Hong Kong will soon mark the tenth anniversary of its return to China. At midnight on July 1, 1997, amid the mournful downpour of a tropical monsoon, as British soldiers lowered the Union Flag for the last time and Tony Blair, the fresh-faced new prime minister, looked on, another chapter in Britain's long colonial history closed.

But this recessional for a lost empire was unlike almost all of the previous scenes of decolonization enacted over the preceding 50 years. For the first time, the United Kingdom was not ceding sovereignty to the people of the little territory it had governed for 150 years. It was handing them over, lock, stock, and barrel, into the welcoming arms of the People's Republic of China, a regime that had, just eight years earlier, revealed to the world the shocking depths to which it would stoop in its own self-preservation, massacring thousands of its own students in Tiananmen Square in June 1989.

Britain had done its best to wring assurances from the Chinese Communists that they would respect the political and economic freedoms Hong Kong had enjoyed under British rule. Beijing had signed a treaty in which it promised to maintain Hong Kong's character for at least 50 years, implementing Deng Xiaoping's famous formula for "one country, two systems."

But trust in Beijing among Hong Kong's people--many of them refugee families from Communist China--was not high. The small minority who could got British, Canadian, and American passports and established bolt-holes overseas. A number of companies moved their Asian headquarters to Singapore. Those who had nowhere else to go hunkered down in a climate of fear.

The Chinese love anniversaries and will celebrate the passage of ten years next month with much fanfare, but for others the occasion presents an opportunity to consider whether their worst fears for Hong Kong's future have been realized.

It is a question that matters not just to the seven million people of the former colony, but one that has worldwide repercussions. It matters for the future of Taiwan. China has never made a secret of its desire to use the recovery of Hong Kong as a model for an eventual reunification with its renegade island. It has hinted that the one country, two systems formula might apply to Taiwan too, so that the island's distinctive and lively free political climate might be maintained.

The survival of Hong Kong tells us much about the China that is emerging into global preeminence. It tells us about whether the Chinese model of an increasingly free economy alongside an unstintingly authoritarian political system can possibly survive.

Visit Hong Kong today and on the surface you will not notice much difference. It was always, despite the colonial myth, a Chinese city to its core. Now, the red flag of Communist China has replaced the union flag over government buildings. The People's Liberation Army maintains a small presence along the harbor front in a rather drab-looking old building that used to house a detachment of British soldiers.

But the street names haven't changed. Official Chinese buildings sit on roads named for Victorian colonial governors. The "Royal" prefix has been taken off the Hong Kong Jockey Club, but the gambling-crazy Chinese still flock there in great numbers every Wednesday night for the action at the Happy Valley Racecourse.

The most obvious change is growth. The famous breathtaking view of the harbor is increasingly obscured by ever taller skyscrapers. Hong Kong has suffered a series of shocks in the ten years since China took it back: the Asian financial crisis, a property price collapse, and the outbreak of Severe Acute Respiratory Syndrome (SARS). But the territory is now thriving as never before.

It has become an increasingly important global financial center in fact, surpassing New York in the total raised in initial public offerings. Rapidly growing Chinese companies use Hong Kong as their conduit to global capital markets.

China has certainly left Hong Kong's basic economic structure alone. So it remains the model of the low-tax, small-welfare, low-regulation enterprise culture Milton Friedman celebrated in the 1970s. Freedom House in fact still ranks Hong Kong as the freest place in the world in its annual survey of economic conditions.

"Hong Kong is back to its economic peak," Martin Wheatley, chairman of the territory's Securities and Futures Commission, told me. "It's been an extraordinary success story since the handover to China."

But none of this should come as a surprise, nor does it say much about China's willingness to embrace new models of development. Hong Kong's economic success is a key component in the Chinese Communist party's strategy of generating enough prosperity for the mainland to enable it to keep its political grip. China optimists have long claimed that political reform would inevitably follow economic freedom. But on the mainland that has not been true for 25 years.

The critical question for Hong Kong has always been whether the Chinese authorities would really permit the former colony to maintain its political freedoms. Absorbing a dynamic and free Hong Kong was bound to pose problems for China. The danger in the one country, two systems model has always been that it is inherently unstable. If Hong Kong were allowed to remain a genuinely free place--albeit a very small one--within China, it could steadily undermine the Chinese model's rigid Communist control over a partially liberated economy.

The results from ten years of Chinese control have been mixed. Hong Kong is distinctively freer than anywhere else in China. But it feels as though it is on a long leash. The basic civil rights China promised to maintain look robust enough. Freedom of religion is an obvious reality in the territory, attested to by the fact that the chief executive, or governor, Donald Tsang, is a devout Catholic who attends mass daily. The rule of law--essential to Hong Kong's efficiently capitalist way of life--has also been maintained. The government has been successfully challenged in court on a number of matters by Hong Kong's fiercely independent judiciary.

The right of assembly is also a practical reality. In June, on the anniversary of the Tiananmen massacre, hundreds of thousands of Hong Kong people gathered as they have every year for the last 18 years to denounce China's human rights record.

More important, it was this type of direct democracy that produced perhaps the most significant political event in Hong Kong in the last five years. In 2003, with the former colony suffering heavily from the SARS crisis, and the government trying to create aggressive new security laws, a half million people marched through the streets to demand the right to vote and to protest a bumbling pro-Beijing administration. They forced not only the withdrawal of the legislation but also in the end the removal of the territory's pro-Beijing chief executive.

Of course, skeptics question how real these freedoms of expression are. They note that shortly after that democracy-induced crisis, a second, equally pro-Beijing chief executive was appointed. Their suspicion is that China tolerates as much as it does only for expedient reasons and could and would shut down Hong Kong's freedoms.

Taiwan's democrats are dismissive of Hong Kong's claims of self-determination. "Birdcage democracy," they call it, noting that the Hong Kong bird of freedom is allowed to fly only so far until it hits the carefully limiting constraints imposed by China.

Perhaps nothing more clearly demonstrates this than the issue of electoral choice. Though Britain had always appointed governors in the traditional autocratic way, it managed to extract from the Chinese a promise to grant the Hong Kong people universal suffrage in choosing their political leaders. But Beijing has steadfastly refused to make good on that commitment, preferring instead to run an electoral system it can control.

From time to time, when Hong Kong political activists get a little too active, some senior bureaucrat in Beijing fulminates threateningly, and things go quiet in the former colony. Earlier this year a senior official of the National People's Congress warned Hong Kongers to "stop messing around with politics."

"That message scares people here," says Audrey Eu, a pro-democracy campaigner. It is "intended to have a chilling effect on the democratic process."

In March the territory held its version of a general election. The two candidates campaigned across the territory, but, as with all Communist elections, the result was never in doubt. The electorate consisted of just 800 members of a special committee, most of them carefully chosen for their loyalty to Beijing; the pro-Beijing candidate, Tsang, squeaked home with 80 percent of the vote.

It's easy to make fun of this Potemkin election. Strutting members of the territory's elite showed up to vote at a vast convention center, supposedly exercising rights on behalf of all Hong Kong people, but kowtowed as eagerly as they could to their masters in Beijing.

And yet, there was also something oddly elevating about the event. Alan Leong, an articulate barrister who ran as the anti-Beijing candidate, was deemed a big hit in the territory. In a couple of presidential-style debates, he bested Tsang with his quick wit and sharp criticism. To his astonishment the debates received a wider audience than the one that was intended. Some tourists from the mainland stopped him in the streets of Hong Kong while he was campaigning.

Leong thinks that, small as Hong Kong is, this extraordinary spectacle of a handpicked leader being openly challenged by a vocal critic may in the end catch on elsewhere in China.

"Hong Kong has been an inspiration to China's economic modernization. We have contributed to the motherland's economic development, and we can do the same for its political reform," he told me.

This may be overdoing it. Hong Kong's seven million people are not going to lead China and its leadership away from the path of authoritarianism. In the end, Hong Kong is much more dependent on China, economically, than China is on Hong Kong.

So while Hong Kong may not be an education to the Chinese, it might come to be an inspiration to them and to the rest of the world. In a small corner of this totalitarian system, a dim light of freedom still flickers. Thanks to a sound legacy in the shape of a legal and political culture left by the British colonizers, and especially to the courageous and continuing struggle by Hong Kong's dedicated defenders of human rights, China is visibly failing to snuff out the light of freedom in Hong Kong. The burning zeal of those democrats may not in the end light a bonfire of change under the People's Republic. But they have lit a beacon of hope for the oppressed of their own country and the persecuted everywhere.

Gerard Baker, U.S. editor of the Times of London, is a contributing editor to THE WEEKLY STANDARD.

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