Visitors had a memorable arrival at Kai Tak Airport, a strip of reclaimed land that jutted out from the densely populated Kowloon Peninsula—the Brooklyn to Hong Kong Island’s Manhattan. As their stomachs dropped on descent, passengers could peer into the windows of the multistory collections of flats and workshops that housed the city’s ballooning population. Dealing with the influx of newcomers into squatter encampments (and placating social demands after violent protests in 1967) drove the government into the public housing business along with the public education and basic health service it already provided; state expenditure grew by half from 1970 to 1972.51 By 1973, almost a third of Hong Kong’s 4.2 million residents lived in government housing.52 This was one of the many ways Hong Kong was in fact far less than a pure model of libertarianism. The syndicated columnist John Chamberlain wrote from Hong Kong in 1978 that “some of the Mont Pelerin purists were distressed to learn from a paper presented at their meeting that Hong Kong has rent control and a fair amount of government housing.”53

  Of greater concern, however, was Hong Kong’s uncertain future. The ninety-nine-year lease on the New Territories was set to run out in 1997, less than twenty years from when the Mont Pelerinians met. Its status as a colony was becoming more of an anomaly from year to year. Over the previous century, Britain had devolved control to its overseas territories, starting with the “white dominions,” such as Canada, Australia, and New Zealand. In India, the empire’s crown jewel, many internal affairs were conducted by an elected national government by the 1920s. In 1947, India was let go altogether, followed by other countries in Asia and Africa. The number of new sovereign states swelled in the middle decades of the twentieth century. Most of Britain’s Caribbean and African colonies gained their independence by the mid-1960s. By the late 1970s, Hong Kong had gone from being one star of many in the firmament of overseas European empires to one of the last lonely satellites in an era of postcolonial nationalism. Hong Kong was, as a common phrase went, “living on borrowed time in a borrowed place.”54

  The neoliberals were anxious. Would the heirs of Mao Zedong kill the goose that laid the golden eggs? China previewed its intentions already in 1971, when it had the United Nations remove Hong Kong from its list of colonies.55 The implication was that Hong Kong had always been Chinese sovereign territory and would become so again. Hong Kong was a place out of joint.56 It was a colony in a time of nation-states and a tiny territory in the time of Great Powers. Yet the neoliberals saw it as a harbinger of the future. “Instead of being a 19th century anachronism,” Chamberlain wrote from the conference, Hong Kong was “something to be cherished and extended.”57 But how to do so? Was it possible to extend the Hong Kong experiment in colonial capitalism in an era defined by the common sense of decolonization?

  The Mont Pelerinians came to praise Hong Kong, but many were also there to smuggle its essence out in their luggage ahead of what they feared was its imminent demise. In the years and decades afterward, Friedman and his collaborators created a Portable Hong Kong, miniaturized and stripped of internal contradictions, complexity, and differences of class and culture. They turned it into a mobile template, untethered from place and freed for realization elsewhere. As a model zone, Hong Kong held out the prospect of an escape from the dilemmas and pressures of midcentury democracy. In 1967, at the high point of anti-colonial rebellion, when the nation was still the horizon of liberation, Che Guevara had called for “two, three, many Vietnams.” In 1979, Reason winked and revised the slogan into one for national termination, calling for “two, three, many Hong Kongs.”58

  2.

  In 1841, the British had taken control of Hong Kong as what one contemporary called “a commercial acquisition.”59 Since then, they had run it as much like a perfect form of capitalism as they could. The prospective end of empire was likewise considered a business deal. Some British politicians looked at their remaining colonies as a consultant would look at a distressed or bankrupt company, sniffing out the value of the asset and ferreting out the deadweight. There were voices in the government who felt that fiscal prudence meant letting the remaining territories go.60 But others, like Thatcher herself, had both a sentimental and strategic attachment to empire. Her successful war to hold on to the distant Falkland Islands off the coast of Argentina had boosted her approval ratings, and Hong Kong was a high-performing outpost of the British brand. When she considered the future of the enclave in 1982, she emphasized that it remained a “great asset” to China.61 What if they were to treat it like a firm and separate ownership from control?62 If China regained sovereignty but Britain continued to administer the territory, then the Chinese Communist Party (CCP) would be akin to the shareholders and the UK to their CEO. The British would ensure “commercial confidence” while the Chinese would have the satisfaction of restoring national territorial integrity.63 Thatcher hoped they might renew the lease on the New Territories. She recalled pointing out that “British administration had been so successful with the Chinese character, would they, as the landlord who has the freehold, give us another lease or give us a management contract for administration?”64 Another option floated was also borrowed from business: a “leaseback” arrangement, in which Hong Kong would return to China but the UK would lease it again.65

  The Chinese rejected these notions. One of the leadership’s goals was to erase the historical stain of the loss of territory to imperialism.66 Yet they were also aware they needed to do so without losing the utility of the colony. Economically, China had grown to depend on Hong Kong. Despite its placement in the “Second World” by Western observers, China had been estranged from the Soviet Union since the early 1960s and found its primary trading partners in the West. Much of that trade happened through Hong Kong.67 It was important for the Chinese that capital and goods continue to flow in and out of the territory even after the handover, irrigating the People’s Republic by a back channel. Hong Kong was China’s air lock—its openness to the world economy meant that China could remain selectively protected from it. It had to remain that way once it returned to national control.

  China’s first challenge was how to calm the Hong Kong capitalists “nervously checking the exits.”68 For 150 years, the balancing act for the British colonial government was how to keep the business community happy and its demand for participation in government placated without opening the door for the masses to enter. This meant an informal system of bargains and unwritten entitlements but also the direct appointment of selected elites to the colony’s rubber-stamp government—a group referred to fittingly as the “Unofficials.”

  One solution arrived at by China and the colonial authorities was to constitutionally enshrine as many capitalist freedoms as possible under the new management. Premier Zhao Ziyang gave early reassurances that China would keep the territory as a free port and international financial center.69 In 1979, Deng Xiaoping clarified that Hong Kong would be ruled as a “special administrative region” (SAR) after it was folded into the People’s Republic of China, free “to practice its capitalist system while we practice our socialist system.”70 The Sino-British Joint Declaration of 1984 put this in writing, as the Chinese agreed not to alter the system in Hong Kong for fifty years after the handover, setting the clock for full absorption into the mainland in 2047. The new leader would be called the chief executive, a term borrowed from the corporate board room. In a further sign of continuity, the Hongkong and Shanghai Banking Corporation—HSBC, known locally as “the Bank”—opened the doors of its new Norman Foster–designed headquarters in 1986. The fifty-six-story slab was described by one journalist as a “beached oil rig,” but, more important, as “a commitment of one billion dollars immovably embedded at the heart of the financial district.”71

  Negotiations for the handover were made easier by the discovery that the CCP elite and the Hong Kong business community had something in common with Milton Friedman: a clear prioritizing of economic over political freedom. Business elites were the first targets for a “united front” strategy to smooth the transition, making up 70 percent of the drafting committee for Hong Kong’s mini-constitution, or Basic Law.72 Few people in the rooms that mattered were invested in expanding the possibilities of democracy.73 One representative from business was quoted as saying that Hong Kong had “benefited over the years from the lack of democracy,” crediting it with fending off demands for a minimum wage in the 1950s and 1960s.74 Another business leader put the sentiment more bluntly when he called democracy “gone wrong” as a system where “the whole is equal to the scum of the parts.”75 Those who wanted to ensure a degree of local control were sidelined; as the journalist Louisa Lim put it, “the Hong Kong people were mere spectators to their own fate.”76

  What could be called the Hong Kong compact was at the heart of the Basic Law, a mutually beneficial arrangement between local tycoons and the incoming Chinese rulers that followed smoothly on the “rewarding alliance” with the colonial rulers that preceded it.77 The point was brought home when the Basic Law passed in 1990. It included clauses to preserve features of the old Hong Kong by guaranteeing balanced budgets and low taxes. A Hong Kong lawyer was not far off when he observed that the clauses read “like an excerpt from Milton Friedman.”78 The drafters had cited the work of MPS members Buchanan and Rabushka directly.79

  The Basic Law came as a revelation to neoliberal intellectuals.80 They had worried that the Communist Party would destroy the foundations of economic freedom in the territory. Yet they found that the CCP and the Hong Kong businesspeople wanted the same thing: rule of law, bank privacy, weak labor laws, security of contract, and a stable currency. Rather than a threat to capitalist freedoms, the CCP looked like a bulwark. The Chinese were also innovating. Thatcher paid little heed when the Chinese premier mentioned that they were opening parts of the southern coast as “special areas” free to develop their own foreign trade yet the aside would be of great consequence.81 They were about to teach the British about the changing nature of capitalism. China’s rise to global economic power would happen, in part, by turning the country into a galaxy of miniature Hong Kongs.

  3.

  The Hong Kong of the Joint Declaration and Basic Law was a strange beast, coming close to a state within a state. An international lawyer trying to make sense of it noted that it had more autonomy than provinces or other federal units but less than fully fledged nation-states. He had to reach back in time for analogies, comparing it to free cities like Krakow created in the nineteenth century or the Swiss cantons before federation.82 The legal curiosity of Hong Kong had internal self-rule but was externally dependent on Beijing. While defense was covered by China, Hong Kong had control over its own internal affairs, including currency, taxation, judges, police, and courts, as well as some external affairs, including its own visa and immigration procedures. Beijing collected no tax in Hong Kong, and the territory was legally slated to remain both a free port and international financial center, with a guarantee of the free movement of goods and capital. Under the title of Hong Kong, China, it could enter some international agreements independently, especially those related to the matters of trade, shipping, and aviation. Hong Kong became party to the General Agreement on Tariffs and Trade (GATT) in 1986, and joined the World Trade Organization years before China itself.83 It had, in short, economic freedom and legal self-administration without the status of national independence.

  “One country, two systems” is how Deng defined the arrangement, first in reference to Taiwan and then to Hong Kong.84 Although the phrase has become familiar through repetition, it is worth noting how unusual it actually is. The Cold War frame that dominated world politics from the late 1940s to the 1990s was seen as a clash between two blocs, each with its own monolithic system. It was Capitalism versus Communism, and only one could triumph. The idea that a single economic system would be coterminous with national borders was self-evident, too obvious to even state. China was communist, America was capitalist. What could it mean for part of “Red” China to shed its color and partially tolerate capitalism? Deng was proposing a subdivision of the nation-state, which did not scan to contemporary minds.85

  Few of the Mont Pelerin Society intellectuals hobnobbing at the Mandarin and the Excelsior realized they were arriving at a world-historical moment of flux as China realigned the energies of its one-billion-strong population and huge latent productive force. While the MPS members gathered for their political education and shopping junket, Deng was preparing a plan for reform that came to be called “crossing the river by feeling for the stones.”86 It could have been called crossing the river by feeling for the zones. After he became paramount leader in December 1978—and Time’s Person of the Year—the first four experimental special economic zones (SEZs) were created on the Pearl River Delta, nestled up to Hong Kong on the South China Sea. In contrast to the shock treatment meted out by Augusto Pinochet to Chile after his 1973 coup, or the Big Bang overnight price reforms carried out in postcommunist Russia and Eastern Europe, China used a model of “experimental gradualism,” opening up sluices and locks to foreign investors and market-determined prices rather than dynamiting the levee and letting it all flood in.87

  The first opening for the experiment in capitalist hydraulics was the district of Bao’an—on the other side of the Shenzhen River, which divided the New Territories from China—fifteen miles from Central Hong Kong but a world away in terms of the standard of living in the late 1970s. Visitors across the frontier described subsistence farmers in simple houses, with none of the mass market comforts enjoyed by even poorer Hong Kongers. In January 1979, the seam between the two worlds was breached when a Hong Kong businessman pitched the idea of a zone for what would later be called Shenzhen. He brought with him the import from Hong Kong closest to the neoliberals’ heart: the 15 percent corporate tax rate.88 By spring of that year, Hong Kong businesspeople were invested in a couple of hundred light industry projects on the Pearl River Delta, with many more waiting. “Just as the Americans have taken advantage of the underpaid, nimble-fingered factory girls of Hong Kong to cut costs by processing their goods here,” one journalist wrote, “so Hong Kong capitalists involved in less sophisticated, labor-intensive industries are turning speculative eyes on the underpaid Communist workers.”89

  For many years, arriving in Shenzhen would have felt like entering a foreign country. It was ringed by barbed-wire fences, and even Chinese citizens needed visas to enter, “quarantining a space of economic experimentation.”90 Inside, a radical undertaking was underway. Local entrepreneurs were left to self-organize with little or no direction from Beijing, and government took the form of corporate management.91 The zone welcomed a massive influx of foreign investment and hosted an epochal transformation: the rendering of Chinese land and labor back into commodities. Beginning in 1982, contracts were introduced for workers in Shenzhen, breaking with communist China’s “iron rice bowl” tradition of permanent employment. They called it ant theory—attracting scout ants with sweetness, who would bring other investor ants in tow.92 The model later spread to the whole country.93 Since the revolution in 1949, land had been governed by the “three withouts”: “allocated through administrative means without compensation, without specified tenure and without market transaction.”94 In Shenzhen in 1987, for the first time, a market in land was introduced under pressure from Hong Kong investors.95

  The outcome was a deluge. What became known as zone fever gripped the nation, as huge amounts of land were sucked from rural usage and collective ownership and transformed into private property on long-term leaseholds, constituting one of the biggest transfers of public into private wealth in the modern age.96 On paper, the success was staggering, one of the fastest episodes of economic growth in world history.97 In 1980, officials had aimed to bring perhaps three hundred thousand people to Shenzhen by 2000.98 The real number was ten million. By 2020, the population had doubled again, to twenty million, with a GDP greater than Singapore or Hong Kong. The template was set for a “China of enclaves,” what some dubbed the country’s “zonification.”99

  “If there were a single magic potion for a Chinese economic takeoff,” one scholar writes, “it was Hong Kong.”100 As the so-called big master for the zones, Hong Kong was a prototype, a place to study the limits of liberalization and the relative uses of freedom, as well as a template for experimentation and proof that huge volumes of money and goods could travel through a small conduit.101 Two-thirds of foreign direct investment in China came through the “southern gate” of Hong Kong in the decades after opening up.102 From their beginnings in the late 1970s, the SEZs multiplied from southern anomalies to further experiments up the coast, until they spread across the entire country.103 They were joined by zone-like small-scale efforts of marketization, as “town and village enterprises” were permitted to produce and sell for the market.104 The “decollectivization” of the countryside created a reserve army of migrant laborers who moved between the city and the countryside, offering their labor as the crucial input for the construction-led boom.105