‘A Rolex Watch Being Taken Over by a Garage Mechanic’

HONG KONG — If this city were a person, its fortune would be impossible to tell because its defining lines are constantly changing, according to Hau Yat-keung, a palm reader. Even as this seer speaks, his words are interrupted by jackhammers and pile drivers remaking the urban skyline on the newly narrowed banks of Hong Kong Harbor.

But there are other things here immutable and unchanging: The location of this tiny island off the looming mainland mass and China’s upcoming takeover of the colony from Britain.

While Beijing has promised Hong Kong that its political and economic freedoms will remain untouched for 50 years, for better or worse, Hong Kong’s fate hinges on what China will become.

And as residents here are counting down to the hand-over of Hong Kong--known for its shimmering skyscrapers and humming harbor that mark it as an international deal-making center and a city where money and family ties define life and leisure--they are performing a kind of mental calculus. They are asking: What’s to be lost? What’s to be gained? What does the future hold?

The views are vivid and varied about the central issues of liberty and economics, of what made this place great and what will ensure its prospects and prosperity. For investment banker Vivian Cheung, the chance to share in China’s prospects is enough to bring her home from England. To industrialist Raymond Chien Kuo-fung, Hong

Kong’s biggest challenge is not keeping apart from China, but keeping ahead of it. One dissident is also trying to stay ahead of

China--she will be leaving Hong Kong before the new rulers arrive. Democrat Martin Lee is working to ensure that Hong Kong retains its political freedoms so people won’t have to look over their shoulders. Retired clerk Wong Su-ming hopes the booming city’s new rulers will share more of the wealth.

Cheung, 29, an investment banker who was living in England, chose to return before the hand-over, partly to keep her Hong Kong citizenship and partly because of the booming economy--she can make more money here than in Britain.

But mostly she came back because Hong Kong is her home.

“There are more opportunities here,” she said after unpacking cardboard boxes, “and my family is here too.”

Hundreds of thousands of Hong Kong citizens who left the territory after the 1989 Tiananmen crackdown in Beijing are now returning after securing second passports or the right to live in another country as a safeguard should conditions worsen under Chinese rule.

In Cheung’s lifetime, the average Hong Kong citizen’s production power has tripled. Their per capita gross domestic product surpassed that of their British colonial masters’ average nearly a decade ago and is now nearly $25,000 a year.

Though the economy is maturing, opportunities are better in Hong Kong--and across Asia--than in most other places in the world. For those who don’t fear it, the motherland may hold the mother lode.

“China is unpredictable,” Cheung says. But piggybacking on its growth is undeniably profitable, and her British passport is in her back pocket if things go wrong.

The greatest threat to Hong Kong comes not from China, says Chien. It is the threat within.

Hong Kong’s greatest value to China is its economic success. But with rents among the highest in the world, inflation at 6.5% and expensive labor, economists say Hong Kong could be losing its edge.

With up-and-coming regional rivals such as Singapore, Taipei and Shanghai competing in financial services, shipping and manufacturing, Hong Kong can’t be complacent.

“It’s not enough for Hong Kong to be as open as other places,” says Michael Enright, co-author of “The Hong Kong Advantage,” an economic analysis of the territory. “It’s got to be more open. The question is, do Hong Kong companies understand what they need to do?”

Enright’s prescription is for Hong Kong to focus on innovation as much as adaptation of foreign products; to specialize in unique services and value-added elements in the manufacturing chain; and to remain an oasis of free-flowing information and finance. And on the drawing board for the incoming government, which is flirting with industrial policy: a government-funded science park to encourage new technology; a revamp of the education system to generate more bilingual professionals; and creation of a venture-capital fund.

The key to Hong Kong’s survival is to remain a catalyst for China’s development without losing sight of its international role.

“If China does poorly, Hong Kong will suffer,” says Chien, a Cabinet member in the British-administered government who will stay on to advise the new regime on industrial competitiveness. “If China does well, it could quickly do better than Hong Kong.”

Indeed, China is leaving behind its stodgy Communist ways of doing business. But there is still much to learn.

Jimmy McGregor, the former head of the Hong Kong General Chamber of Commerce, once said that handing Hong Kong’s finely tuned economy to China was like “a Rolex watch being taken over by a garage mechanic.”

China has promised to keep its hands out of the works. Beijing says it will not touch Hong Kong’s healthy $42 billion in reserves, collect taxes from the territory or break the Hong Kong dollar’s peg to the U.S. greenback. Hong Kong will be able to make its own budget and keep independent memberships in international trade and financial bodies.

The Hong Kong officials in charge of the economy--Finance Secretary Donald Tsang and Monetary Authority chief Joseph Yam--are considered independent, outspoken defenders of Hong Kong’s way of doing things. They will keep their posts under the new government, and their early resignations would be seen as a bad sign.

In the private sector, analysts are watching mainland takeover moves on British monopolies in key sectors such as airlines, telecommunications and power.

“There are forces at work that will change share-holdings in strategic industries to mainland hands,” says Victor Fung, chairman of the Hong Kong Trade Development Council. “But it should be done in a way that’s at arm’s length and commercial, to the benefit of both players.”

Fung foresees a gradual Sinification of Hong Kong as more and more mainland companies invest here and list on the stock exchange. Adding Chinese capital could make Hong Kong’s Hang Seng index larger than New York’s in 50 years, Fung predicts.

Up to 15,000 Chinese companies have already set up here, with many more on the way after July 1. And Hong Kong’s No. 1 fear of the future, according to polls, is that they will bring common but corrupt mainland practices with them.

While many quibble about whether it is China’s rapid growth or Britain’s laissez-faire legacy that is behind Hong Kong’s economic success, few disagree that the rule of law is essential to maintaining it.

“Hong Kong people value their way of living and their freedom,” says Henry Tang, a legislator and member of the Cabinet of Tung Chee-hwa, the incoming Chinese-approved Hong Kong chief executive. “If they see their freedoms and the rule of law being chipped away at the edges, it will send a very bad signal.”

While lawyers’ powdered horsehair wigs may eventually disappear, and judges may intone verdicts in Cantonese along with the Queen’s English, Hong Kong is supposed to keep the British common law system.

For the first time, Hong Kong will have its own Court of Final Appeal--the equivalent of the U.S. Supreme Court.

But critics say the new administration may make changes in the legal system that will make judges more vulnerable to political pressure.

A panel of sitting judges now picks other judges. But the post-hand-over legislature wants the power to screen these choices.

This, combined with the erosion of civil liberties and new electoral arrangements that may limit the opposition, is worrisome, lawyer Margaret Ng says.

“Hong Kong is based on a system of checks and balances,” she says. “These changes will dismantle that system, and with it, Hong Kong’s success.”

Hong Kong’s freedoms are what drew one formerly imprisoned Chinese dissident, who decided to flee political persecution and a forced abortion, to Hong Kong in 1993. On a recent Sunday afternoon, her baby, Shan-Shan, now 4, perched atop her father’s shoulders and practiced her English vocabulary.

“Butterfly,” she said as a yellow insect fluttered by. “Tree.”

Then she pointed to a crowd rallying against proposed curbs on civil liberties: “Respect human rights.”

Her father squeezed her leg and laughed. The rally was part of her civic education, he said.

“I don’t care what she chooses,” he said. “I just want her to have a choice.”

Because they fear that freedom will dwindle after the hand-over, Shan-Shan’s family has made a choice: leave for America before July 1.

On this day the family was among 50 people at an impromptu demonstration to protect the right of protest; after the hand-over, demonstrations with more than 30 people will require approval from police, who can deny permission for political reasons and without explanation.

Those who gather without approval, no matter how peacefully, could be arrested--a chance Shan-Shan’s mother does not want to take.

The police, she fears, could also charge her for entering the territory illegally--which may mean deportation to China, where she could be charged with subversion and face another prison term.

Most people in Hong Kong do not take to the streets on Sundays, and they say they do not see the use of delivering petitions that future leaders may not read.

At the same time, polls show, most do not want their freedoms to disappear.

Other restrictions proposed by incoming leader Tung “to ensure social stability” raise concerns.

One law will prohibit sedition, treason, secession, subversion and stealing state secrets. Some fear the vaguely defined rules will be used to silence critics, as they are on the mainland.

“What is the definition of sedition?” asks Law Yuk-kai, the director of Human Rights Monitor. “Only Beijing knows.”

Groups such as Human Rights Monitor worry that they may be banned under new laws prohibiting groups that threaten “national security” or foreign funding of political parties.

Martin Lee, leader of Hong Kong’s most popular party, the Democrats, is working to preserve the territory’s freedoms--and ultimately to change China.

But he will be out of a job on July 1: The incoming government will replace the elected legislature with an appointed one because Beijing objected to new electoral arrangements introduced by the British and outgoing Gov. Chris Patten.

Although the Provisional Legislature will sit only until new elections in June 1998, it will make crucial laws defining Hong Kong’s way of life. Besides restricting protests and ties to foreign groups, it will draw up new arrangements for elections.

Tung, the new chief executive, cites a need to “balance the needs of society against the rights of the individual.”

Tung denies that the new administration is trying to squeeze out the Democrats and says real democracy will begin after the hand-over.

Now, only one-third of the legislature’s 60 seats are directly elected; the number will gradually increase until 2007, when Hong Kong may have a referendum on whether to continue toward a fully elected body.

Tung, chosen by a select group of 400 Hong Kong community leaders and approved by Beijing, points out that Hong Kong never has had the chance to pick its own leader--the territory’s governor has always been appointed by Britain.

With the top job comes Hong Kong’s toughest problems.

In April, for example, Wong Su-ming, 83, came to the governor’s front gate, one upraised fist holding a cane, the other holding a sign demanding an increase in welfare payments.

“After food and rent, $250 a month isn’t enough to live on,” said Wong, wearing a striped pajama top.

But along with the many social problems Tung will inherit when he takes office July 1, he will also come into a stunning $42 billion in reserves.

Social issues are his chance to win the most favor. The new leader has promised to refocus government’s attention from politics to bread-and-butter issues--without veering toward a welfare state.

“We need to balance fiscal prudence with compassion,” Tung says.

One of his first moves may be to establish a mandatory provident fund, which would be the equivalent of Social Security in the U.S., and to increase assistance payments to needy elderly people such as Wong.

It would be a significant financial commitment: Hong Kong’s graying population is growing quickly, with the number of people older than 65 predicted to hit 1 million in 20 years.

At the same time, 150 new immigrants a day are coming across the border from China, a trend that could push the tiny territory’s population from 6.3 million to 8.2 million in 20 years, according to the Census and Statistics Department. For a place that already has the world’s most closely packed population, that means a destiny of unbearable density.

Already, the housing market has been pushed out of whack by the limited supply of land. More than half the population lives in government-subsidized housing, and plans to shut down subpar temporary shelters have been shelved because of the constant stream of mainland immigrants.

Environmentalists worry that Hong Kong will have to give up its parks and wildlife preserves and sacrifice air and water quality to sustain the growth.

“We must be careful,” Greenpeace Director Clement Wong says. “Hong Kong’s unbridled success, more than anything, could lead to its failure in the future.”