Hong Kong's Future: Sunshine, with Clouds By ZOHER ABDOOLCARIM, Time

These days, 10 is practically the new teen—as knowing, and as confused, an age. You think you understand who you are, but you don't, not really. You want to be independent, but you still need adult supervision. You are developing a sense of righteousness, but find it runs up against a pragmatic world where compromise is a necessity. Ten is a neat number, but a messy stage in life.

So it is with Hong Kong. At just past midnight on July 1, 1997, in a glittering and poignant ceremony, Hong Kong passed from being the last jewel of an old empire to a component of a new global power. Hong Kong people viewed their city's handover from the U.K. to China with mixed feelings: joy at a fresh start; sadness at seeing the British go; pride over returning to the motherland; apprehension over the future. Today, by most measures, Hong Kong is in great shape, but its outward appearance masks a collective angst. As the territory marks its first decade as a Special Administrative Region (SAR) of the People's Republic of China, it faces an interlocking set of existential questions from which all its once and future challenges flow: Who am I? What do I want to be? Can I be all that I want to be? Will I be allowed to?

For better, and for worse, Hong Kong's future is tied to China's. The one is among the world's freest societies, wildly entrepreneurial and fiercely independent in spirit. The other is a state that, to its enormous credit, has opened up a long-closed nation to an unprecedented degree, and lifted more people out of poverty in a shorter time than our planet has ever witnessed—but which is still authoritarian in its governance, somewhat lawless, and woefully corrupt. Though hugely different in scale, the two learn from, depend on, influence and to an extent intimidate each other. Each needs the other to prosper, yet each also sees the other as potentially harmful. Beijing has fretted about its SAR infecting the mainland with annoying ideas like democracy. Those in Hong Kong worry about China restricting their freedoms, and being a crucible for pollution and disease that can spread to their city. The subtext of this complex relationship is another host of vexing questions. Is Hong Kong a model for China, or a threat? Is Hong Kong changing China, or China changing Hong Kong? Should Hong Kong become more Chinese or more international? "Hong Kongers have no problem being culturally Chinese, but because of their history, many of them still see themselves as Hong Kong Chinese first, differentiated from mainland Chinese," says Zhang Longxi, chair professor of comparative literature and translation at City University of Hong Kong. "That is Hong Kong's strength, and weakness."

Hong Kong matters not only because it is a vital driveshaft of the global economy, transmitting the raw power of China's manufacturing capability into a worldwide system for distributing consumer goods. The city matters because it is a unique experiment that will probably succeed but could possibly fail: the creation of a free, international city within China. In the short period since a collection of fishing villages were turned into a modern metropolis, Hong Kong has survived war, waves of refugees, pestilence, drought, assorted mischief by local leftists and economic near-implosions, consistently defying the doomsayers, repeatedly rebounding. In the past 10 years alone, Hong Kong has lived through a crippling regional financial crisis, bird flu, SARS, an inept albeit well-meaning leader who was forced to leave office, the resignation of several other top officials over sundry scandals, and, in 2003, the march of half a million people galvanized by their opposition to a new security bill called Article 23—an event some feared would finally provoke Beijing into asserting its authority over Hong Kong once and for all. The city's run of luck has often seemed near the end; TIME's sister magazine FORTUNE once infamously, and incorrectly, predicted that its return to China would bring about its death.

Yet Hong Kong is more alive than ever. On the eve of the handover, the stock market index, a key barometer of Hong Kong's health, stood at the then record of 15,200; today it hovers near the 21,000 mark. Property prices—in many ways the best measure of the territory's success because they are followed so closely by the man (and woman) on the Kowloon minibus—dipped after the handover and again after SARS, but are now once again rising to stratospheric levels. "Things did not come to a grinding halt in 1997," says Sir David Akers-Jones, 80, a former acting governor who stayed on in Hong Kong after retiring. "Things continued. That was the extraordinary thing. Life went on."

But not, of course, in the way it had. Neither China nor its SAR has stood still in the past 10 years. Once, Hong Kong's preeminent preoccupation was the pursuit of wealth, and the place remains obsessed with money. (Only in Hong Kong would the website for an investment seminar be www.icanrich.hk.) As it becomes ever richer, however, Hong Kong has realized that there's more to life than making a fortune. A civil-society movement has come into being, agitating about everything from the filthy air (though it is probably the cleanest of all China's cities) to preserving old buildings to helping the poor. But this change, welcome and often inspiring though it is, does not help Hong Kong settle its true challenge: how to define its relationship with China, one that is pregnant with conflicting emotions—admiration and resentment, loyalty and mistrust, love and fear. "The return of Hong Kong to China is just half achieved," says Yan Xuetong, director of the Institute of International Studies at Tsinghua University in Beijing and a self-professed Chinese nationalist. "Hong Kong is still regarded as a special place of China, still regarded as a foreign country. Hong Kong has returned in name, but not in substance."

Hong Kong, it should be said, has always been a Chinese city. Even during the 156 years during which—through a combination of British protection, Hong Kong ambition and Chinese nonintervention—the territory grew into one of the world's foremost commercial and financial centers, its non-Chinese population, now about 7% out of total of some 7 million, was never more than a tiny minority. Unlike other colonies, Hong Kong never fell for the idea that its mother country was a damp set of islands in the North Atlantic whose people played cricket—it always had a perfectly good mother country of its own.

Yet Hong Kong, China, doesn't roll off the tongue. Hong Kong is simply Hong Kong—it is singular, as modern China's patriarch Deng Xiaoping recognized when he struck a deal with the British in 1984 establishing the principle of "one country, two systems." Quite apart from that special dispensation, wise policymakers in Beijing have long recognized that sentiment toward China in Hong Kong is fragmented. Many of Hong Kong's families, it must be remembered, are headed by those who fled communism and conflict on the mainland for the freedoms and safety of the British colony. Today's pride in belonging to China, accentuated by the mainland's rise as a world power, is tempered with wariness. (The 1989 Tiananmen killings still haunt Hong Kong as a recurring nightmare of the old new China; every June 4, those who died are commemorated in a moving candlelight vigil in Hong Kong's Victoria Park.) There's plenty of emotional baggage to go around, and plenty of uncertainty because of it. "Hong Kong's in a transition period," says David Zweig, director of the Center on China's Transnational Relations at Hong Kong University of Science and Technology. "It's experimenting with political change. Its business community is trying to seek out its future. Its demographics are in flux. It's even asking what languages it should be speaking."

Trying to resolve when to use English, Mandarin and Cantonese (all three are important and useful) is difficult enough. But the most sensitive, divisive and intractable issue in the relationship between Hong Kong and Beijing involves democracy. Especially since 2003, the year of SARS and Article 23, a democratic movement has emerged in Hong Kong, reflecting the belief that a well-educated and well-heeled city deserves representative and responsive government. Currently, the 60-member legislature is a convoluted mix of directly and indirectly elected seats. The Chief Executive, the title of Hong Kong's leader, is selected by an 800-member electoral college heavily influenced by big business, which religiously believes that greater democracy will reduce its considerable clout (it will), usher in populists and a welfare state (it won't—Hong Kong people are too pragmatic), and anger China, where Hong Kong tycoons do their deals (it might).

The standoff between conservatives, who want the status quo, and democrats, who want a Chief Executive chosen by the people and a fully elected legislature, has paralyzed politics, which, in turn, has paralyzed everything from ways to diversify the economy to tackling pollution. Both sides are deadlocked over blueprints, numbers and deadlines, and seemingly unwilling to engage in the only way out: compromise. The Chief Executive, Donald Tsang, told TIME in March that "I will resolve the question of universal suffrage totally, completely, within my next term," which ends in 2012. But as a former civil servant under the British who was knighted for his services, he still needs to prove his loyalty to Beijing—and you don't do that by pushing democracy. "We are [geographically] so close to China that we can't but help influence the mainland," says Regina Ip, a former Secretary of Security who now heads a think tank. "That's why the leaders in Beijing are very cautious." Indeed, when Tsang visited Beijing in April, Chinese President Hu Jintao told him, among other things, that democracy should be advanced "in a gradual and orderly manner."

Hong Kong must also think about its economic future. Being a part of a booming China almost guarantees that it will stay prosperous. But the mainland is a competitor as well as a partner. China's new ports siphon trade away from the SAR, and its lower labor costs siphon away jobs, previously in manufacturing, now in services. As China continues to relax investment rules and become more business friendly, more and more companies may opt to operate directly in the mainland rather than out of Hong Kong.

So Hong Kong needs to have an economic Plan B. Chief Executive Tsang benchmarks Hong Kong against New York and London and says he wants Hong Kong to be at least Asia's top financial center. David O'Rear, an American who is chief economist of the Hong Kong General Chamber of Commerce, believes that's perfectly doable: "Financial services is about as high value-added as you can get, and we're the financial center for half the world between San Francisco and Frankfurt." But Hong Kong faces stiff competition from Tokyo and Singapore, both of which, besides being cleaner and greener than Hong Kong, are also culturally richer—all extra incentives for the expatriates you need to boost your financial profile. And while Singapore is becoming a biotech center, pumping money into R&D and wooing academics and academic institutions, Hong Kong is still dependent on its traditional sources of wealth, like real estate and, yes, financial services. "We have not been able to innovate," says Ip. "On matters like developing a global research economy and R&D, we've stalled."

As far as fresh ideas go, the SAR seems stuck at a crossroads. Even as civil society takes root, democracy hits a wall. Even as the economy chugs along, the gap between rich and poor widens. Even as awareness of the environment grows, air quality worsens. Even as Hong Kong people become better educated, their English deteriorates. Even as Hong Kong wants to cash in on the China boom, it is trying to maintain a distinct character. And Hong Kong's angst is compounded by China's own. The mainland itself faces a crisis of identity and values: to be capitalist or communist, Chinese or Western, material or spiritual. With its own motherland confused, how can Hong Kong not be?

Confusion should not be mistaken for despair, however. True, China's leaders didn't really know what they were getting back in 1997. That's why they pressured the outgoing British to keep things as they were (top-down rule, cozy nexus between government and big business, no politics); they wanted to inherit a known quantity. China didn't want any surprises, and some believe that's still Beijing's attitude. "Since 1997, China wants one thing from Hong Kong: no trouble," says Tsinghua University's Yan. "Don't cause financial problems, don't cause political problems, don't cause social problems; don't cause trouble."

Yet that assessment is so pre-handover. China's leaders today are worldlier than ever. They know, if only from the experience of their own nation, that no place stands still, that if it does, that's when financial and political and social pressures build; that's when you're really in trouble. China and Hong Kong are both moving on; it's just not clear whether they will run parallel, merge or collide.

Hong Kong is a pulsating organism made up of the most enterprising conglomeration of humanity the world has ever known. That will never change. Identity crisis or no, Hong Kong understands that it's damned lucky to have become a part of China at so fortuitous a time, when the mainland is becoming ever freer and more open and in a position to give its hybrid, somewhat alien, child more opportunity than it could possibly have dreamed of. "I can't see what reason people in Hong Kong have to be pessimistic," says economist O'Rear. "We're part of China, but we're not subject to China's rules. What could be better than that?" What indeed, when you are 10 and have the world before you?

with reporting by Austin Ramzy and Peter Ritter/Hong Kong  ¶ 2:22 AM