Dialogue With The Last Governor

Chris Patten will go down in history as the last gatekeeper of the last major British colony and his work in Hong Kong is a legacy to China’s “One Country, Two System” success.

For those watching the rain-drenched Hong Kong Handover ceremony two decades ago on the misty shores of Victoria Harbor, Central’s skyscrapers looming ominously in the background and the Royal Yacht Britannia waiting in the wings to whisk away Prince Charles and his entourage, a few select images remain forever fixed. One is that of the Prince and Lord Patten of Barnes, the Governor of Hong Kong, sitting side by side with hard set faces looking out over the mass of dignitaries and honor guard taking in the full meaning of the last moments of the colony.

Twenty years later, Chris Patten remembers this day well and fondly speaks of his time in Hong Kong. “Those years were the most interesting and happiest of my life, and my family would say the same,” Patten recalls on the eve of publishing his autobiography First Confession: A Sort of Memoir. “I can honestly say since I first saw China in 1979, and have gone on seeing it regularly, I never had any doubt its reemergence was the most important economic event of my lifetime after the fall of the Berlin Wall. I knew this event would lift hundreds of millions out of poverty. It is in no one’s interest that this economic marvel ends. It is good for China and for humanity.”

Shanghai Business Review met with Lord Patten on a stormy spring day in London on the banks of River Thames, a stone’s throw from the Parliament in which he has sat as a member for so many years. In an exclusive interview with SBR, the former Chairman of the Conservative Party who served three Prime Ministers – Edward Heath, Margaret Thatcher and John Major – reflected on the importance of Hong Kong to China and shared his views on the shaping of the world’s economic dynamo.

“There is a reason why I say re-emergence, rather than emergence,” adds Patten. “It really is important for all to have a sense of history. We must understand that until the 1820s China was a third of the world economy and China and India represented over 50% of world GDP. Their collapse in the 19th and early 20th centuries was partly due to depredations of Western imperialism, partly due to the Industrial Revolution and partly due to decisions Chinese and Indians made for themselves. The balance between different economies can shift very significantly.

For Chris Patten – known in China as Peng Ding-kong – that July 1997 day was the end of a five-year stint that many consider one of the most important in the long diplomatic history of a nation that once ruled the Seven Seas. It was the exclamation point on a saga that began in 1842 when Queen Victoria assumed the helm of a small trading colony on the southern shores of the Middle Kingdom. It was the end of an era that set the stage for 20 years of growth under the “One Country, Two System” vision forged by Paramount Leader Deng Xiaoping, architect of China’s Open Door Policy.

“In 1979 I visited Hong Kong Governor Murray Maclehose with three other young Members of Parliament,” remembers Patten, who was 35 years old at the time. “We were taken to the border of Lo Wu to look over the rice paddies that would one day become Shenzhen.”

During that trip Patten stopped in Shanghai. A jazz lover, Patten wanted to hear the band at the Peace Hotel. Of that pilgrimage Patten remembers, “We walked up the Bund from one dim street lamp to another. Things changed, and changed dramatically, just consider the development of Pudong. By the time I left, had a career in British politics and came back to Hong Kong there was an economic explosion, a bit Adam Smith, a bit Wild East or Wild West. What has and is happening is incredible.”

Historical Perspective

When Patten took on the challenging assignment to be the Last Governor of Hong Kong in 1992 he was an energetic politician in his 50s that had held some of the most important posts in the Conservative Party. Now in his 70s, Patten is in a more reflective mood as the Chancellor of Oxford University and likes to consider the historic perspective when contemplating the past, present and future of the Middle Kingdom. “China is one of the world’s extraordinary civilization,” notes Patten.

This reflective mood of the Last Governor, as well as his appreciation of Chinese philosophy, is mirrored in the first lines of the new First Confessions autobiography. “A Chinese anthem, written in 1100 BC, warned against three foolish things: first, deep sleep in an unknown house; second, setting out to sea in a borrowed junk; third, not to lag behind when the elephant approaches a new bridge. To which sound advice, over 3,000 years later, one might add a fourth foolish thing – writing a political autobiography…”

In typical modest fashion, Patten goes on to downplay the contribution of his many years of public service in Britain and Hong Kong in an offhand manner when speaking of those who publish autobiographies, “The author poses as the person she or he wanted to appear to be: a somebody, not too dreary, right about everything or, if not absolutely right, then heroically wrong. The more honest examples of the genre may concede some surprise at the public heights to which the author has been lifted by what he or she knows better than anyone else are pretty modest talents.”

In a wide-ranging discussion on China’s international evolution, Patten discussed key historic events. There was the legendary launch of Admiral Zheng He’s treasure fleet in the 1400s. After touring most of Southeast, South and West Asia as well as East Africa from 1405 to 1433, the fleet returned to China to be destroyed by an emperor that decided there was nothing much to gain from the outside world. Then there was that 1793 meeting between the Qianlong Emperor and Lord Macartney, the first envoy from Britain to China, which met with protocol difficulties.

Finally, Patten mused over the first Handover of Hong Kong to Queen Victoria in 1842. When asked what Queen Victoria would have thought of relations between China and the UK today, where Chinese enterprises are building the nation’s nuclear industry, investing in its financial institutions and buying its football teams, Patten responded, “Who knows, she might have had the same views as Napoleon. You recall Napoleon took the view that once China awoke the rest of the world better watch out.”

In terms of his own place in modern Chinese history, Patten had an important role to play in the One Country, Two Systems dynamic. Deng Xiaoping believed there could be only one China, but distinct regions, such as Hong Kong and Macau, could retain their economic, legal and financial systems while the rest of China operated under the “socialist market economy”. It was left to Prime Minister Margaret Thatcher and Foreign Secretary Douglas Hurd, with Governor Patten on the front lines, to deal with what the first iteration of the unique One Country, Two System vision meant in reality.

Economic Miracle

“There is a question about what China’s current market approach means and it is legitimate for the leadership to tell us what it means for them of course,” comments Patten. “China is certainly entitled to say that, ‘We found a system which suits us.’ The only questions we can ask are rather existential.”

Patten’s wider perspective is that in every country there is an argument between those who think if government gives up its hold over the economy it will sooner or later lose economic control, so you cannot continue to privatize companies whatever the figures tell you. On the other hand, private sector defendants say unless government steps back from managing large parts of the economy it will lose control as the country cannot grow fast enough to create enough jobs. “We must appreciate China’s position as both propositions are true and plotting a way through is not easy,” he adds.

Two decades on, despite inevitable bumps in the road, the One Country, Two System vision Patten helped cement over long discussions with Chinese counterparts, repartees he remembers with a certain fondness, was instrumental in making China the economic superpower it is today. After all, without the Hong Kong experiment to steer in the right direction, it is likely China would have faced more issues in forming the market-based economic model now admired worldwide.

When looking at the role of Hong Kong within China, Patten refers to the statistics. “There are 7 million in Hong Kong and over 1.3 billion in China,” he notes. “When I left HK the city was worth about 17% of China’s GDP, today I hear the figure is closer to 3%. It always stood to reason that as China became prosperous the figures would shift significantly. That is not because HK is doing badly, though the growth rate has slowed a bit, the reason for that change is the same as for China overtaking the US in Purchasing Power Parity terms – the nation’s size.”

Despite this change in economic balance since the Handover, Patten believes Hong Kong provides an economic model that works. “The great thing about being the Hong Kong Governor after being a British politician was the ability to get things done,” explains Patten. “Because of human vanity you like to see things from intellectual creation to completion and normally in politics that does not happen, either because it takes so long in Europe and America to get things done or because you are moved from the post before completion. So you always have to make hard choices.”

In his five years in Hong Kong Patten does not recall having to make a difficult choice. Patten assumed the helm of an economy growing for almost 30 years. During his governorship public spending rose, borrowing was cut, taxes reduced and the city built its new airport entirely out of revenue. As disability and health services improved people streamed out of private hospitals back to public ones to benefit from higher standards.

“I used to be criticized by Mainland officials for being a socialist, for spending too much, but we could do it because of that impressive economic growth,” remembers Patten. “The efficiency of the Hong Kong economic model is one reason for success. Another is the rule of law and how this law promotes business in a fair and equitable manner.”

Patten recalls when he first went to China for talks with his opposite number Lu Ping, a man whom he appreciates for his intelligence and demeanor. Patten explained to Lu that when he was Britain’s Environment Secretary, in charge of the biggest domestic department responsible for everything from finance to housing, he was faced with many court claims from those against his policies. Sometimes Patten won and other times not. “I tried to make the point the rule of law applied to me as well everyone else,” Patten adds. “That is the basis of Hong Kong’s success.”

Systemic Approach

Patten’s governorship of Hong Kong coincided with a curious time in the capital markets experiment of China. Those were the days of the Red Chips, China companies incorporated outside the Mainland and listed in Hong Kong, H-Shares, state-owned companies incorporated in China that traded on the Hong Kong Stock Exchange, and window holding companies like Shanghai Industrial and Beijing Enterprises.

In these early days of the capital markets experiment, overseen by the likes of economic czar Zhu Rongji, a man who Patten holds in the highest regard, it was not clear how the world investment community would perceive the commercialization of Chinese enterprise. The subsequent roll call of public listings of enterprises has since driven the HKE to become one of the world’s leading capital markets, and supported the drive for PRC listings in markets such as New York, Singapore, London and Frankfurt, not to mention the rise of the Shanghai and Shenzhen exchanges.

This amazing capital markets story has had its ups and down over the years. For instance, after a spate of financial and corporate governance scandals around 2010, Chinese enterprises watched in dismay as PE ratios on US and Canadian markets fell to an average of 1 as investors sold positions. This was followed by numerous privatizations where enterprises delisted from global exchanges only to relist in Hong Kong and China at multiples many times the overseas trading value.

On the eve of the Asian Crisis back in 1997, Governor Patten did not see that China could become the world’s second largest economy. Patten wrote in his bestselling book East and West that China’s economic model was unproven, as the economies of France, Germany and the UK were still much bigger at the time. Now that is not the case. China is the second largest economy and aims to surpass the US in due time.

Today, Patten is impressed by the development and globalization of Chinese enterprise, but notes the capital markets experiment must come back to improving the lot of the people. “If you were a Chinese official the thing that would most concern you is the rate of change in per capita income not the total,” adds Patten. “With 1.3 billion people, if you grow at the spectacular rates China did for three decades, doubling the economy every eight years, inevitably you overtake everyone due to population size.”

When asked where Hong Kong is headed in the next 20 years, and whether it will be eclipsed by Shanghai, Patten feels the city will thrive due to qualities that in his view provide advantages that can overcome the competition with much larger communities. As to where China is headed, the answer is not as forthcoming, “I don’t know. In 20 years it will pay for a huge increase in the number of elderly,” he says. “By then the largest population group in the world will be Indian. The second largest will be China. Probably the third largest will be Chinese pensioners – that is the reality.”

Due to this demographic quandary, China is moving faster than any country ever from a labor surplus to a shortage. Patten also looks closely at the words of men like Larry Sommers, former Chief Economist of the World Bank, who speak of what happens to the fastest growing economies, the ones that enjoyed real growth spurts. Sommers argues these economies fall on average by 4% to 4.5% in terms of overall growth.

“I think to myself that I hope that does not happen to China,” notes Patten. “It would be a disaster for us all. Today, you can see the rise of the China middle class, but what you need to see is a narrowing in social equity.” Patten compares the rise of the China middle class to that of America in the 1950s and 1960s. At that time America’s gini coefficient (measure of distribution of income level) was the lowest in US modern history. “If you were a boss in a big US company then maybe you got 30 times the average wage,” he adds. “Now bosses get 300, 400, 500 times that.”

For that reason, one of Patten’s most admired US presidents is Dwight Eisenhower (1953-1961), “who baked into the economy the best bits of Rousseau, the highway building program and defense industry investment that produced breakthroughs in academia and research, including the Internet. It was the high point for the white middle class. The I Love Lucy middle class was in their heyday.”

Patten would like to see China publish its gini coefficient to show figures on social equity, but he notes this issue is well understood inside the country. Patten points out that former Premier Wen Jiabao regularly made speeches about the four “uns” (unbalanced, unstable, uncoordinated and unsustainable) and one of these “uns” was the imbalance in wealth and earnings between the best and least well off.

More Thoughts

Since handing over the keys to Hong Kong, Patten has not sat idle. Moving from one hot spot to another, Patten chaired the Independent Commission on Policing for Northern Ireland, better known as the Patten Commission. In 1999, Patten was appointed as the UK member to the EU as Commissioner for External Relations, where he dealt with crises in foreign policy, the most notable of which was the failure to come up with a unified policy on the 2003 Iraq War. After a fiery period as BBC Chairman, today Patten sits as the Chancellor of prestigious Oxford University.

Inevitably, Patten’s thoughts turn to the economic systems that drive world economies. In his writing, Patten states time and again that the Western market approach is the best economic alternative. Yet, he acknowledges Asia has followed a different model, one that is centrally led by governments. He remembers well the running argument with Lee Kuan Yew, the first Prime Minister of Singapore who governed for 30 years, known for his opinions on the contribution of Asian values to economic growth.

The question of how to best achieve rapid growth is essential. For instance, China has achieved impressive economic growth based on its ability to deliver infrastructure and other projects in a timely manner. Take the high-speed rail initiative. Due to its ability to push through projects, China built an impressive high-speed rail network, one that would have taken other nations much longer to complete. This begs the question as to what is indeed the system that betters the lot of the most people.

“I don’t think there is a better way than to involve people in shaping their own destiny,” Patten concludes. “What I totally accept philosophically is that life is not a journey, like a wagon train in which you go across the Prairies to find paradise, running streams, leaping salmon and your lucky coin. Life is a series of predicaments and the older I get the more than I believe that. So I am very alive to the argument that trying to find and impose the perfect system is crazy. To argue against China’s system by constructing one’s own makes no sense. A system that seeks to assert primacy over another system has all the demerits of the first system.”

Prosperity for All

Patten looks at Western developments and acknowledges that systems in that part of the world are far from perfect. “In the UK you see a bizarre decision to vote for taking ourselves out of the EU. Look at America. You see an election where the winner gets three million fewer votes than the loser and a President wins who has limited abilities to do the job or understand the niceties that go along side constitutional arrangements.”

However, Patten does believe the Western system has served other nations to find solutions to deal with the problems they face. “That just happened in France. Monsieur Macron will have a terribly difficult time ahead, but he is a response to his society’s problems. Germany, which after a terrible period in the first half of the last century, has turned itself around and emerged from the economic and moral rubble.”

Patten notes another issue that will arise is the need to satisfy a population used to economic prosperity. This is an issue already identified by today’s Chinese leaders as a challenge. Patten points to China’s current interest in a historic book by Alexis de Toqueville, The Old Regime and the Revolution. Patten is familiar with de Toqueville’s work as he studied it in his first term in university, read it in French and wrote essays on it.

“De Toqueville warns that it is wrong to assume when people get better off they are easier to govern,” adds Patten. “In the run-up to the French Revolution the rural population and even people in the cities were getting better off. What affect did that have? It made them more aware of how much better off they wanted to be and how much better off others were. What I feel is the management of change in China is incredibly difficult, but it is in all our interest that the leadership gets it right.”

Education is an important part of managing that transition. Over the last two decades, thousands upon thousands of Chinese students have gone abroad to study, and many have taken jobs at the foremost Western corporations and institutes. Some have returned to China to play an important role in shaping the new economy with their gained knowledge.

Patten has closely studied this evolution in education. “The China Education Ministry points out from time to time that many of their post-graduates don’t come back,” noted Patten. “China is not the only country in that position. I am sensitive about the drain of talent from Europe to America, and I run a university so I would be. Fortunately, until now the UK has attracted students and we hope to be able to do so into the future.”

Oxford has over 1000 Chinese students on its campus, of which about 150 of those students are from Hong Kong. “I am aware of the incredible amount of talent China has and I will be interested to see how much of that talent remains outside and how much goes back,” concludes Patten. “After all, it is important for the future course of China that the brightest minds are available to lead the way forward.”

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