THE STORY

Hong Kong Island was a small uninhabited rocky island at the mouth of the Pearl River until the 1830s when, during the days of the tea and opium trade, British sea captains discovered its magnificent protected harbor. Its name derives from two Chinese characters "Heung Kong" meaning fragrant harbor. Some historians suggest that the name might have been inspired by the scent of opium-laden ships in the harbor. Others think the name may have been a reference to the incense and joss stick industries on the south and west coasts of the island. The origin of the name, however, was unimportant to the British who settled on the island and made it an important port for all Far East trade.

During the Nineteenth Century, Britain concluded three treaties with China relating to Hong Kong: the Treaty of Nanking, signed in 1842 and ratified in 1843 under which Hong Kong Island was ceded in perpetuity; the Convention of Peking in 1860 under which the southern part of the Kowloon Peninsula and Stonecutters Island were ceded in perpetuity; and the Convention of 1898, under which the New Territories and outlying islands (comprising 92% of the total land area of the colony) were leased to Britain for 99 years from July 1, 1898.

Hong Kong and the Kowloon Peninsula are relatively small35 square mileswhile the New Territories and outlying islands (235 of them) comprise a much larger land area377 square miles. Although the British settled Hong Kong, today they represent just 2% of the population, with most of the remaining 5.3 million residents being Chinese.

It was the fact that the New Territories are subject to a lease that caused the current British Government to enter into negotiations on the future of Hong Kong with the People's Republic of China in the late 1970s. The Chinese Government has consistently taken the view that the whole of Hong Kong is Chinese territory. Its position for many years was that the question of Hong Kong fell into the category of unequal treaties of the past; that it should be settled peacefully when conditions were right; and that pending a settlement, the status quo should be maintained.

Of course, subtle hints were dropped from time to time. All of Hong Kong's water and a substantial amount of its food come from China and the New Territories, and it would be difficult for the residents of the island to exist without them. But, officially, the position was that the matter should be settled through diplomatic channels.

In the late 1970s, as the duration of the New Territories lease decreased, concern about the future of Hong Kong began to be expressed both in the colony itself and among foreign investors. In particular, there was increasing concern about individual land leases granted in the New Territories, all of which were set to expire three days before the expiration of the New Territories lease in 1997. It was clear that the short duration of these leases and the inability of the Hong Kong Government to grant new ones extending beyond 1997 would deter future investment and undermine confidence.

The British Government determined that the situation would become untenable by the mid-1980s if nothing was done. Thus, the Governor of Hong Kong visited Peking in March 1979 and attempted to solve the specific question of leases in the New Territories. He was not successful and not much happened for another two years. Then, finally, in 1982 Chinese officials indicated to a visiting British delegation that they were prepared to enter into negotiations over Hong Kong. Accordingly, Prime Minister Margaret Thatcher met with Chairman Deng Xiaoping on September 24, 1982, and jointly they "agreed to enter into talks through diplomatic channels with the common aim of maintaining the stability and prosperity of Hong Kong." During these negotiations, Hong Kong and British delegates explained in detail the legal and commercial systems which prevail in Hong Kong and the importance to these systems of the British role and link. Following extensive discussion, however, it became clear that the continuation of British administration in any form after 1997 would be unacceptable to the Chinese.

The British then agreed to explore the possibility of a bilateral arrangement coupled with a high degree of autonomy under Chinese sovereignty to ensure lasting stability and prosperity for Hong Kong. Discussions intensified after April 1984, resulting in a Joint Declaration issued on September 26, 1984.

The declaration formally states that China will resume the exercise of sovereignty over Hong Kong Island, Kowloon, and the New Territories as of July 1, 1997. Hong Kong will be established as a "Special Administrative Region" called Hong Kong, China, which will be under the direct authority of the Central People's Government of the People's Republic of China. The Hong Kong Special Administrative Region will be vested with executive, legislative, and independent judicial power, and laws currently in force in Hong Kong will remain basically unchanged.

The government of Hong Kong will consist of officials nominated by the Central People's Government. Local Hong Kong inhabitants, British, and other foreign nationals may be employed as advisors and even hold certain (unspecified) posts in various government departments.

Because free trade has made Hong Kong what it is today, it will retain its status as a free port and a separate customs territory. Nor will it be taxed by China. In the interim, the British will continue to govern Hong Kong with the important provision that land leases can be written through the year 2047.

Reaction to the pact is mixed. Most people in Hong Kong have no other place to go and, even if they did, would have difficulty getting a permanent visa. Hence, they tend to think that Hong Kong should accept the agreement and try to make the most of it. Some British managers and administrators in Hong Kong are quietly making contingency plans, but many intend to stay and give it a try. Hong Kong-born Chinese in Britain and other parts of the world have been quick to condemn Britain's negotiations as a "giveaway" and a "farce." As one said, "Hong Kong people are trying to convince themselves that the agreement will bind China, but it's just not true. China will do what she likes as she always has in the past." Another expressed concern that "there is nothing to prevent Hong Kong from being ruled by the mainland."

Chinese officials, of course, declare that the people of Hong Kong have nothing to fear. On October 3, 1984, Deng Xiaoping told a group of visiting Hong Kong delegates, "The Chinese Government will not change its policy, nor can anyone else change it." He went on, "We have kept our word in external affairs even during periods of chaos. It is the tradition of the Chinese nation to honor its commitments."

All of which sounds good, critics say, except that when July 2, 1997, rolls around, Hong Kong will no longer be considered an "external affair" by China. As for China honoring its commitments, skeptics urge the people of Hong Kong to ask scores of American wheat farmers what happened to their three-year contracts with that country when its harvests improved in 1985. Or to ask the managers of the Ameripex International Philatelic Exposition about China's withdrawal from the exposition on opening day to protest the participation of Taiwan.

Today, Hong Kong is still a thriving, cosmopolitan city of many contrastselegant shops and crowded street markets, first-class restaurants and outdoor food stalls, luxury hotels and teeming tenements, bustling factories and peaceful duck farms, noisy discos and ancient temples. After Tokyo, it i the main commercial hub of the Far East, and, as the Tourist Association brochure proclaims, it is "one of life's great adventures."

