VZCZCXRO7764
PP RUEHGH
DE RUEHHK #0919/01 1391031
ZNR UUUUU ZZH
P 191031Z MAY 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 7649
INFO RUEHBJ/AMEMBASSY BEIJING 3186
RUEHGH/AMCONSUL SHANGHAI

UNCLAS SECTION 01 OF 02 HONG KONG 000919 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM; H PASS TO CODEL PELOSI 
 
E.O. 12958: N/A 
TAGS: PREL PGOV ECON ETRD OREP HK
SUBJECT: HONG KONG SCENESETTER FOR CODEL PELOSI 
 
REF: BEIJING 1315 
 
¶1. (U) We warmly welcome your delegation's May 29-30 visit to 
Hong Kong.  Your meetings with Chief Executive Tsang, the 
Legislative Council and democratic politicians will help to 
underscore our message that the United States, particularly 
the Congress, maintains a key interest in Hong Kong's 
autonomy and democratic development under the Basic Law and 
"one country, two systems." 
 
----------------- 
Political Outlook 
----------------- 
 
¶2. (SBU) Under the "one country, two systems" concept 
enshrined in Hong Kong's Basic Law, the Hong Kong Special 
Administrative Region (HKSAR) enjoys a high degree of 
autonomy in all matters except foreign relations and defense. 
 Since Hong Kong's return to China 12 years ago, the people 
of Hong Kong have continued to enjoy a broad range of civil 
and social freedoms, strong legal institutions and rule of 
law, the free flow of information, and a highly professional 
civil service.  The Basic Law also provides for "gradual and 
orderly progress" toward election of both the Chief Executive 
and the entire Legislative Council (LegCo) by universal 
suffrage.  Public opinion polls suggest Hong Kong people 
(particularly the young) increasingly identify themselves as 
Chinese citizens and are enthusiastically proud of China's 
rise, symbolized by its hosting of and performance in the 
Olympics.  Further, the increasing economic and personal 
linkages between Hong Kong and mainland China mean that Hong 
Kongers see their future tied to China's success. 
 
¶3. (SBU) Although Hong Kong's "executive-led" system grants 
the administration far greater powers than the legislature, 
LegCo has grown in influence as a check on the executive, 
with even "pro-Beijing" parties more willing to criticize the 
government and push for changes in policy.  Chief Executive 
(CE) Donald Tsang's Administration has won plaudits for its 
macro-level handling of the economic crisis and the recent 
H1N1 outbreak (more below), but has faced contentious debates 
on social spending and economic stimulus.  While the 
pan-democrats lost three seats in the September 7, 2008, 
LegCo elections, they retain enough votes to deny the 
government the necessary two-thirds majority required to 
change the Basic Law.  The government will thus have to 
accommodate pan-democratic views in order to pass democratic 
reforms for the 2012 LegCo and Chief Executive elections. 
Political consultations on these reforms, originally planned 
for early 2009, are now scheduled to begin by the end of this 
year. 
 
¶4. (SBU) Hong Kong will once again be the only point on PRC 
soil in which the anniversary of the June 4 democracy 
movement is publicly commemorated, with activists planning a 
march for May 31 and the annual candlelight vigil in Victoria 
Park June 4.  Local observers believe the significance of the 
20th anniversary, as well as Hong Kong people's desire to 
protect "one country, two systems" amid allegations the 
Mainland is trying to ratchet up control of Hong Kong, will 
lead to a larger-than-usual turnout.  An additional factor 
will be remarks by CE Tsang at LegCo May 14.  Claiming to 
speak for the Hong Kong people, Tsang said an "objective" 
assessment of June 4 should be made in light of the 
subsequent 20 years of China's economic development and 
social stability.  Pan-democratic lawmakers walked out in 
protest, and Tsang later apologized for claiming to represent 
the views of the people of Hong Kong on this issue. 
 
-------------------- 
Economic Performance 
-------------------- 
 
¶5. (U) The global financial and economic meltdown has hit 
Hong Kong hard.  Hong Kong's benchmark Hang Seng Index fell 
48 percent in 2008; while it has recovered some ground in 
recent weeks, trading volumes are still down by two-thirds. 
Hong Kong banks' hard-earned experience during the Asian 
Financial Crisis positioned them well to deal with the 
immediate impact of the financial crisis in the United 
States: they were not significantly exposed to exotic 
financial products and continue to be well capitalized. 
However, the collapse of U.S. demand for Chinese manufactured 
goods has significantly affected Hong Kong,s trade and 
logistics industries, and the financial services sector has 
suffered along with them.  Hong Kong,s exports and imports 
are down 20 percent from the same period last year.  Official 
unemployment climbed sharply to 5.2 percent in March, and 
analysts expect additional layoffs in the finance, trade and 
 
HONG KONG 00000919  002 OF 002 
 
 
retail sectors later this year.  Hong Kong,s economy has 
been in recession since mid-2008; in the first quarter of 
2009, Hong Kong,s GDP contracted by 7.8 percent.  The Hong 
Kong government has proposed several new infrastructure 
projects in an effort to create jobs, has increased fiscal 
spending, and is likely to announce additional fiscal 
stimulus later this year, but confidence in Hong Kong,s 
short-term economic prospects remains low. 
 
¶6. (SBU) In 2007, Hong Kong was the third-largest container 
port in the world (by volume).  Hong Kong and the adjacent 
PRC port of Shekou (Shenzhen) handled almost the same volume 
of cargo in 2008 and together account for over 25% of all 
containers shipped to the United States.  The economic 
crisis, however, has pushed cargo volumes down by over 20 
percent in both ports in the first quarter of 2009.  Hong 
Kong air cargo shipments declined 20 percent in the fourth 
quarter of 2008, compared with the same period in 2007, 
including a drop of 28 percent in December.  Shippers 
reported improving figures in April, leading some to suggest 
that the region has hit the bottom and is now rebounding, but 
trade financiers say the low volumes of trade credit 
applications point to a deeper fall to come. 
 
------------------------------------ 
Export Controls and Nonproliferation 
------------------------------------ 
 
¶7. (SBU) Hong Kong is a critical partner for USG 
counter-proliferation and transportation security programs. 
With its special status under the "one country, two systems" 
framework, Hong Kong continues to maintain an effective, 
autonomous, and transparent export control regime, despite 
its reversion to China.  Our mission remains vigilant in 
efforts to detect possible compromises in Hong Kong,s trade 
controls.  Hong Kong was among the first in Asia to 
participate in the Container Security Initiative (CSI).  On 
April 30, a successful 18-month Secure Freight Initiative 
(SFI) pilot between the U.S. Government, the Hong Kong 
Government and Hong Kong,s private sector concluded at the 
port of Hong Kong.  This pilot utilized integrated radiation 
scanning and imaging systems and provided valuable 
operational lessons on the technical, logistical and 
diplomatic challenges with scanning maritime containers in a 
high-volume port such as Hong Kong. 
 
¶8. (SBU) Hong Kong is a cooperative partner in preventing the 
transfer of goods through its ports that could be used by 
those seeking to develop missile and WMD programs.  The Hong 
Kong Government possesses the necessary laws and powers to 
prosecute and convict persons engaging in illicit activities 
involving proliferation or WMD production.  Its government is 
also empowered to legally enforce UN Security Council 
resolutions, once they have been confirmed by Beijing and 
written into Hong Kong law. 
 
----------------------- 
Pandemic Influenza/H1N1 
----------------------- 
 
¶9. (SBU) As a regional business and tourist hub in an area 
historically hit hard by pandemic disease, Hong Kong has 
invested heavily in a robust and very capable infectious 
disease surveillance and treatment capability.  Response 
planning conceived for H5N1 (Avian Influenza), which focused 
on delaying its spread into the general population for as 
long as possible, is now employed in Hong Kong,s "emergency" 
response to H1N1.  All arriving passengers are subject to 
passive thermal screening for a raised temperature and fill 
out additional health and travel questionnaires upon arrival. 
 As of May 19, four cases of H1N1 have been confirmed in 
recent arrivals from North America and hundreds of travelers 
in direct contact with, or proximity to, these passengers 
have been placed in mandatory seven-day quarantine, among 
them a number of Americans (8 are currently under 
quarantine).  Given this background and the extraordinary 
lengths Hong Kong has gone to keep H1N1 from its territory, 
the local press is highly critical of a perceived lack of 
U.S. efforts to contain H1N1 and are openly accusing the 
United States of "callously exporting the disease around the 
world."  Hong Kong,s Secretary for Health has publicly and 
privately called for U.S. exit controls to prevent ill 
passengers from departing the United States. 
DONOVAN