While the Chinese may argue, with justification, that Hong Kong is Chinese territory, the development of the city only began with the arrival of the British in Guangzhou in the eighteenth century.

 

The Portuguese had already been based at Macau, on the other side of the Pearl River Delta, since the mid-sixteenth century, and as Britain's sea power grew, so its merchants, too, began casting envious eyes over the Portuguese trade in tea and silk. The initial difficulty was to persuade the Chinese authorities that there was any reason to want to deal with them, though a few traders did manage to get permission to set up their warehouses in Guangzhou - a remote southern outpost, from the perspective of Beijing - and slowly trade began to grow. In 1757 a local Guangzhou merchants' guild called the Co Hong won the exclusive rights to sell Chinese products to foreign traders, who were now permitted to live in Guangzhou for about six months each year.

In the meantime, it had not escaped the attention of the foreigners that the trade was one-way only, and they soon began thinking up possible products the Chinese might want to buy in exchange. It did not take long to find one - opium from India. In 1773 the first British shipload of opium arrived and an explosion of demand for the drug quickly followed, despite an edict from Beijing banning the trade in 1796. Co Hong, which received commission on everything bought or sold, had no qualms about distributing opium to its fellow citizens and before long the balance of trade had been reversed very much in favour of the British.

The scene for the famous Opium Wars was now set. Alarmed at the outflow of silver and at the rising incidence of drug addiction among his population, the emperor appointed Lin Zexu as Commissioner of Guangzhou to destroy the opium trade. Lin, later hailed by the Chinese Communists as a patriot and hero, forced the British in Guangzhou to surrender their opium, before ceremonially burning it. Such an affront to British dignity could not be tolerated, however, and in 1840 a naval expeditionary force was dispatched from London to sort the matter out once and for all. After a year of gunboat diplomacy - blockading ports and seizing assets up and down the Chinese coast - the expeditionary force finally achieved one of their main objectives, through the Treaty of Nanking (1842), namely the ceding to Britain "in perpetuity" of a small offshore island. The island was called Hong Kong. This was followed eighteen years later, after more blockades and a forced march on Peking, by the Treaty of Peking , which granted Britain the Kowloon peninsula, too. Finally, in 1898, as the Qing dynasty was entering its terminal phase, Britain secured a 99-year lease on an additional one thousand square kilometres of land to the north of Kowloon, which would be known as the New Territories.

The twentieth century has seen Hong Kong grow from a seedy merchants' colony to a huge international city, but progress has not always been smooth. The drug trade was voluntarily dropped in 1907 as the Hong Kong merchants began to make the transfer from pure trade to manufacturing. Up until World War II, Hong Kong prospered as the growing threat of both civil war and Japanese aggression in mainland China increasingly began to drive money south into the apparently safe confines of the British colony. This confidence appeared glaringly misplaced in 1941 when Japanese forces seized Hong Kong along with the rest of eastern China, though after the Japanese defeat in 1945, Hong Kong once again began attracting money from the mainland, which was in the process of falling to the Communists. Many of Hong Kong's biggest tycoons today are people who escaped from mainland China, particularly from Shanghai, in 1949.

Since the beginning of the Communist era , Hong Kong has led a precarious existence, quietly making money while taking care not to antagonize Beijing. Had China wished to do so, it could have rendered the existence of Hong Kong unviable at any moment, by a naval blockade, by cutting off water supplies, by a military invasion - or by simply opening its border and inviting the Chinese masses to stream across in search of wealth. That it has never wholeheartedly pursued any of these options, even at the height of the Cultural Revolution, is an indication of the huge financial benefits that Hong Kong brings to mainland China in the form of its international trade links, direct investment and technology transfers.

In the last twenty years of British rule, the spectre of 1997 loomed large in people's minds. In 1982 negotiations on the future of the colony began, although during the entire process that led to the Sino-British Joint Declaration nerves were kept on edge by the public posturings of both sides. The eventual deal, signed in 1984, paved the way for Britain to hand back sovereignty of the territory (something the Chinese would argue they never lost) in return for Hong Kong maintaining its capitalist system for at least fifty years.

Almost immediately the deal sparked controversy. It was pointed out that the lack of democratic institutions in Hong Kong - which had suited the British - would in future mean the Chinese could do what they liked. Fears grew that repression and the erosion of freedoms such as travel and speech would follow the handover. The Basic Law , which was published by the government in 1988, in theory answered some of those fears. It served as the constitutional framework, setting out how the One Country/Two Systems policy would work in practice. But it failed to restore confidence in Hong Kong, and a brain-drain of educated, professional people leaving for other countries began to gather pace.

The 1989 crackdown in Tian'anmen Square seemed to confirm the Hong Kong population's worst fears. In the biggest demonstration seen in Hong Kong in modern times, a million people took to the streets to protest what had happened. Business confidence was equally shaken, as the Hang Seng index, the performance indicator of the Stock Exchange, dropped 22 percent in a single day.

The 1990s were a roller-coaster ride of domestic policy dramas: the arrival of tens of thousands of Vietnamese boat people (ironically, refugees from communism), the rise of the democracy movement and arguments about whether Britain would give passports to the local population . When Chris Patten arrived in 1992 to become the last Governor, he walked into a delicate and highly charged political situation. By means of a series of reforms, Patten quickly made it clear that he had not come to Hong Kong simply as a make-weight: first, much of the colonial paraphernalia was abandoned, and then - much to the fury of Beijing - he broadened the voting franchise for the 1995 Legislative Council elections (Legco) from around 200,000 to around 2.7 million people. Even though these and other changes he introduced guaranteed that the run-up to the 1997 handover would be a bumpy ride, they won the governor significant popularity among ordinary Hong Kong people, although the tycoons and business community had far more mixed feelings.

After the build-up, the handover itself was something of an anticlimax. The British sailed away on HMS Britannia, Beijing carried out its threat to disband the elected Legco and reduce the enfranchised population, and Tung Che Hwa, a shipping billionaire, became the first Chief Executive of the Hong Kong Special Administrative Region (SAR). But if local people had thought that they would be able to get on with "business as usual" post-handover, they were wrong. Within days the Asian Financial Crisis had begun, and within months Hong Kong was once again in the eye of a storm. While the administration beat off attempts to force a devaluation of its currency, the stock and property markets suffered dramatic falls, tourism collapsed, unemployment rose to its highest levels for fifteen years, and the economy officially went into recession. While the administration characterized these as temporary setbacks - part of a global economic downturn - there was undoubted dismay amongst official circles in both Hong Kong and Beijing at the increasing - and unprecedented - level of criticism of officials and their policies in newspapers, on radio phone-in's and among ordinary people - not to mention the enduring and not unrelated popularity of the democratic parties.