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.

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.

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.”

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.