What's in store for Hong Kong?

• Author: Van Eck, Jan
• Position: Business under Chinese rule

It's a done deal: Hong Kong is part of China again. Read what to expect in the next few years.

With the handover of Hong Kong to China finally completed, the frenzy of speculation over potential repercussions to the regional business environment can finally subside. It is not that such speculation was misplaced. With any geopolitical change of such magnitude, it is rational to ponder potential changes, both anticipated and unforeseen. What does seem misplaced is the prevailing assumption that the change will somehow unleash chilling forces that will inevitably restrain the region's burgeoning businesses. So far, there are few signs of those forces, and they are not likely to cause significant problems for business, either in the short term or the long term. While the months leading up to the handover saw some instances of government involvement in business, in each case, the government backed off, and Hong Kong's regulatory structure remained intact.

Consider, for example, the flap this spring concerning initial public offerings (IPOs) on the Hong Kong Stock Exchange. While mainland China now has many public companies listed on its two stock exchanges, Beijing's regulatory priorities are somewhat more restrictive than those of the Hong Kong Stock Exchange. Earlier this year some mainland officials expressed dismay that companies were going public on the island's exchange without seeking Beijing's approval. There were even comments that one particular flotation would have to stop until Beijing worked with the local authorities to sort things out. But after reconsidering the situation at a higher level, the government realized it had nothing to gain by interfering and permitted the IPO to continue.

On the other hand, many critics do not accept the premise that the mainland government will follow through with its hands-off policy on Hong Kong business activities, citing the highly publicized McDonald's Beijing franchise affair in 1995. McDonald's had a very successful franchise in one of the most desirable locations in Beijing. As reported in the business press, the company's lease on the property was broken and the business shuttered. The local government had "rezoned" the neighborhood in favor of a large development.

However, thanks to McDonald's international profile and a savvy public relations strategy highlighting the government's perceived capriciousness, the company was able to secure an alternative property on presumably attractive...