The current controversy between Great Britain and China regarding the legal status of Hong Kong, having lain dormant for many years, was made explicit by a public exchange of statements between the governments of the two countries during and after the visit to Beijing of British Prime Minister Mrs Margaret Thatcher in September 1982.

Uncertainty about Hong Kong's future has been aggravated by lack of precedent. When before has there been an established date of termination of colonial rule set by treaty? Even more confounding is that the history of the Crown Colony provides so little guidance as to its future. The usual practice in facing uncertainty is to look to the past to chart trends, identify propensities and make projections. All of these standard methods are, however, to no avail with respect to the future of Hong Kong. We are left to the mercy of that purported ancient Chinese saying, “Prediction is exceedingly difficult, especially with respect to the future.”

Before 1842 all western trade with China was carried on through the port of Canton (Guangzhou). From the point of view of the Chinese Government, Canton had two advantages: it had a long history and much experience of sea-borne trade, and it was a great way from Peking (Beijing), China's capital. Thus the foreigners could be kept as distant as possible from the court and their corrupt and barbaric ways would do least damage. In Canton the western traders were allowed to live in their “factories” during the tea-trading season after which they had to leave. They could not bring with them either their womenfolk or their weapons, they could officially have no more than eight Chinese servants per factory, and they were forbidden to move out of the small factory area except on occasional special days. There was thus little mixing between. Chinese and westerner and, as one observer wrote in 1855, “We pursued the evil tenor of our way with supreme indifference, took care of our business, pulled boats, walked, dined well, and so the years rolled by as happily as possible.”

At midnight on 30 June 1997 the 99-year lease on the New Territories expires. Although the Chinese Government has yet to announce final plans for a resumption of control, the most recent indications are that British administration will cease on that date It is commonly agreed that Hong Kong cannot survive as an “independent territory” without the New Territories (technically the island of Hong Kong and parts of Kowloon south of Boundary Street are not involved in the 1898 lease). The purpose of this short article is to acquaint the general reader with some aspects of the history and social structure of the New Territories, and the unique Chinese sub-culture that has emerged.

In the course of the development of Hong Kong from an over-populated refuge to an international city of state dimensions, its government and political institutions have seldom been the object of detailed analysis by outside observers. One explanation may be that hitherto foreigners have been interested mainly in the performance of the economy to the exclusion of other considerations; now that external factors are influencing the internal affairs of Hong Kong and affecting prospects for growth, the local reaction to the possibility of hard times may be carefully scrutinized. Another, equally plausible, explanation is that since the government is colonial in style with no political parties mutually contesting at regular intervals to form a new administration, the political scene lacks the punctuation marks which would stimulate outside interest. Further consideration of this latter feature suggests that while senior civil servants and appointed representatives may govern impeccably they perforce avoid public debate, and in their public appearances are in any case no substitute for the charismatic leader when it comes to attracting foreign attention. At home, the Government of Hong Kong and its political institutions do not escape scrutiny so easily. Both universities have scholars working in this field and vigorous popular comment and debate is a daily characteristic of the mass media. From a local vantage point, contrary to what may be the view from abroad of an unchanging government and political institutions, significant changes have taken place as Hong Kong has undergone rapid physical development. Although they are changes within an established tradition of government, and do not therefore constitute a fundamental reform, they represent an important advance in community involvement in the administration of Hong Kong.

Variations in economic performance have in recent years been subject to increasingly sophisticated analyses; but the chemistry of growth remains mysterious. Although we can usually measure the physical contributions to increased output, these variations rarely explain everything we wish to understand. This is unfortunate because it makes prediction hazardous, particularly in situations where basic parameters are changing. Nonetheless, the requirements of policy require an effort to be made, and it is the purpose of this article to describe and explain the changing economic scene in Hong Kong and thereby to draw attention to some of the economic dimensions of the changing relationship between Hong Kong and China. The main thesis of the article is that Hong Kong is already passing over an economic watershed, and that present and future relations with China must be seen in that light.