Have you ever imagined a city that officially belongs to one country, but has a completely different legal system, passport, and currency?
This is exactly what happens in the relationship between Hong Kong and China. Hong Kong officially became part of China's sovereign territory as a Special Administrative Region on July 1, 1997.
The return of Hong Kong's territory occurred after Britain ended its colonial rule, which had lasted for 156 years. The transition of power was based on an international treaty called the Sino-British Joint Declaration on December 19, 1984.
The 1984 international treaty gave birth to a governance formula known as the "One Country, Two Systems" principle. This rule was later incorporated into Hong Kong's local constitutional law, named the Basic Law.
The foundational document was passed by the National People's Congress of China in 1990. It then came into full effect on July 1, 1997, marking the official transfer of the territory.
Under the “One Country, Two Systems” framework, the central government in Beijing retains authority over Hong Kong's military defense and foreign diplomatic relations.
Meanwhile, the Basic Law grants Hong Kong the power to manage its internal administration, social policies, and domestic laws independently.
As a result of this autonomous status, the city is not run by a mainland mayor. Instead, Hong Kong is led by a regional head with the official title of Chief Executive.
Two Legal Systems Standing Apart
The most fundamental difference on the ground lies in the structure of the legal system used by the two regions.
Mainland China applies a codified civil law system influenced by socialist legal principles. All judicial institutions in mainland China operate under the direct supervision of the central government's political structure in Beijing.
Meanwhile, Hong Kong retains the British common law system. This common law system relies on prior court rulings as legal precedents inherited from the colonial era.
The Court of Final Appeal of Hong Kong holds the highest jurisdiction, and its legal decisions cannot be overturned by the courts in Beijing. The Hong Kong people are governed by criminal and civil procedural laws that are completely separate from the national laws of mainland China.
Autonomous Administrative Boundaries
The implementation of an independent legal system runs hand in hand with a governance structure that is separate from mainland China's bureaucracy.
Hong Kong's autonomy separates its regional administrative boundaries from Mainland China.
Mainland Chinese citizens cannot enter freely and require a special travel permit called the Two-way Permit to cross into Hong Kong.
The government of Hong Kong even holds full authority to issue special passports for their own local residents. This regional passport provides visa-free access to significantly more countries compared to the mainland Chinese passport.
Separate Monetary Systems
In managing regional finances, the Hong Kong Monetary Authority issues its own currency, the Hong Kong Dollar (HKD). The currency system differs from mainland China, which uses the Renminbi (RMB).
The value of the Hong Kong Dollar has been pegged directly to the United States Dollar (USD) since 1983. The central government in Beijing has no right to interfere with the currency exchange rate policies managed by Hong Kong.
Interestingly, the physical production of banknotes in Hong Kong is carried out independently by a company named Hong Kong Note Printing Limited. The local government of Hong Kong owns a majority 55 percent stake in the printing corporation.
Although printed by a single specialized company, the official authority to issue banknotes belongs to three designated commercial banks. These institutions are HSBC Hong Kong, Standard Chartered Hong Kong, and Bank of China (Hong Kong) Limited.
Each bank must deposit USD into the local government's reserve fund at a fixed rate under the Linked Exchange Rate System since 1983. The cash deposit must be made before any new notes can be legally issued.
