VZCZCXRO4140
PP RUEHCN RUEHGH RUEHVC
DE RUEHHK #4159/01 2921114
ZNY CCCCC ZZH
P 191114Z OCT 06
FM AMCONSUL HONG KONG
TO RUEHBJ/AMEMBASSY BEIJING PRIORITY 9592
RUEHUL/AMEMBASSY SEOUL PRIORITY 2781
RUEHC/SECSTATE WASHDC PRIORITY 9137
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 9138
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 04 HONG KONG 004159 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EAP AND EAP/CM 
NSC FOR WILDER 
 
E.O. 12958: DECL: 10/19/2031 
TAGS: ECON EFIN EWWT HK KN MC OVIP PARM PREL PTER
SUBJECT: SCENESETTER FOR ASSISTANT SECRETARY HILL'S VISIT 
TO HONG KONG OCTOBER 21-23 
 
Classified By: Consul General James Cunningham.  Reasons: 1.4 (b,d) 
 
¶1. (SBU) Summary:  The U.S. Consulate General Hong Kong looks 
forward to your visit this week.  The fourteen USG agencies 
with representatives here address and protect key U.S. 
interests, including expansion of democracy and protection 
for human rights; enhancement of transportation security, 
particularly through improvements to the existing container 
security screening programs; maintenance of effective 
counter-proliferation and export control regimes, autonomous 
from the PRC; and, continued vigilance against money 
laundering and other illicit financial activities in both 
Hong Kong and Macau.  To advance these interests, we work 
closely with the Government, various political entities, and 
the media to support the growth of democracy and the respect 
for Hong Kong's autonomy, both of which are stipulated in the 
Basic Law and which the central government in Beijing has 
pledged to maintain.  End Summary. 
 
------------------- 
ADVANCING DEMOCRACY 
------------------- 
 
¶2. (SBU) Hong Kong is a society in transition, under the "one 
country, two systems" commitment contained in its Basic Law. 
The people of Hong Kong enjoy a broad range of civil and 
social freedoms, strong legal institutions, the free flow of 
information, and a highly professional civil service.  They 
lack, however, full democracy and a common view of their 
political future, and development of greater democracy and 
movement toward the goal of universal suffrage, promised in 
the Basic Law, are proving to be difficult.  Hong Kong's 
achievements and its future development form the foundation 
for its "high degree of autonomy" within China, and help set 
an example for this region coping with China's emerging 
economic power and influence. 
 
--------------------------------- 
PROLIFERATION AND EXPORT CONTROLS 
--------------------------------- 
 
¶3. (SBU) In an October 18 meeting, the Consul General told 
Secretary of Commerce Joseph Wong that UNSCR 1718 applies to 
 
SIPDIS 
North Korean shipping through Hong Kong's ports and we expect 
Hong Kong to fully implement the provisions of 1718 in its 
port and border operations.  Hong Kong is a cooperative 
partner in preventing the transfer of goods through its ports 
that could be used by the DPRK in its missile and WMD 
programs.  Hong Kong authorities emphasize that their 
Anti-Terrorism, Weapons of Mass Destruction, Narcotics and 
Serious Crime ordinances provide the necessary legal powers 
to act and convict persons engaging in illicit activities 
involving the DPRK.  Hong Kong maintains an effective, highly 
autonomous, and transparent export control regime.  In 
September, the Bureau of Industry and Security (BIS) 
Assistant Secretary Darryl Jackson congratulated the Hong 
Kong government for obtaining a conviction of a Hong Kong 
company for violations of Hong Kong's Strategic Goods Law in 
a case for which BIS provided Hong Kong key information. 
Hong Kong continues to be an important partner in protecting 
the smooth functioning of the global trading system.  Its 
contributions reflect understanding of its role as a premier 
transportation center. 
 
---------------- 
MONEY LAUNDERING 
---------------- 
 
¶4. (C) The Treasury Department's 2005 designation of Macau's 
Banco Delta Asia (BDA) as an institution "of primary money 
laundering concern" under Section 311 of the Patriot Act 
reverberated throughout the region.  Macau authorities, 
cognizant of the attention the BDA designation had generated 
worldwide and the possible negative effects on investment and 
tourism revenues, immediately assumed control of BDA.  In 
March 2006, Macau's legislature passed Anti-Money Laundering 
and Counter-Terrorism bills and in September announced the 
formation of a Financial Investigation Unit.  Macau 
authorities are cooperating with U.S. Treasury/IRS Officials 
in the ongoing investigation of BDA.  In September, 
investigators completed the task of scanning and digitizing 
220,000 BDA documents and are examining the data.  In early 
 
HONG KONG 00004159  002 OF 004 
 
 
September, Chief Executive Edmund Ho told the CG that Macau 
is willing to extend its control over BDA for another six 
months, but both Ho and the PRC's Ministry of Foreign Affairs 
Commissioner in Macau Wan Yongxiang told the CG that they 
hoped the BDA case would be resolved quickly. Asia's 
financial world will be watching carefully how our government 
resolves this case. 
 
¶5. (C) Hong Kong's Monetary Authority (HKMA) appointed a 
manager to oversee BDA's Hong Kong subsidiary, Delta Asia 
Credit (DAC).  The ultimate disposition of DAC will depend on 
how Macau decides to treat BDA.  As the second largest 
financial market in Asia, after Japan, Hong Kong's 
cooperation in preventing financial transactions related to 
the DPRK's WMD and missile programs is crucial.  HKMA has 
implemented a rigorous AML/CTF regime in line with 
international standards.  HKMA has alerted Hong Kong banks to 
exercise vigilance regarding North Korean financial 
transactions and HKMA officials have conducted reviews of 
North Korean transactions moving through Hong Kong banks.  In 
September, as we briefed them on UNSCR 1695, Hong Kong 
Monetary and Police authorities expressed their willingness 
to continue to support these efforts.  They urged the U.S. 
Government to provide specific, detailed, evidentiary 
information so that they can more effectively monitor, 
investigate, stop and prosecute illicit activities related to 
North Korea's missile and WMD programs.  More general 
information on patterns and trends would also be very useful, 
said the Hong Kong officials. 
 
------------ 
SECURE TRADE 
------------ 
 
¶6. (SBU) As the largest source of U.S.-bound containers, Hong 
Kong was among the first in Asia to participate in the 
Container Security Initiative (CSI).  Cooperation between 
Hong Kong Customs and Department of Homeland Security/Customs 
and Border Protection on CSI is exemplary and paved the way 
for CSI programs in Shanghai and Shenzhen.  Two port 
operators, Hong Kong International Terminal and Modern 
Terminal, have each established a pilot of the Integrated 
Container Inspection System (ICIS), which combines 
radiological mapping, x-ray images and container tagging and 
makes a digital record for each container passing through its 
portals.  Hong Kong's port operators, along with the 
Government (HKG), are considering whether to purchase this 
integrated port security system, but are waiting for U.S. 
government guidance as to whether the ICIS system meets U.S. 
requirements.  The Port Security Improvement Act of 2006 
signed into law by the President on October 13 directs the 
Department of Homeland Security to designate three foreign 
ports for the establishment of pilot integrated scanning 
systems that couple non-intrusive imaging and radiological 
detection equipment.  In this regard, Hong Kong appears to be 
a world leader and we should encourage them to continue their 
efforts as they move toward the shared goal of strengthening 
port/container security. 
 
--------- 
Itinerary 
--------- 
 
¶7. (SBU) We have arranged meetings for you with leading 
politicians and prominent members of Hong Kong society and 
activities which will give you a good overview of Hong Kong 
economy and people on October 21 and 22. 
 
-------- 
Politics 
-------- 
 
¶8. (C) Chief Executive (CE) Donald Tsang formally took office 
on June 21, 2005, following an interim election to fill the 
remaining two years of the term of former Chief Executive 
Tung Chee Hwa.  Tung resigned in March 2005 due to widespread 
dissatisfaction over his management and political style. 
During his first eighteen months in office, Tsang enjoyed 
high public approval ratings, reflecting confidence in 
Tsang's administrative competence, his deliberate outreach 
 
SIPDIS 
efforts and Hong Kong's robust economy.  Nevertheless, his 
reluctance to put forth a "vision" stretching beyond the five 
 
HONG KONG 00004159  003 OF 004 
 
 
months till his expected selection for a second term has 
engendered public and media criticism. 
 
¶9. (C) Your visit comes as Tsang prepares for what should be 
an easy reelection campaign.  Under Hong Kong's partially 
democratic electoral system, in December various 
constituencies will select the 800 members of the Chief 
Executive Election Committee, which in turn will select the 
next Chief Executive in March 2007.  Barring any severe 
political, economic, or social crisis, Tsang -- who enjoys 
strong support from the central government in Beijing -- will 
win reelection by a wide margin, and possibly will run 
unopposed.  Many in the pan-democratic opposition parties had 
hoped that former Chief Secretary Anson Chan, a retired, 
highly respected career civil servant, would contest the 
election on their behalf, but she has declined to do so. 
Now, it appears that Alan Leong, a member of the newly formed 
pro-democracy group, the Civic Party, will attempt to gain at 
least one hundred nominations from the Election Committee, 
which would force Donald Tsang to face an opponent and 
presumably to debate the future of democratic reform and 
other issues; both Tsang and Beijing would prefer to avoid 
such debate.  Further progress toward universal suffrage, 
required by Hong Kong's Basic Law, has been deferred until at 
least 2012. 
 
---------- 
Economics 
---------- 
 
¶10. (U) Hong Kong is a valuable United States partner on 
trade liberalization and other economic issues. Hong Kong's 
transparent regulatory regimes, modern financial systems, 
rule of law, open society, and long experience with 
capitalism serve as a model for mainland China's own 
development.  Hong Kong is a global nexus for the movement of 
people, goods and money.  Like the United States, Hong Kong 
is confronting the challenges of continuing to be an 
efficient transportation and financial center, while at the 
same time controlling the spread of WMD, drugs and diseases 
such as Avian Flu. 
 
¶11. (U) Hong Kong suffered a series of economic shocks after 
the 1997 handover, including the Asian Financial Crisis, the 
migration of its manufacturing sector to mainland China, and 
the SARS outbreak.  These economic crises dented public 
confidence in the first post-handover government headed by 
Tung Chee Hwa.  The economy rebounded in 2003 amidst strong 
growth in China, increased tourism, and a healthy global 
economy.  The Hong Kong government is deepening its economic 
interaction with the Pearl River Delta (PRD) in Southern 
China to maintain its position as a gateway to China. 
Services industries make up 90 percent of Hong Kong's GDP 
(US$ 180 billion in 2005) with a focus on financial and 
professional services, transportation and logistics and 
tourism.  Hong Kong faces sharpening competition from 
mainland rivals in services industries; however, its strong 
rule of law, modern practices and transparent society suggest 
that it will remain a key finance and services hub. 
 
¶12. (U) Hong Kong consistently advocates for open global 
trade.  In the U.S. - Hong Kong trade arena, textiles, civil 
aviation and IPR continue to be key issues.  We have 
negotiated an MOU with Hong Kong to combat illegal 
transshipments of Chinese textiles.  We urge Hong Kong to 
further liberalize its civil aviation market, which Cathay 
Pacific continues to dominate.  Hong Kong has dramatically 
improved its enforcement of IPR, but there are ongoing 
concerns about pending changes to the Copyright Law, end-user 
software piracy, and pharmaceutical-related infringements. 
 
----------- 
Environment 
----------- 
 
¶13. (U) Hong Kong's air quality has deteriorated dramatically 
over the past ten years due to pollution that can be traced 
to the tremendous growth of factories across the border in 
the Peal River Delta of mainland China.  There is growing 
concern among Hong Kong residents that pollution is having an 
increasingly negative impact on health, quality of life and 
the economy. 
 
HONG KONG 00004159  004 OF 004 
 
 
 
--------------- 
Avian Influenza 
--------------- 
 
¶14. (SBU) Hong Kong has experienced two human outbreaks of 
the highly pathogenic H5N1 subtype of the AI virus.  The 
city's earliest case of bird-to-human transmission was in 
1997 when eighteen people were infected with H5N1; six died. 
In the 2003 outbreak, two Hong Kong citizens died while 
traveling in Southern China.  Between 1997 and 2005, Hong 
Kong slaughtered over 4 million birds to prevent spread of 
AI.  Although there have been no recent human cases in Hong 
Kong, since January the virus has resurfaced in a number of 
native wild birds and in two chickens, which may have come 
from mainland China.  Health experts believe that H5N1 is 
present in Hong Kong's natural environment. 
 
¶15. (SBU) Hong Kong has some of the world's leading AI 
researchers, extensive experience in dealing with SARS, and a 
well-organized AI response plan.  The Centre for Health 
Protection (CHP) leads the HKG's AI preparations.  After 
SARS, the HKG formed the CHP to deal with infectious disease 
threats.  The HKG plans to acquire 20 million doses of 
Tamiflu by 2007 and is talking to manufacturers about 
purchasing a H5N1 vaccine when it is produced.  Working with 
the private sector and community groups, the HKG continually 
updates its AI response plan. 
Cunningham