THE CONSULATE GENERAL OF SWITZERLAND IN HONG KONG

Introduction
After a tense spring, the month of June has witnessed a truce between the feuding HK political factions: everyone on both sides is now stressing the values of communication, conciliation and harmony. The question is: does this sudden change reflect political campaign tactics or a new strategy? Despite the scorching heat a huge crowd participated in the July 1st pro-democracy march sending a clear message to the government and Beijing : even if the economy recovers, Hongkongers want to have a say in the management of their city. That the economy in fact is recovering is shown not only by increasing growth rate estimations but also by expectations about an end to deflation and rising consumer sentiments.

Domestic Politics
Intimidation methods reminiscent of the Cultural Revolution: In a Time Magazine interview the highly respected ex-chief secretary Anson Chan said that HK's residents want good, strong and transparent governance rather than independence adding that Beijing's handling of HK's constitutional reform process has hurt and alienated many because of methods reminiscent of the Cultural Revolution. Beijing strongly criticised these comments published in a foreign magazine calling them irresponsible, baseless, unhelpful and not in accordance with facts.
Promotion of HK's core values: more than 200 academics and professionals signed a declaration to protect and promote HK's core values including liberty, democracy, human rights, rule of law, fairness, social justice, peace and compassion, integrity and transparency, plurality, respect for individuals and upholding professionalism. Launching the "Hong Kong Core Values Declaration", the campaign's organisers said social harmony and economic success would be undermined if these values were not defended.
Rare Chinese criticism of Tung: in a rare criticism of the chief executive, a China Daily article has described him as becoming ever more elusive and more distant from the public.
Détente between Democrats and Pro-Beijing factions: after months of open conflict a good number of democrats suddenly agreed to tone down their combative stance in exchange for better communication with the central government. It seems that they have come to the conclusion that confrontation could cost them votes in the next elections. Even Martin Lee has joined by sponsoring a LEGCO resolution calling for more harmonious relations between HK and Beijing. The question remains open whether this change is a new strategy or just electoral campaign tactics. The democratic movement is deeply divided on how to confront Beijing as shown by the ongoing rift concerning the opportunity of the use of the "Return power to the people" slogan, a phrase that infuriates Beijing. The chief executive promptly reacted to the democrats' olive branch by promising them to ask the central government to allow their leaders to visit the mainland and by joining their efforts to defend HK's core values. The chief secretary asked the strongly pro-Beijing tycoons to promote their views through an open political process and not backroom negotiations because the community is demanding greater inclusion, transparency and openness in HK's political development and policy making. The top Chinese representative in HK also praised the more moderate direction of a part of HK's democrats promising mainland visit permits to some of the barred democrats. Most commentators have welcomed "the small breeze of compromise in the air" noting that intimidation methods are still practised, the latest incident being the arson against the headquarters of a political party.
July 1st pro-democracy protest: despite scorching heat and high humidity between 200'000 (according to the police) and 500'000 (according to the organisers) Hongkongers have participated in the peaceful pro-democracy march marking the 7th anniversary of the handover. Most commentators have described it as a success and as a failure of Beijing's efforts to neutralise the pro-democracy movement. A HK politician close to Beijing summarised its impact by saying that in the past Hongkongers only wanted a good life and now they have shown that they also want to be able to change their future.

International Affairs
US warning: US warned again that relations with China will suffer unless HK has more democracy and the US Senate passed a resolution calling for Beijing to let democratic reforms go further in HK.
European concern: in its just released annual report on HK and Macau the EU has expressed concerns about Beijing's decision to veto universal suffrage for the SAR in 2007-08 urging HK to make early progress towards the ultimate aim of full democracy set out in the Basic law. The current EU commissioner for external relations and last HK British governor, Christopher Patten, declared that Beijing should allow the city's people rather more say in shaping their own affairs.

Human Rights and Legal Affairs
Tiananmen commemoration: on June 4th 80'000 people, nearly double from last year, attended a candle light vigil to commemorate Tiananmen massacre. The memorial was also a stage for HK's own struggle with demonstrators chanting the "Return power to the people" slogan.
Request for international monitoring of elections: HK Human Right Monitor, a local NGO, has asked members of the European Parliament and Asian Network for Free Elections to monitor the September elections.
Deportation avoided: the judiciary avoided by declaring it illegal the deportation of a foreigner and her daughter born in HK receiving praise from the press: The authorities must respect the rule of law which creates a level of playing field and makes for a fairer society and brings order to the lives of HK's citizens.

Transborder affairs
Mainlanders savour island of free speech: Visitors from Guangdong at June 4th vigil shared first hand the freedoms they do not enjoy. HK should become the foundation for Chinese people to pursue democracy.
HK tycoons visit China: speaking to the most important HK tycoons on a visit to the mainland, Vice-President Zeng said that Beijing will look first to HK and Macau when seeking foreign capital, talent and technological know how adding that HK's capital accounted for 44,5% of the FDI in mainland at the end of 2003.
Mainland security agents active in Hong Kong: rumours say that mainland officials and security agents are secretly being sent to HK to spy and monitor the situation ahead of July 1 demonstration. Seven mainland agents have recently been arrested prompting newspapers to stress that the mainland police must respect HK's borders, and that for " one country, two systems " to mean anything law enforcement in HK and the mainland must remain separate from each other.
Impact of Chinese food scandals on imports foods imports from Guangdong dropped a fifth last month and consumers are replacing Chinese products by Taiwan, American and European brands.
Mainland Tourism: The solo traveller scheme, already increasing the number of visitors from the mainland, is planned to be extended to the mainland's three north-eastern provinces as well as to all the provinces in the pan-Pearl River Delta region. While the Chief Executive said more tourist attractions and tourism facilities were being built to meet the expected demand from mainland visitors, travel associations expressed concerns that HK's tourism facilities would be unable to cope with surging arrivals. Increasing brand awareness among mainland tourists is boosting sales in medium to high-end consumer goods, especially cosmetics, clothes, electronic products, watches and gold.
Closer co-operation with Shenzhen: visiting HK the mayor of Shenzhen declared that one of his top priorities was to develop and reinforce cross border co-operation issues such as management of border crossing, monitoring of infectious diseases, cleaning waterways and co-ordinating infrastructure developments. To avoid "unhealthy competition" eight agreements were sign to boost co-operation. The agreements include co-operation in legal services, trade and investment promotion, economic and trade exchange, tourism and advanced technology.
Pan-Pearl River Delta Region: At the first Pan-Pearl River Delta Regional Co-operation and Development forum it was said that Guangdong would become one of the world's key manufacturing bases and HK an international services hub focusing on logistics and finance. At the closing ceremony the Pan-Pearl River Delta Regional Co-operation Framework Agreement was signed, which covers investment, trade, transport infrastructure, tourism, agriculture, environmental protection, technology, education, information sharing and labour services.
Closer Economic Partnership (CEPA): Mainland academics said many mainland officials were unhappy about the weak response from HK businesses and professionals in areas such as tourism and the legal sector to the CEPA. It is believed that the low response was related to the unfamiliarity with the mainland market.

Economy
Signs of economic growth: The agency Standard & Poor upgraded its long-term outlook on the HK dollar from negative to stable, which reflects expectations that the recent political development would not cause instability to the economy. S&P expects an end to deflation and rising consumer sentiments. The deficit, forecasted at 6 pc of HK's GDP, was now likely to come in at less then 5pc, boosting the governments chances of meeting its target of a balanced budget by 2008-9. Nearly half of HK companies intend to hire more staff in the next quarter, and people were found to be more optimistic about the property market. The Bank of China (HK) raised its full-year economic growth estimate for the city from 5pc to 6.5pc, while the Federation of HK Industries raised its forecast from between 6.2 and 6.5 to between 7.5 and 8pc. However, some surveys found that Hongkongers are among the most insecure people in the region, with widespread anxieties about job security and health issues - 71pc of respondents expressed concern on both issues.
The Census and Statistics Department's composite consumer price index for May showed year-on-year deflation had narrowed to just 0.9 per cent, from 1.5pc in April. It was the lowest y-o-y figure for deflation since July 2001, but economists cautioned against reading too much into the figures, given the havoc played by the Sars outbreak last May.
Retail sales in HK grew 19.9pc in April, the fastest year-on-year pace in more than four years. However, economists and the industry said that the effect of Sars should be taken into consideration - and on that basis, the growth is a much less impressive 4.3pc. The government said there had been a rise in the number of high-spending mainland tourists and an increase in local consumers' confidence.
Goods and services tax (GST): A 5pc GST could be introduced in HK as early as March 2008. This is said to be the best time to introduce a sales tax because the government expected to still be running an operating deficit, albeit of just HK$5.2 billion, by then and to introduce it before the Legislative Council elections in September that year.
Financial centre: HK will remain the top financial centre in the region for at least the next three years although Shanghai is catching up fast. This was shown at the 13th Annual Asia Leadership Forum in HK in April. More than two thirds of the questioned executives believed Shanghai would not overtake HK in the next three years. "When it comes to the status of a financial centre, a free flow of funds is always the prerequisite. This is what Shanghai and other mainland cities lack" said Andy Kwan, an associate professor of the department of economics with the Chinese University of HK.
Drug patent protection: The Hong Kong Association of the Pharmaceutical Industry (HKAPI), which comprises large multinational drug firms, is urging the HK government to bring drug patent protection in line with international standards, alleging that its poor track record has essentially eliminated foreign investment in the sector. Critics say, unless the government is doing something, HK will lose the chance to be a magnet of foreign investment in healthcare. At present, the Department of Health requires registrants to show only that the drugs meet safety, efficacy and quality standards, which automatically qualifies them for local distribution rights. The HKAPI suggested the government take guidance from the United States, where the Food and Drug Administration maintains a master record of pharmaceutical patents in which drug makers register their products and check for outstanding patent rights.
Labour Market: Businesses plan to increase their workforces by 0.7pc on average this year, after staff reductions of 0.3pc last year and 12pc in 2002. However, economists say they do not expect the jobless rate to fall below 6pc from currently 7pc in the near term because of a surplus of low-skilled labour and a lack of skilled professionals. The last time the unemployment rate was lower with 6.7pc in December 2001. Profound changes in HK's economic structure mean the natural rate of unemployment had risen from between 2 and 3pc in the late 1980s to between 3.5 and 4.5pc now, according to the HK Monetary Authority. This increase is attributed to the "profound structural change" in the economy, with the services sector taking over from manufacturing as the main source of jobs. Moreover, HK might not enjoy full employment, even when the economy was booming, because mainlanders could travel to HK more easily than in the past.

Varia
Criminal inquiry in Harborfest scandal: InvestHK boss to co-operate with criminal Police and ICAC probe of fest fiasco
HK 5th most expensive city: according to Mercer Human Resources Consulting HK has dropped one place to become the 5th most expensive city after Tokyo, London, Moscow and Osaka.
Insecurity in HK's parks: two foreign tourists were raped in a HK park adding to the growing feeling of insecurity of hikers.
Slump in skills of English teachers: the results of the government's first benchmark language test showed that only 37 per cent of the teachers passed the listening test, down from 72 per cent a year ago, while 37 per cent passed the writing test, compared with 44 per cent previously.

Macau
Development of the convention trade: not just for tourists, the city is turning into the Asian destination for meetings by attracting the convention trade with cheap deals.

Press articles related Switzerland
Wen Wei Po, 04.06.04: Hong Kong won bid to host the Telecom World 2006. Since its inception in 1971, ITU World has never left Geneva. The Central People's Government, especially the Ministry of Information Industry as well as the Ministry of Foreign Affairs, has given full support to HK in the bid. Chinese Premier Wen wrote to the ITU for lobbying in October 2003. The HK Government will spend up to HK$100 million to host the event.
HK Economic Journal, 04.06.04: The legal proceedings against stock scam charges about a listed company Kwong Hing took place at Eastern Magistracy yesterday. Four executives including former UBS analyst Tan Chye-seng will face bribery and fraud charges
South China Morning Post (SCMP), 10.06.04: Investigations continue to probe the biggest money-laundering case uncovered in Japan. Hong Kong banker Atsushi Doden working with Credit Suisse is alleged to have funnelled more than $300 million for Japan's biggest crime ring, the Yamaguchi-gumi of the yakuza crime syndicate. Yamaguchi-gumi is the largest of several crime rings which dominate the Japanese underworld, making their money through gambling, drugs, the sex trade and loan-sharking.
The money reportedly passed through the HK branch to bank accounts in Switzerland. Credit Suisse officials said its officials were co-operating with authorities in Hong Kong, Tokyo and Switzerland, and had frozen one account linked to the crime syndicate in December. "Things like this happen," said Martin Somogyi, a spokesman for Credit Suisse based in Switzerland.
SCMP, 14.06.04: 100 women from the mainland, Hong Kong and Taiwan will be nominated for next year's Nobel Peace Prize in an effort to make the institution less male dominated. The names of 1000 women nominated around the world will be sent to Swisspeace, the Bern based NGO behind the campaign.
The Standard, 17.06.04: LEGCO passed a member's motion urging the government to promote HK as the " Switzerland of Asia " and a world-class financial and asset management hub for the mainland. Secretary for Financial Services and the Treasury Frederick Ma said even Switzerland did not enjoy the advantage of HK, namely a hinterland the size of China with such staggering economic growth.
SCMP, 20.06.04: Mention offshore banking and you often think about the numbered accounts in Switzerland that James Bond patronised while sipping his shaken Martini." Widely perceived as the mother of all offshore banking centres, Switzerland is famed for its banking secrecy rules. The Swiss Constitution clearly defines and protects Swiss banking secrecy rules and any Swiss banker revealing information about clients will be prosecuted under Swiss Law. It creates an atmosphere of high confidentiality. However, regarding criminal cases, the Secrecy is not meant to protect the wrong people. Due to the fact that the European Union is looking to increase tax rates concerning offshore banking centres, many observers question the Swiss offshore banking future. While some people will take their money back to their home country, some will leave it in Switzerland and others might look at Asia as an offshore banking region, whereas HK and Singapore were often favourite destinations for European investors.
SCMP, 21.06.04: The West Kowloon cultural district project is not only a battleground for property developers, it is also a competition between the world's top architects and engineers. Architects Herzog & de Meuron, which designed London Tate Modern gallery and is engaged on the Beijing Olympic Stadium, has been hired to design the performance venue and the museum of modern art.
     

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