s was already to a large extent a departure from the actual Cowperthwaite model, linked to the subsequent course of Governor Murray MacLehose, who became so generous that in 1978 he even introduced free 9-year education. In the 1960s, Hong Kong was rapidly industrializing, and the question seemed quite natural: shouldn’t the government choose promising industries and help them? Cowperthwaite rejected industrial policy in that sense. Even when it was suggested to at least choose a few industries and develop human capital for them, he preferred general conditions for business rather than supporting specific winners. Worker education? Well… possibly, 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 one of his decisions 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 under its management. Is interference 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 education subsidies, rent control, and railway construction, while perfectly calmly accepting public water supply, infrastructure, police, courts, and social programs. He could have been called a minarchist, but Cowperthwaite was not a fanatic, but a radical institutional skeptic. A minarchist says: “here is the correct list of state functions,” Cowperthwaite says: “prove to me that the state is indeed capable of doing this better than the market, and I will do it.” Furthermore, he did not believe that the state should passively sit on its hands. It should create the conditions, infrastructure, and legal environment—and then get out of the way. Even his successor, Haddon-Cave, later emphasized that this was not about literal non-interference, but about the state’s refusal to plan the allocation of private sector resources.

Interestingly, by the way, the old British tradition of private bank issuance has been preserved in Hong Kong to this day. The Hong Kong government issues only the lowest banknote, HK$10, and mints coins, while the HK$20, 50, 100, 500, and 1000 banknotes 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 actual issuance of banknotes. In the 19th century, Hong Kong’s banknotes were handled by many private banks. For example, 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 Cowperthwaite rooted out socialism and was a proponent of pure laissez-faire; rather, he consciously did not allow Hong Kong to follow the path of British post-war economic planning and the welfare state, while simultaneously maintaining quite substantial state influence where, in his opinion, 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. In the end, Hong Kong’s economic growth rates surpassed those of the USA, Japan, and South Korea; even now it is one of the richest cities on the planet (only Singapore, London, and Moscow are on par with it), the city has more skyscrapers than New York or Tokyo, and the GDP of the 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 proving 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 what a dictatorship. The main 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 a 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 being something like the 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 of the colony and order within it. Overall, this was a fairly typical 19th-century British colonial scheme. Only in 1888 were the rules changed so that passing laws required not only recommendations but also the consent of the Legislative Council; however, obtaining it was not difficult, as most of the 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 obliged at all to automatically follow the advice of the ExCo and likewise appointed its members.

In the era of Cowperthwaite, democratic elections were unheard of, let alone the idea that the city’s residents or even business representatives would have power. British principles were inviolable: since the state does not meddle in business, business should 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 philosophical principles, but business could not meddle in state affairs even in theory, because the Governor had soldiers. The Financial Secretary, meanwhile, was appointed by the Crown and reported only to the King and the Governor (he wasn’t even obliged to do so before Parliament in London), and in his power was control over budgets, taxes (he could remove or raise them, and no residents or corporations had any say in this even remotely), government spending, money issuance (he could allow or forbid it for any commercial bank on a whim, and contesting it was almost impossible), and generally all economic management.

Explaining the above in a few words: Cowperthwaite had practically unlimited rights to squeeze anyone however he liked, imposing and lifting fines, regulations, taxes, and subsidies, and no one could influence his decision except His Majesty and the Governor. Ordinary Hong Kongers had British common law for their lives, British courts and police, property rights, a limited right to 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, they naturally did not apply, so underground doctors and butchers flocked there). Furthermore, every resident had the full right at any moment to complain to the Governor about the injustice of life, and the Governor had the full right to tell them to get lost.

If Cowperthwaite 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? Given that the colony’s administration was generally formed from experienced people with +/- the same background and understanding of the problem and who worked reasonably well together—such a problem practically never arose. The Governor would not appoint his Financial Secretary from people he did not trust, with whom he could not work, or to whom he would not listen.

Suppose Cowperthwaite wants to change the tax system of the entire colony. Since we have the full rule of law, we cannot do this voluntaristically, but since we also have an authoritarian bureaucracy, the matter becomes purely technical. So Cowperthwaite prepares his proposal and receives the Governor’s sanction. After this, he puts it forward in LegCo and, since the council members are appointed by the Governor, Cowperthwaite, having his blessing, easily obtains formal consent and the tax is changed. And what if LegCo starts to object? Then Cowperthwaite 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: members of the Council asked him questions about national accounts, and he answered bluntly that the government does not have the necessary data and, in his opinion, does not need it in the volume requested by the advisors. What’s funny—they received no statistics at all during his tenure.

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 of them were appointed by the Governor, and each was responsible for their own front of administrative work. That is, if the Director of Public Works spoke before 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 Cowperthwaite, such things happened rarely; no matter how much they begged him for money for education — he never gave it. Cowperthwaite was obliged to explain his policy, but only to the Governor and his colleagues — the administrators from LegCo — and was not obliged to obtain any democratic approval. In the end, Hong Kong didn’t smell of liberalism at all. Economically, it had enormous freedom, but it 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 removed 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 inclined toward non-interference.

From Barbie dolls to microelectronics

Who, by the way, did Cowperthwaite attract to Hong Kong from corporations? Practically everyone. The heart of the city’s industry initially became, of course, the famous British textiles. As of 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 underestimated) industry was toys. By 1969, when Soviet children played with cast-iron cars and creepy baby dolls, their happy American, European, and British peers entertained themselves with all kinds of toy soldiers, construction sets, Barbies, etc., with 10% of all the world’s toys being manufactured in Hong Kong (in Britain itself, only 1.5%). Hong Kong was an industry leader for decades, second only to 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 Britain’s industry in terms of capacity.

We are most interested in electronics, and there was plenty of it in Hong Kong—in fact, this was the first point in Asia where the West opened assembly branches. Europeans (and what’s funny—the Japanese!) scurried here almost simultaneously with the Americans. In 1952, Texas Instruments opened the very first branch in Asia, and specifically 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, which were required in monstrous volumes in the 1950s for everything from radio receivers to military radars and mainframes.

Of course, the vacuum tube factories did not remain alone for long. As early as 1960, Philips moved the assembly of radio receivers entirely to Hong Kong; in 1961, Sylvania built a lighting fixtures 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 opened like mushrooms after rain: 1963, Toshiba and Zenith Electronics (an elite American company of TV and audio equipment), 1964, Sharp (the largest calculator and quartz watch plant) and Olympus Corporation, 1964, Mitsubishi Electric, and in 1965, a landmark event took place: 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 Grundig assembled audio equipment. A year later, Hitachi, Nippon Columbia (under the famous Denon brand), and RCA began manufacturing the same.

In 1967, Matsushita Electric joined them (and assembled the Panasonic and National brands there), and Texas Instruments, Signetics, and Honeywell, following their Fairchild competitors, opened semiconductor plants. Smaller firms also arrived, for example, Emerson Radio (1968), and the Japanese (Fujitsu built a home appliance plant) and Germans (Siemens did similarly) continued to arrive in the same year. 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 Bendix Corporation, a major Pentagon contractor assembling avionics and military computers, also moved its plants to Hong Kong in 1969.

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

Naturally, not all of their products initially went for export to Europe and the USA: the emerging Asian markets want televisions, radios and vinyl players, watches, calculators, and vacuum cleaners no less than white people do. The Japanese were the first to find an elegant way out of the brand presentation problem, dictated by their historical experience with zaibatsu, when one Mitsubishi corporation produced absolutely everything: from refrigerators to torpedoes and methamphetamine. They separated a whole bunch of sub-brands from each manufacturer: some strictly for the domestic Japanese market, others for the Asian, others for Europe and the USA. In addition, they also figured out how to divide each into premium and ordinary, and in some places crossed them with European and American ones.

Sony, for example, produced equipment, besides its own native brand, under the Aiwa marking (tape recorders; Sony bought a controlling stake in the original company in 1969) and Aiwa’s own sub-brand—Excelia (sound recording equipment), as well as Esprit, and for the German market—WEGA. Akai produced ordinary tape recorders under its native brand, professional ones under the A&D mark (Akai & Diatone, where Diatone is itself a Mitsubishi sub-brand for producing audio equipment); it was supplied to Europe as Tensai, and to the USA as Roberts. Alps Electric, in 1967, jointly with Motorola, began the production of Alpage cassette decks for Europe, Alpine car electronics, and from 1984, Luxman elite 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 sub-brand Authentic, 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 native 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 it was purchased in 1975 by the American company Emerson Electric, products for the USA market were produced as Fisher. Much of this equipment was assembled in Hong Kong. Interestingly, when a mass wave of bankruptcies of Japanese electronics brands occurred in 1990–2000 (the result of a trade war with the USA and a general recession wiped monsters like Akai Electric, Pioneer, Sharp, JVC, Toshiba, and even the omnipotent Matsushita from the market), their trademarks were bought up for cheap by the Chinese from Hong Kong! For example, Grande Group of Hong Kong acquired the cassette deck legend 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 Hong Kong-owned.

The End of History

The problem with Hong Kong was that it was divided into several parts that were substantially unequal in terms of geographical position. First, there are the so-called Outlying Islands; there are plenty of them around, and they aren’t particularly interesting to us. Second, there is the large island of Lantau, a legendary place for Chinese history—the last place where the Song dynasty retreated while escaping the Mongol invasion (and where the last two underage emperors of that dynasty passed away). In 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 comes, properly, Hong Kong Island, separated from the mainland by Victoria Harbour (and it also hosts Victoria Peak)—this is exactly 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 located, generally opposite the British one, across the harbour (it was this fortress that remained extraterritorial when the British grabbed this piece of land, and from the 1950s, 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 grabbed South Kowloon on similar terms slightly later, as part of the indemnity following the Second Opium War (leaving the small fortress-enclave to the Chinese).

Hong Kong developed boisterously, and very quickly, available and convenient space on the seized lands ran out. Then, in 1898, the English leased from the Qing Empire for a term of 99 years, until June 30, 1997, all the Outlying Islands, Lantau, and a piece of territory beyond South Kowloon on the mainland—the so-called New Kowloon. All of this received the collective name “New Territories,” and it was precisely here that the main economic hustle unfolded in the 1960s. The New Territories constituted about 92% of the total area of Hong Kong. In 1982, Margaret Thatcher came to Beijing for negotiations with the Chinese leadership about the future of Hong Kong, because it was the last jewel of the collapsed empire and the issue needed to be settled as soon as possible—businesses were starting to get nervous, the clock was ticking. Formally, the British had every right to keep South Kowloon and Hong Kong Island itself; however, in that case, they would have faced an unsolvable 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 manufacturing. Deng Xiaoping understood this perfectly and stated to Thatcher right off the bat that when the lease expired, China would take it all. There was, in general, absolutely nothing to haggle over; Britain was in a maximally vulnerable position because without the New Territories, Hong Kong would have remained a proudly British, chewed-up, and useless enclave, where they would have had to bring in even water by tankers from the metropole, receiving nothing in return.

The only thing Thatcher managed to bargain for (and even that was simply because Deng was extremely cunning and had no intention of cutting the goose that laid the golden eggs and receiving 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 in no way 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, evil mainland Chinese would arrive with the Little Red Book and portraits of the Great Helmsman and build them communism. The Sino-British Joint Declaration was signed on December 19, 1984, ratified and approved even in 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 stopped formally fussing and agreed to hand over even what they hadn’t leased, but had conquered (though, as we understand, no one was offering them a choice). The British side still views 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 indeed did not 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 maximally free movement of capital, a private Hong Kong dollar, no VAT, ultra-low income tax and corporate tax, no 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, by the way, even today, Hong Kong’s tax regime is much softer than almost all states on the planet (but this is not surprising, since the PRC can easily subsidize any social programs there). Until 1997, Hong Kong worked practically 100% for the West, but after 1997, its economy began to pivot toward China; this process especially surged after the PRC joined the WTO in 2001. The red Chinese immediately gave their Hong Kong compatriots CEPA—an agreement on economic partnership between Hong Kong and the mainland, easing access for Hong Kong companies to the mainland market, and connected them directly to the exchanges in Shanghai and the colossal SEZ Shenzhen, created in 1980 and currently being 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 on the sea; the current one—on the mainland. In this regard, the PRC inherited an extremely neglected situation: as of 1997, a huge population was locked on a tiny patch of land, real estate was becoming increasingly expensive, and the phenomenon of ultra-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. Relocating every city resident into a normal apartment from British “coffins” became one of the main tasks of the Chinese government in Hong Kong; the process is still in full swing now. Meanwhile, as of 2026, social security and healthcare account for more than 40% of the PRC’s expenditures on Hong Kong (the rest goes mainly toward housing).

Overall, since 1997, Hong Kong has become many times more expensive socially, and this is linked not only to communism, but also to the banal 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 never bothered with in their lives. Actually, by 2019, this became a certain problem: how to maintain the increased welfare and low taxes? Therefore, the Chinese didn’t try to sit on two chairs and simply passed the National Security Law of 2020 and conducted the electoral reform of 2021, which eventually fully integrated the city with the mainland in political and economic terms. Naturally, 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. Hong Kongers massively abused this, having relaxed over a century of British rule and reassured by the SBJD, and mainland China had no intention of tolerating this. Since the 2010s, Chinese intelligence services and police simply began to massively 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 shouting—what the hell? In 2014, the huge “Occupy Central” action took place, which was also directed against the planned reform of the electoral system for the upcoming 2017 elections of the executive authority in Hong Kong. It ended predictably: the people jostled for 2.5 months, about 1,000 people were arrested, and the law was passed in the end. 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 couldn’t take it again and tried to revolt. The protests continued for about a year, to which Chairman Xi responded by rolling out yet another law—”On the Establishment of the 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’s autonomy were erased. From now on, anyone who calls for any autonomy for Hong Kong is to be considered a terrorist, extremist, etc. etc., and sent for “correction” on the mainland. The end of the protests coincided conveniently 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 blocks were periodically declared quarantined, and no one was let in or out; furthermore, they were not let out not only from the block or their house, but even from their apartments, leaving residents as if in prison. A basic ration of Doshirak and a bottle of water was delivered to them by special services. Of course, it wasn’t as brutal as in Shanghai, where doors to entrances were welded shut with blowtorches and the city lived like besieged Leningrad, but the protests were crushed extremely effectively.

Currently, the city represents a kind of blend of old British Hong Kong, the Singapore model, and the state capitalism of the PRC. This became especially noticeable in industrial policy, which Hong Kong under the British had none of at all (that’s communism, after all!). The PRC changed this approach not only in terms of the attitude toward the workforce, 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 fully 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’ll see what comes of this.