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Judging from the criticisms one hears, there is an idea in some minds that the functions of the Government are exercised in a sort of sterile vacuum where theories can be tested and principles applied in isolation from those inconsequential occurrences over which even a Government has no control. In fact, the contrary is far nearer to the truth. It is seldom indeed that a situation arises where principle can be applied with the knife-edge precision of that early Buddha who, tiring of the quarrels of earth's inhabitants, descended to a high mountain in Ceylon and called together all the men, birds, beasts and fish in order to resolve their differences. His audience, says the record, asked a million and one abstruse questions and the all-seeing god, after pondering them, answered every one in the negative.

That divine afflatus is gone. Modern governments can seldom answer questions with a 'yes' or a 'no.' There are contingencies, hypotheses, counsels of caution and considerations of expediency. One never, at the end of a year, simply reports progress, as if direction were maintained like the path of an aircraft. More often annual reviews are statements of the reasons why progress has not been made, why direction has been changed. One states and assesses the 'problems' — problems being all those varied events, or influences, which hinder or prohibit the application of pure principle, which halt or deflect progress, which inhibit that resounding negative. The reviews with which this report traditionally begins are no exception. Progress has always been there, but it is hedged about with a crop of problems which have confounded the purpose and confused the achievement. 'Problems of the year,' the chapter might on occasion have been called.

In this edition, instead of reviewing all the various problems by which the Government of Hong Kong has been beset from January to December 1956, it is proposed to select a single problem which has been very much in our minds for the last ten years, and to give a brief account of its origin, nature and effect, and of the way in which it has been attacked (there is still no final solution to it) in the years since the war. This may not be an altogether inappropriate course, because the problem selected is the Colony's King Charles's head and from an examination of it something of the background to the general history of Hong Kong during these ten years will emerge.

Looking back over this period, one can say that there is little that has been done that would not have been done differently in some way if one problem had never existed. Finance, education, medical and health services, social welfare, prisons, police, industry, commerce, labour relations, land policy, housing, agriculture and fisheries, political relations — even the law itself — all bear the unmistakable surcharge (in a few cases an almost obliterating surcharge) of this single problem. It is the problem of a vast immigrant population; vast because for every resident of the Colony at the British reoccupation in 1945 there are now four residents.

A few figures will explain the position more precisely. The land area of the Colony of Hong Kong is 391 square miles. Of this 12 square miles are developed for residential, commercial and industrial purposes, 50 square miles are cultivated, and the remainder is largely hillside or swamp which is unsuitable for agriculture and could not be developed for other purposes without disproportionately heavy expenditure on site-formation or services. The immediately useable land area of the Colony is, therefore, 62 square miles. From this and from the fishing grounds within and around the waters of the Colony 500,000 people obtained their livelihood in 1931. At the outbreak of the Japanese war the population had increased to 1,600,000. On the British reoccupation in 1945 the wholesale expulsions enforced by the Japanese had reduced that number to 600,000. By the end of 1946 the population was 1,600,000; by 1950 it was 2,360,000 and by the end of 1956 something over 2,500,000. Not all of the increase between 1945 and 1956 (nearly two million) was immigrant population. Perhaps a figure of 400,000 represents the natural increase in the population and a further 400,000 the people who were residents of the Colony before the war and returned to it after the Japanese surrender. The increase between 1945 and 1956 due to immigration was, therefore, somewhere about one million, and of this number Dr. Hambro, who conducted a survey on behalf of the United Nations High Commissioner for Refugees in 1954, has estimated that about 700,000 were refugees. Hong Kong was already over-crowded in 1941 and to arrive at a 'normal' population in relation to the Colony's actual state of development it is necessary to look back rather further to, say, 1937 when the population was about 1,200,000. The annual rate of natural increase is at present about 75,000.

We have, therefore, a total area of 391 square miles (of while 62 square miles is immediately useable) with a normal capacity of about 1,200,000 persons. This area is now required to accomodate over 2,500,000 persons and to absorb a rate of natural increase of 75,000 per annum. New Zealand has an area of 103,939 square miles, a population of 2,153,000 and a rate of natural increase of 27,000 per annum.

There is the size of the problem, but how and why did it arise? In the years before the Pacific War it was the policy, indeed almost a tradition, to allow freedom of movement to Chinese across the border with China. There were many reasons for this. Economically, Hong Kong was at that time the entrepôt for the great market of China. Goods arrived in bulk from all over the world and were unloaded into the warehouses of Hong Kong. There they were broken down into small parcels and these were conveyed by traders into all parts of China. Freedom of movement for these agents, buyers, or itinerant traders was essential if Hong Kong was to fulfil and promote its economic role, and to obtain in return for its re-exports (it had no natural products and few manufactures to sell abroad) the produce of China either for its own use or to be stored, sorted and passed on to its customers overseas. Socially the connexions between Hong Kong and China are very close in normal circumstances. There is no marked geographical feature to form a natural frontier, and people on either side of the political border come from the same stock and lead the same sort of lives. Many long residents of Hong Kong still had their family homes in the villages of Kwangtung and Kwangsi and these they visited frequently and sometimes for extended periods. Even where personal ties had been lost, these visits were enjoined by Chinese custom. Students from Hong Kong went back to the universities of China for higher education. In the reverse direction Chinese in search of an education with a Western emphasis came to Hong Kong, and Chinese generally used the Colony as their point of contact with the whole of the Western world. There was a further reason. It was the period of China's spasmodic but long-drawn civil war in which perhaps one of the few stable factors was the accessibility and availability of Hong Kong as a refuge. For her part, Hong Kong took pride in her role as a safe and well ordered sanctuary and she welcomed all who sought asylum, on the sole condition that they did not continue whatever struggle they were engaged in from within her borders. In 1932 the Japanese attack on China began. By 1937 Canton had been captured, and as the Japanese Army advanced to the British border several hundreds of thousands of refugees fled before it, crossed the border and tacitly claimed asylum. The influx continued. A time came when there was no longer any possibility of absorbing such large numbers into the organized life of the community and it was found necessary, after much heartsearching, to impose immigration restrictions on entry from China. When the Japanese attack on Hong Kong came in 1941 the Colony was desperately (or so it seemed at the time) overcrowded, and this was one of the factors which impeded its effective defence. The Japanese inherited the same problem but resorted to more drastic measures. In 1942 and 1943 up to 1,000,000 people were expelled, many of them immigrants of a few years earlier, to find such livelihood as they could in the villages and fields of South China.

With the British reoccupation, many returned. The old immigration restrictions were not enforced as far as Chinese travellers from the mainland were concerned, and many thousands of people, impelled by the chaotic conditions in China at the time, flooded into Hong Kong seeking, in the main, better opportunities and economic security. Hong Kong began to accept the implications of a population some 25% greater than what might be regarded as its normal capacity. But worse was to come. Bythe end of 1949 China's new civil war had spread to the Southern provinces. This and the rapid consolidation of the new régime resulted in a fresh influx, greater than Hong Kong had ever known. This time they were mainly political refugees. By May 1950 there was an increase in population of some 700,000 from this cause alone and in addition to the 'economic' increase between the end of the Pacific War and the capture of Canton by the Communists. Restrictions on entry from China were inevitable. On this occasion a quota system was applied and a rough balance was struck between those entering and leaving the Colony at the border. By February 1956 it was thought that the position might have stabilized itself in the sense either that no more Chinese wished to enter the Colony permanently or that new immigrants would be naturally balanced by those who, having sheltered in the Colony since the closing stages of the civil war, were now prepared to return to China. All restrictions were relaxed for a trial period of seven months. There was, however, no stability. The seven months showed an adverse balance of at least 56,000 permanent immigrants — a rate of immigration well in excess of the Colony's high natural increase. The quota system was, therefore, reimposed early in September 1956.

When one sees a child, or even a dog, run over by a motorcar one hurries to help and the emotions of horror and pity do not die easily. But when one reads of one million homeless exiles all human compassion baulks and the great sum of human tragedy becomes a matter of statistical examination. Personal charity is largely unavailing, vast schemes of national relief are a temporary palliative. Eventually the last vestiges of hope are centred on the calculating machine and the drawing board. For the last ten years Hong Kong has lived with just such a problem as this. Relief, then jobs, and then homes, for perhaps as many in all as a million people who were not here when the British rule was re-established.

The reader may well ask why this was allowed to happen. A small integrated community with resources appropriate to its size surely has a right to protection against an inundation of strangers. This is an internationally accepted principle, and Hong Kong's own pre-war and more recent history has shown that it can and must be applied when the situation becomes threatening — or (the cynical reader may add) when the Government wakes up to its responsibilities to its established citizens. Why was the situation ever allowed to develop into the vast problem that now faces the Government? Was it assumed that up to one million immigrants could be assimilated to an acceptable degree and in reasonable time?

The answer to these questions may fall oddly on modern ears. The immigrants were admitted on humanitarian grounds alone and the problems to which they would give rise if they did not return or emigrate elsewhere were deliberately accepted. The first influx fled from the shattered economy and threat of famine which followed the Pacific War. The people who followed in the second influx voted with their feet against the new régime which was established when the Nationalists withdrew to Formosa. In either case the immigrants sought in Hong Kong something sufficiently important to themselves to necessitate the abandonment of their homes, the severance of family ties and the renunciation of traditional allegiances. No one will ever know what it cost them to abandon the land on which their ancestors had made their living. They were not denied what they sought, and Hong Kong accepted the burden which they brought with them in the name of humanity rather than because it had any special standing in the matter other than the accident of contiguity.

There were, of course, no homes at all for the great majority of the refugees. There were two reasons for this. In the first place, the serious overcrowding, which had necessitated both immigration control and rent control immediately before the Pacific War, began to build up again very shortly after the Japanese surrender, and by 1950 the pressure of population was worse than it had ever been in the Colony's history. In the second place, although conventional war damage was comparatively slight, neglect and decay had made serious inroads into the quality and quantity of domestic buildings. There had been no building at all during the occupation, and world-wide shortage of supplies and shipping in 1946 and 1947 delayed even the rehabilitation of such buildings as could have been quickly repaired. A small proportion of the refugees were able to bring some capital with them. This they used in the first place to buy out sitting tenants, many of whom may well have been long residents of Hong Kong. Bit even the high prices obtained could not provide alternative accommodation, and it was not long before those local people who had been tempted into parting with their homes found themselves no better off than the refugees. Some refugees entered into occupation and some Hong Kong residents went out into the streets. The effect of this on the refugee problem as such will be referred to later.

If accommodation was desperately short, so was land. Even ten years ago there were few vacant levelled sites. Building land in Hong Kong is not found, it is made; either hacked out of the hills or created by reclamation. And there are clear limits to either process. Most of the refugees were farmers, a true cross-section of the population of China which is overwhelmingly agricultural. But where was the farming land? 50 square miles was under cultivation, and that 50 square miles was already supporting a population of nearly 300,000, three times as many as when the rural areas adjoining the city first came under British rule in 1898. Almost all of the remaining country, which, apart from the cities of Hong Kong and Kowloon, measures another 328 square miles, is made up of steep and rocky hillside on which no farmer has ever found a living. The rural land already had more farmers than it could support.

The immigrants were homeless and the only livelihood they knew was debarred to them. They therefore depended on the two cities. Depended — the word has a melancholy aptness. For, when virtually all the vacant urban sites, Crown land and leased land alike, had been over-filled with their flimsy insanitary shelters, they moved into the hills with which the cities are surrounded and hung their shacks in deep festoons over rocks bared by the war-time search for fuel. But always they crowded in on the town, for there alone lay the hope of rice for tomorrow. They turned their hands to new trades with the resilience and resourcefulness of their race, and they caused little trouble so long as they were left undisturbed in their pathetic settlements, densely packed by both necessity and choice.

Before turning to the Government's attitude to this predicament — and it became a predicament with astonishing rapidity — it may be useful to examine some of the circumstantial problems to which these predominantly immigrant settlements gave rise. It has been said of these people that nothing but land for them to farm would make them happy and contented members of society. There was no land, and if they were to remain and become good citizens they had to be weaned away from their discontent and transformed by some social alchemy from the mentality of the farmer to that of the industrial worker. Until that transformation was achieved, the seeds of discontent would remain. Around them they saw a flourishing community, well established and battening on the post-war boom. The majority were far enough removed from that community in the economic and social sense, but they were still further removed in their political views. The Communist Government of China was rapidly establishing itself and it lost no time in trying to win over the whole-hearted allegiance of overseas Chinese. This met with some success, and, even where the Marxist doctrines had no appeal and the initial pogroms were roundly condemned, there were many overseas Chinese who saw in the solidarity, determination and incorruptibility of the new régime, spiritual qualities from which a new and better China might eventually emerge when the first excesses had run their course, and when the exotic doctrines had been tempered by the Chinese genius for compromise. Both communists and non-communists were well represented in the settled communities of Hong Kong. On the one hand there was support for the new régime and on the other a cautious tolerance. There were still others who were frankly opportunist — watchful, uncommitted and hoping desperately to succeed in laying their bets immediately before the horses passed the post. It was the traditional policy of the Government to hold itself firmly aloof from the internal politics of China and to prevent China's battles being fought out in the streets of Hong Kong. The application of this policy had always required considerable dexterity but the situation which now presented itself called for a subtle combination of firmness, perspicacity, patience and understanding. In the economic sphere, however, the impact of the refugees and other immigrants from China was not, by reason of a concatenation of circumstances, necessary to look back over certain developments in the last ten years.

Immediately after the war the chaotic economic condition of Asia, and Hong Kong's own remarkable recovery, provided an opportunity to widen the traditional entrepôt function between China and the West so as to include goods moving to or from other areas in the Far East. Industry, which had its beginnings in the nineteen-thirties in relatively inefficient small-scale production, stimulated by Imperial Preference and later by the war in Europe, recovered more slowly. It was encouraged by the post-war scarcity of consumer goods, but it was also handicapped by the lack of raw materials, all of which had to be imported at a time when there was a world-wide shortage of shipping.

The increase of population up to 1949 has been called 'economic' immigration. It sprang from mainly economic causes, and in the economic sphere at all events Hong Kong was able to absorb it. The expansion of trade alone provided a reasonable and improving standard of living for all. Then came the victory of the communist faction in China and, shortly afterwards, the Korean War. The first event was responsible for the influx of the political refugees; and the second led to the American embargo on trade with China (and, initially at least, with Hong Kong), and later to the United Nations embargo on the export of strategic goods to China. Although she was faced with the problem of providing in some way or other for a new influx of 700,000 people, and although the introduction of economic controls was likely to have a serious indirect effect on non-strategic trade, Hong Kong took immediate steps, more far-reaching than those taken by any other territory, to give effect to the embargo on China and so cut off, at its own expense, a major part of its own livelihood. The effect was that total trade, which in 1950 had increased significantly, fell back in 1952 to approximately the 1949 level in terms of value and considerably below 1949 in terms of volume. Indeed, by early 1955 trade with China had dropped to some 15% only of the total (in 1938 75% of the Colony's trade involved China either as market or as source) and was in practice limited to the relatively minor proportions which the embargo allowed and the new trading methods of the Chinese made feasible. In 1951 an American journalist referred to Hong Kong as 'this dying city' and questioned how it could survive with its swollen population and with a great part of its normal trade sacrificed for the general good.

Hong Kong's economic survival was due to the expansion of, and a revolution in, its industry; and this was made possible in some measure by the three gifts which some of the political refugees brought with them from China; the first a surplus of labour, the second new techniques from the North coupled with a commercial shrewdness and determination superior even to that of the native Cantonese, and the third new capital seeking employment and security.