New China's creation and the rise of modern Hong Kong

We now come to the events that shaped Hong Kong as we know it - the victory of the Chinese Communist Party in the Chinese Civil War, in 1949, which led to the exodus from Shanghai of the upper classes, the KMT government on Taiwan, the Chinese intervention in the Korean War, the UN Embargo on China and the arrival in Hong Kong of, literally, millions of refugees.
These changes really boiled down to three:
  1. Many of the industrial, finance and transport entrepreneurs of Shanghai moved to Hong Kong, taking their key staff, some of their capital and their know how with them.
  2. With the Border closed, Hong Kong lost its role as an entrepot, and, with a much larger population, turned to manufacturing for export.
  3. With a population that swelled beyond any expectation, the Colonial government abandoned its plans for democracy and was forced, despite its laissez-faire policy, to adopt a massive public housing programme, which ultimately developed into a "welfare state" type approach, but which was done without public borrowing.
Let us start with the four years from September 1945 to September 1949.

These were the years of the Chinese Civil War.

Reading accounts from China in the 1930's, and more particularly from the war years, I am struck, with the benefit of seventy years of 20/20 hindsight, by how deeply divided the politics of China were, and how severely this crippled the national effort against the Japanese invasion. In reading accounts of the resistance in Hong Kong, one always comes across reference to the political leaning of guerilla groups, and not infrequently one comes across cases of guerillas of one faction having to be vouched for by the British people whom they were assisting in order to avoid them being executed on the spot by members of a different group.

One therefore thinks that, "it must have been obvious" that the Chinese Nationalist and Communist factions were really more interested in fighting each other than in fighting the Japanese and that as soon as Japan was defeated they would tear into each other.

Plainly, it was not obvious to a lot of people. In particular, it was not obvious to the Truman administration. We seem to be looking at an intelligence failure on a massive scale. Of course, for the generation whose intelligence services completely failed to predict the collapse of the Soviet Union, and who made such a pig's ear or Iraq, intelligence failures may seem less surprising, but this one came as a mighty shock to the USA.

This was in part a case where intelligence assessments may have been overruled, indeed, hijacked, by a particular faction with an agenda.

In the case of the USA, this faction was the "China Lobby", headed by Clare Boothe Luce and Soong Mei-Ling, aka Mrs Time-Life-Fortune and Madame Chiang Kai-Shek.

The story of the China Lobby may be insuffiently well known by those with no special interest in the history of China-US relations. It began in the Twenties as a group led mainly by missionaries who were concerned that the USA should not take military action against Chinese nationalism, and evolved by the late Thirties into the Price Committee, which was formally called the American Committee for Non-Participation in Japanese Aggression.

It was this group, more than any other, which brought the USA to war with Japan, by pressurising FD Roosevelt to terminate the Japan/US commercial treaty and thereafter to apply sanctions to Japan.

With the benefit of the aforesaid seventy years of hindsight, we can detect an early example of the Religious Right at work in America; the Price Committee consisted for the most part of missionaries and Right-wing Republicans, and one might even see Clare Boothe Luce, a talented writer with a penchant for abusive epigrams and a flexible attitude to facts, as a type of Ann Coulter.

During the War, the China Lobby went to remarkable and effective lengths to portray Chiang Kai-Shek and his regime as heroic fighters for Chinese independence; when these reports proved at variance with the facts, inasmuch as other observers noticed brutal repression and massive corruption in the Nationalist regime, combined with a reluctance to do much actual fighting (not for nothing was Chiang Kai-Shek nicknamed "Cash My Cheque") the choice was made to "print the legend", and the dissenters were labelled "Communists", with allegations made that US citizens who doubted the heroic Generalissimo and his beautiful wife, (who, having been educated in Georgia, spoke perfect American with a charming Southern accent) were in the pay of Stalin.

(There is absolutely no evidence that they were, but there is abundant evidence that the China Lobby was funded by the Nationalists. There is however no evidence that the China Lobby ever actually bought a Congressman; with Senator McCarthy in their camp they hardly needed to do so.)
With "political" influence over the flow of information from China into the State Department, the stage was set for the massive intelligence failure that saw the USA backing the Nationalists against the Communists, and, after the event, for the enormous witch hunt, instigated chiefly by Alfred Kohlberg, who was practically rabid, and Joseph McCarthy, which was organised on the basis of "Who Lost China?"
Consequently, the United States seems to have been really quite un-prepared for the sudden and overwhelming victory of the Communists in the Civil War.

Other observers were very much less surprised; the Nationalist regime had allowed massive inflation of its currency and its soldiers were frequently badly disciplined and brutal, whilst corruption was on a scale that beggars belief. The Communists on the other hand kept their currency "hard", their units were under severe discipline and they executed anyone suspected of corruption.

For the Chinese peasant and factory worker, it was a "no brainer".

There was rather less actual fighting than either side cared to admit to.

Freddie Clemo had survived his imprisonment and managed, with some difficulty, to get back to Hong Kong (his father was Chief Executive of China Light and Power). In 1949 he was working for a shipping agency in Canton owned by the small "hong", Deacons. He told me that as the Nationalist currency practically evaporated in value his employers had switched their currency to gold; with the Communists advancing on the town he was confronted with the problem of how to get this out to Hong Kong.

As the Nationalists held the city one might expect the Communists to besiege it. This was not what happened; according to Freddie the two Commanders met and the Nationalists were given two days to get out with whatever they could carry.

Freddie closed down the office and pondered the problem of getting the firm's money to Hong Kong. He booked a passage on the overnight river steamer and stuffed his pockets with as much gold as he could carry. There was still quite a pile of it and his compradore made a suggestion - if Freddie gave him the gold, he would give Freddie half a torn banknote. If Freddie handed this banknote to a man in Hong Kong he would be given the value of the gold in HK$. Having little choice, Freddie agreed and took a rickshaw down to the docks, where he barely managed to stagger up the gangway ("had we been hit I would have gone down like a stone!"). Arriving in Hong Kong "I thought I should at least look up the chap with the half bank note, before going round to the head office and falling on my sword for giving away the Company's money" and he went to the address specified. He offered his half banknote and was shown the matching half; he was then handed an HSBC account passbook showing the agreed value in his name.

The People's Liberation Army marched up to the border with Hong Kong...and stopped. They had no orders to enter Hong Kong and they did not do so.


Shanghai had bounced back after 1945 in much the same way as Hong Kong; initially, business confidence was high. Shanghai businessmen were quick to order new machinery to replace plant that had been damaged in the war. Cathay Pacific was founded there, by an American and an Australian who had been flying DC3s "over the hump" into China during the war.

But as 1947 turned into 1948 and then into 1949 it was evident that things were going wrong.

People started to consider their options.

Those most loyal to, or most dependent on, the Kuomintang. moved to Taiwan with them, along with those particularly close to the Americans.

Those who felt more comfortable with the British, and who were less attached to the Kuomintang, started to move parts of their business to Hong Kong.

Some, such as CY Tung, did both.

As the situation in Shanghai worsened, it became clear that the only thing to do was to abandon Shanghai, cut losses, abandon newly built factories and get out.

The shipowners, the group whom I know best (well, I know the people of my generation) almost all moved to Hong Kong as did the bankers, like YK Pao.

People often moved their families first, but found it difficult to persuade their parents to go.

Some, to whom the idea of an efficient incorruptible and modern China appealed, stayed; I had an elderly friend in Beijing, an extremely distinguished international maritime lawyer, who had been in private practice as an attorney in Shanghai and who chose to stay.

The most important of those who stayed was Soong Ching-Ling, sister of Madame Chiang Kai-Shek, but herself the widow of Dr Sun Yat-Sen:



She eventually became President of the People's Republic of China.

She and her sister continued to correspond, in English, despite their rather considerable political differences.