VZCZCXRO8909
PP RUEHCN RUEHGH
DE RUEHHK #2741/01 1860807
ZNY CCCCC ZZH
P 050807Z JUL 06
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 7605
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 8976
RUEHUL/AMEMBASSY SEOUL PRIORITY 2581
RUEHGP/AMEMBASSY SINGAPORE PRIORITY 2984
RUEHKO/AMEMBASSY TOKYO PRIORITY 4151
RUEHCN/AMCONSUL CHENGDU PRIORITY 0865
RUEHGZ/AMCONSUL GUANGZHOU PRIORITY 9885
RUEHGH/AMCONSUL SHANGHAI PRIORITY
RUEHSH/AMCONSUL SHENYANG PRIORITY 3353
RUEHIN/AIT TAIPEI PRIORITY 3956
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 002741 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPARTMENT FOR EAP, EAP/CM 
NSC FOR WILDER 
TREASURY FOR KOEPKE 
 
E.O. 12958: DECL: 07/05/2031 
TAGS: PREL PGOV ECON PINR HK CH
SUBJECT: THE COLOSSUS: A YEAR OF DONALD TSANG 
 
Classified By: Consul General James B. Cunningham.  Reasons: 1.4 (b,d). 
 
¶1.  (C) Summary.  After a year in office, despite what 
appeared to be a series of political defeats, Chief Executive 
Donald Tsang has mastered Hong Kong's political scene and 
seems to dominate his opponents and rivals on all sides. 
Buoyed by continued strong economic growth, Tsang has 
effectively deployed an effective personal style and has 
maintained popularity in public opinion polls, albeit 
somewhat down from his peak.  Facing an election process to 
begin his first full term, Tsang,s success is assured: even 
if the pan-democrats can nominate a credible candidate, it is 
clear to all that Beijing will not accept any substitute for 
Tsang.  Nevertheless, a contested campaign with a popular 
 
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alternative candidate like Anson Chan could prove difficult 
for both Tsang and Beijing in dealing with public opinion. 
It appears that Beijing is working hard to prevent an 
alternative from emerging.  In his next term, Tsang will need 
to focus on serious structural problems that are not now 
being addressed: the public's desire for greater 
democratization as well as systemic flaws in Hong Kong's 
system, on the political side, and the challenge of 
maintaining Hong Kong's competitive edge while managing 
increasing integration into the mainland economy, on the 
economic side.  Nor has his leadership been tested by 
economic or social crisis, and of course Tsang remains 
vulnerable to changes in Beijing's political climate.  End 
Summary. 
 
¶2.  (C)  It may seem paradoxical to call Donald Tsang's first 
year in office a success, considering that his high profile 
democratic reform proposal failed to win Legislative Council 
(Legco) approval in December 2005, and that he was forced to 
shelve the West Kowloon Cultural District project in February 
¶2006.  Of his three "signature" projects, he has only 
succeeded in moving forward with the new government office 
complex at Tamar, for which Legco approved funding on July 23 
-- and even Tamar could be overturned at a later date. 
However, Tsang is likely to revisit both constitutional 
reform and the West Kowloon project in his next term. 
Furthermore, the extent to which these failures have damaged 
his prestige or limited his political power is probably 
minimal. 
 
¶3. (C) When Tsang took office, it was widely understood that 
he would have only limited freedom to change personnel in the 
government.  Nonetheless, he has added several of his own 
choices to the Executive Council (Exco), and made several 
adjustments to the ministerial and sub-ministerial ranks, 
including choosing his own Secretary for Justice, the third 
ranking position in the government.  Most importantly, he has 
installed a key ally, former Secretary for Commerce Industry 
and Technology John Tsang (no relation), as his chief of 
staff -- and possible  successor. (It is a clear sign of how 
secure Tsang's power is at this point that there is already 
active speculation about who will be best positioned to 
succeed him in 2012!)  There is widespread expectation that 
Tsang will make further changes after his expected 
 
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re-election in March 2007, when he will be free to discard 
Tung's appointees. 
 
¶4. (C) Tsang has used Beijing's support, and his personal 
popularity, to clearly distinguish himself from his 
predecessor.  Early in his tenure, when it seemed his 
constitutional reform package could pass, he convinced 
Beijing to permit him to lead a delegation of all Legco, 
including members previously banned, to meet with Guangdong 
provincial leaders.  On a very different level, after years 
of HKG insistence that Hong Kong did not need competition 
legislation, Tsang authorized creation of a task force that 
has now recommended putting a formal structure in place that 
can take on non-competitive business practices regardless of 
which sectors are involved.  Hong Kong's strong economic 
performance has allowed Tsang the luxury of a tax cut -- 
albeit very limited -- even as the government also prepares 
for the eventual introduction of some form of sales tax. 
 
 
HONG KONG 00002741  002 OF 003 
 
 
¶5.  (C) Even as Chief Secretary, Donald Tsang did well in 
popularity polls; when he took on that position in 2001 after 
Anson Chan stepped down, his approval rating was 67.3 
percent.  Dragged down by the overall unpopularity of the 
Tung administration, his approval fell to 55.9 percent 
immediately after the historic July 1, 2003 march.  When he 
was named as Tung's successor, he enjoyed over 70 percent 
approval, and even at his lowest point -- in December 2005, 
during the contest over his constitutional reform package -- 
his approval rating was 64.2 percent.  His approval rating 
remains in the mid-60s. He even had the support of 45 percent 
of the pro-democracy marchers on July 1, 2006. 
 
¶6.  (C) Tsang took office with few if any allies among the 
local political class.  The so-called "pro-government 
parties" distrusted him.  Traditional leftists, who comprise 
the base of the Democratic Alliance for the Betterment and 
Progress of Hong Kong (DAB), the largest pro-Beijing party, 
saw him as a holdover from the colonial administration, and 
criticized his knighthood.  The business class does not, in 
general, value bureaucrats and did not see Tsang as more than 
an administrator.  Many among the pan-democrats feared and 
distrusted him, recognizing that he would be more credible 
than his predecessor C.H.Tung in connecting emotionally with 
the middle class, and would provide the public with the more 
responsive and effective governance that they ultimately 
desired.  As a sort of latter-day mandarin, however, he would 
not be fundamentally sympathetic to democracy. 
 
¶7.  (C) However, Tsang had Beijing's backing, and has been 
able to keep it.  In the past year, he has already hosted two 
visits by members of the CCP Politburo's Standing Committee 
-- compared with nine visits (by six different members, 
including the handover ceremony itself, and four visits by 
Jiang Zemin) in the more than seven years of C.H. Tung's 
tenure.  At several junctures, Hong Kong leftists have 
floated rumors that Beijing was dissatisfied with Tsang's 
performance, either because of his public remarks or for 
specific policy failures like the collapse of constitutional 
reform.  Each time, Tsang has been able to produce a clear 
endorsement from Beijing, forcing the left to fall in line 
behind him. 
 
¶8. (C) Tsang has kept Beijing's support for a variety of 
reasons, but undoubtedly his success at weakening Hong Kong's 
democrats has been an important element.  Today the democrats 
are divided, with an increasingly clear line between the 
newly formed, more moderate Civic Party (CP) and the 
traditional standard bearer, Democratic Party (DP).  Their 
core issue, democracy, is still potent but less urgent, now 
that the unlucky, inept and unpopular C.H. Tung is gone. 
Turnout at the July 1 pro-democracy march, while better than 
expected, was still far below the 2003 and 2004 totals, or 
even the December 2005 march against Tsang's constitutional 
reform proposal.  This satisfies Beijing's fervent desire 
that the masses be kept out of the streets.  The 
pan-democrats have been so weakened that they have had to go 
outside their own ranks for a potential CE candidate, and are 
trying to recruit former Chief Secretary Anson Chan.  No 
doubt Chan is a popular and credible candidate, and her 
alignment with the democratic camp is a significan benefit 
for them.  But she is holding her own cunsel while leaving 
the door open.  If she does un, she will be a formidable 
opponent in forcingTsang to have a genuine policy debate 
that he an Beijing may find hard to handle. 
 
¶9. (C) Thanks to Beijing's support, Tsang seems to have 
satisfied the broader business community that he is able to 
look out for Hong Kong's economic interests on the mainland. 
He has engaged with the "Pan-PRD" "9 plus 2" process and has 
steadily won incremental improvements in Hong Kong service 
sector market access under the Closer Economic Partnership 
Arrangement.  It seems as though Hong Kong is on the verge of 
being permitted a further expansion of renminbi business, 
including the possibility of issuing renminbi debt 
instruments in Hong Kong - whether this is really an economic 
boon for Hong Kong's financial sector is questionable, but 
 
HONG KONG 00002741  003 OF 003 
 
 
since it is perceived as a good thing, it probably rebounds 
to Tsang's credit.  Meanwhile, Hong Kong is still the market 
of choice for mainland IPOs, including, over the past year, 
hosting the world's two largest:   the USD 11 billion Bank of 
China listing and the USD 9 billion China Construction Bank 
listing. 
 
¶10. (C) Tsang's leadership has not been tested by the kind of 
difficult situations about which C.H. Tung frequently 
complained, such as the Asian financial crisis or SARS. 
Certainly his popularity and political dominance would be 
stressed by a significant downturn in the U.S. and/or in the 
mainland.  His deft handling of the Asian financial crisis as 
Financial Secretary, which helped shelter Hong Kong from the 
worst of the downturn, however, suggests that he would be 
willing to take bold measures as needed.  Furthermore, he is 
much less likely to create his own troubles, as Tung did with 
the Article 23 National Security legislation.  Perhaps his 
greatest vulnerability is to leadership shifts in Beijing, if 
they led to different policies towards Hong Kong or towards 
his own position. 
Cunningham