584 { China’s Quest
with which it had no diplomatic ties e.g., major trading centers South Korea,
Taiwan, Israel, and South Africa in the 1970s and 1980s. This sort of politically
based transit trade declined as PRC diplomatic ties widened.
Remittances by Hong Kong residents to relatives in the PRC were another
way in which Hong Kong’s wealth flowed to China. Since the PRC govern-
ment maintained a monopoly on handling foreign currency inside China,
private PRC recipients of Hong Kong or other foreign currency remittances
were required to deposit them in special bank accounts at Chinese banks.
Special stores stocked with foreign and luxury goods were open to hold-
ers of these foreign currency accounts. (These “friendship stores” were also
open to tourists with foreign currency to spend.) These arrangements cre-
ated incentives for Hong Kong residents to remit monies to relatives in the
PRC, and for those PRC residents to receive remittances, while leaving the
foreign currency itself in the hands of PRC banks. PRC banks operating
in Hong Kong provided yet another way of shifting foreign currency from
Hong Kong to the PRC. These banks accumulated foreign currency in their
transactions in Hong Kong, and then remitted a substantial portion back to
Beijing. In 1986, for example, it was estimated that twenty percent of all US
dollar deposits in Hong Kong were held by the Bank of China. It was esti-
mated in 1982 that invisible transfers of foreign currency by Chinese banks
to the PRC amounted to US$3.2 billion.^12 Robin McLaren estimated that in
the run-up to reversion, Hong Kong supplied one-third of Beijing’s total for-
eign exchange earnings.^13 A different sort of financial incentive for China to
leave Hong Kong unchanged was the heavy financial burden that would fall
on Beijing if it were to assume direct responsibility for that city. Senior CCP
leader Li Xiannian, who headed the Foreign Affairs Leadership Small Group
in the 1980s, estimated that Beijing would have to spend US$3 billion to $5
billion per year to support Hong Kong if it assumed direct responsibility
for it.^14 At the time, that amount constituted a large percentage of Beijing’s
budgetary expenditures.The Imperative of “Reversion” to ChinaThese multiple and weighty economic considerations gave Beijing a strong
interest in not destabilizing the economic and political status quo of Hong
Kong. At any point after 1949, Beijing could have forced the British out of
Hong Kong with relative ease. Cutting off supply of food, water, electric-
ity, and commercial intercourse would probably have been sufficient. If not,
actions by CCP front groups, underground organizations, PRC banks, and
Xinhua could have made Hong Kong ungovernable. Had Chinese military
action been necessary, that would probably have been over in a day. Hong
Kong was militarily indefensible against the PLA. And yet Beijing did not