Report from the Commission to the Council and the European Parliament - Hong Kong Special Administrative Region : Annual Report 2004 {SEC(2005) 922}
Date: 2005-07-08
Institutions: European Commission
Subjects: EU relations, Hong Kong, activity report, economic situation, political situation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.7.2005 
COM(2005) 308 final 

REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

Hong Kong Special Administrative Region: Annual Report 2004 

{SEC(2005) 922} 

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REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

Hong Kong Special Administrative Region: Annual Report 2004 

As  regards  the  implementation  of  the  ‘One  Country  Two  Systems’  principle,  2004  was 
characterised  by  a  trend  toward  greater  influence  of  the  Mainland  authorities  in  the 
governance of the Territory, notably through the involvement of the Standing Committee of 
the  National  People’s  Congress  (NPCSC)  in  the  constitutional  development  process.  This 
created  concerns  both  within  and  outside  the  territory  about  the  integrity  of  the  concept  of 
‘Hong Kong people ruling Hong Kong people’. 

The year had begun with high expectations for political reform among pro-democracy groups, 
with  an  estimated  100,000  Hong  Kong  citizens  marched  peacefully  through  the  streets  on 
1st January  expressing  their  will  to  participate  more  in  politics  and  government.  They  were 
further encouraged when on 7th January the Hong Kong Government set up a Constitutional 
Development Task Force which started public consultations.  

However, on April 26th the NPCSC, on the request of the local authorities, issued a decision 
interpreting the Basic Law governing Hong Kong that allows for only minor changes in the 
election systems for the HK Chief Executive in 2007 and for Legislative Councillors in 2008. 
Subsequently the Hong Kong SAR Government complied with this decision and prospects for 
significant  progress  towards  universal  suffrage,  which  is  the  ‘ultimate  aim’  under  the  Basic 
Law, have not improved. An EU diplomatic demarche expressing concern about the NPCSC 
referral’s  inconsistency  with  the  high  degree  of  autonomy  guaranteed  under  the  Basic  Law 
was made in Beijing and in Hong Kong on 28 May. 

Notwithstanding  these  developments,  orderly  elections  held  for  the  Legislative  Council  in 
September  produced  a  record  high  turn-out,  with  62%  of  voters  supporting  pro-democracy 
candidates,  indicating  that  there  remains  a  strong  preference  within  the  territory  for  greater 
democracy. That said, given the nature of the electoral system, only 25 out of the 60 seats in 
the new Legislative Council from the pro-democracy camp. Pro-government parties retain a 
majority.  The  overall  conduct  of  the  elections  was  testament  to  the political  maturity  of  the 
SAR, and showed that there is a sound base for further democratisation. 

Hong Kong civil society and press continued to operate freely and became more vociferous 
and critical during the year. As a result, their relations with the HK SAR government and its 
leadership  deteriorated  somewhat,  and  this  eroded  the  popular  support  of  some  HK 
government leaders. For their part, some journalists also claimed to have been under pressure 
to moderate their criticism of government policies.  

The European Commission welcomed the publication in September 2004 of draft legislation 
on  racial  discrimination  and  hopes  that  a  comprehensive  text  in  line  with  international 
standards will be passed in 2005.  

The  HK  government’s  management  policy  and  some  of  its  specific  projects  have  been 
severely  criticised  during  the  year.  It  is  to  the  credit  of  the  government  and  the  political 
system  that  some  of  these  criticisms  were  acknowledged  and  even  came  through  reports 
commissioned  by  the  government  itself,  such  as  on  the  mismanagement  of  the  SARs 

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epidemic. Other  examples are the public  controversies  surrounding  some  major  government 
property  development  transactions  (the  Hunghom  Peninsula  housing  project,  the  West 
Kowloon Cultural District project, and the delayed flotation of the REIT Links public housing 
share  issue)  that  have  been  the  subject  of  general  accusations  of  collusion  between 
government and business.  

The fact that the last of these transactions was blocked following a successful legal objection 
in the courts is an encouraging sign of the continuing independence of the judiciary and the 
rule of law in Hong Kong. Continued freedom of expression in the Territory is shown in the 
way  that  senior  government  officials  have  been  subject  to  such  sustained  public  criticism. 
Some have resigned as a result of the pressure- such as the Secretary for Health in mid-2004 
due to the SARs report. The Chief Executive himself finally resigned (for “health reasons”) in 
March 2005.  

The  Central  Government’s  economic  policies  in  2004  were  increasingly  helpful  for  Hong 
Kong.  The  coming  into  force  in  2004  of  the  CEPA  I  (Closer  Economic  Partnership) 
arrangement  and  its  future  deepening  through  CEPA  II,  the  beginning  of  Pan  Pearl  River 
Delta Cooperation co-operation discussions, and – perhaps most important – the introduction 
of the Mainland Visitor’s Scheme provided a real confidence boost for the HK economy that 
was only just in 2004 emerging from a six-year downturn that had been exacerbated during 
2003 by the impact of the SARs epidemic.  

During  2004  the  economies  of  Hong  Kong  and  China  became  more  symbiotic,  inter-
dependent  and  convergent.  The  increased  interpenetration  of  the  two  economic  systems  can 
be seen as positive for both China and Hong Kong, with many Hong Kong business practices 
becoming  more  widespread  on  the  mainland,  to  the  benefit  also  of  Hong  Kong’s  economic 
development. 

By the middle of the year the economy was recovering well. Economic growth in 2004 was 
8.1% for the year, unemployment was falling, property and share markets had risen, deflation 
had been replaced by modest price inflation and the government deficit was narrowing. 

Trade and financial flows between Hong Kong and the European Union continued to expand 
and deepen. The EU was HK’s third largest supplier of goods in 2004 after Mainland China 
and Japan, and was the third largest market for HK exports after the US and Mainland China. 
EU companies are leaders in many sectors, especially in financial and other services. 

The European Commission continued to express its concern about the lack of a competition 
law in HK, but little progress was registered in 2004. Resolving this issue will remain a top 
priority  in  the  EU's  economic  relationship  with  the  Territory.  The  EC  also  recognised  the 
SAR’s  efforts  to  protect  IPR,  although  Hong  Kong  was  still  the  third  largest  provenance  of 
counterfeit goods imported into the EU and further work is needed. 

EU-HK  official  relations  and  co-operation  on  trade,  immigration,  customs  and  business 
dialogue also continued to deepen in 2004. European Commissioner for Trade, Pascal Lamy, 
paid an official visit to Hong Kong in March 2004. In September the Hong Kong Secretary 
for  Justice  and  Home  Affairs,  Mr.  Ambrose  Lee  met  with  the  European  Commissioner  for 
Justice  and  Home  Affairs  and  opened  the  first  meeting  of  the  Joint  EC-Hong  Kong 
Readmissions Committee in Brussels. The 5th EC-HK Joint Customs Co-operation Committee 
was  held  in  Brussels  in  September.  The  5th  Plenary  session  of  the  EU-HK  Business  Co-
operation  Committee  took  place  in  Hong  Kong  in  March  2004.  And  the  Commission 

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welcomed the WTO agreement to hold the 6th Ministerial WTO Conference in Hong Kong in 
December 2005. 

Full details of the Commission analysis is given in the Commission staff working document 
SEC(2005) 922. 

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