Preparing for the Worst, Hong Kong Expects Best : Asia: With the specter of a Chinese takeover looming in 1997, the Crown colony’s business community is still bustling.

As Marxism collapses in Europe, Hong Kong is replacing Berlin as the new front for democracy and the free market. The nearly 6 million residents of the bustling British Crown Colony, scheduled to come under Chinese rule in 1997, are watching anxiously for signs that the Communist regime in Beijing, like its counterparts elsewhere, will reform itself or collapse entirely.

Not that everyone is waiting around for the withering away of the Marxist state. Even before the brutal suppression of the democracy movement in China last spring, growing numbers of Hong Kong residents were embarking for safer havens. Since 1986, emigration has increased from 20,000 annually to more than 45,000 last year, with estimates running as high as 60,000 for this year.

Capital, too, has been fleeing for more secure quarters. Billions of Hong Kong dollars now reside in Britain, North America and other parts of Asia. Recent pronouncements by Beijing concerning the post-1997 Basic Law--essentially quashing hopes for full democratic self-rule in the Hong Kong before well into the next century--have driven poll ratings of public confidence lower than even immediately following last June’s Tian An Men Square massacre.

Yet amid all the gloom, Hong Kong is simultaneously preparing for a future as Asia’s premier business center. Despite 1989’s slow 2.5% rate of growth--compared to 14% as recently as 1987--and a somewhat shaky property market, new office towers are going up or being planned throughout the city’s central districts. Public investment is also increasing, with plans proceeding for a new $16-billion airport, a multibillion-dollar expansion of the city’s container port, already the world’s busiest, and a new 7,000-student University of Science and Technology.

“The Chinese here are the cleverest people in the world,” said one senior British official. “They keep a foot planted firmly in both camps, one here and another in the United States or Canada.”

This spirit of opportunistic ambivalence is particularly evident among the recent emigrants. After gaining an alternative passport, many have returned to Hong Kong to stay close to family or simply to make money. Such returnees, for example, could account for as many as 26,000 of the estimated 35,000 Canadian residents of Hong Kong. Even the individual hired by the British administration to compile the out-migration statistics, was “the perfect Hong Kong man”--born in China, educated in Hong Kong, a citizen of New Zealand and now a permanent resident of the Crown Colony.

But it’s not just Chinese who are remaining in Hong Kong. While the pace of U.S. and European investment has slowed somewhat, Japanese corporations have been taking up much of the slack. In 1988, Japan surpassed the United States to become the leader in new investments, pouring in more than $1.6 billion, including purchases of key real estate, manufacturing plants and retail stores.

Like their Chinese counterparts, the Japanese and other foreigners are staying with Hong Kong out of a conviction that the city’s long-term assets outweigh its current predicament. In fact one major Japanese retail conglomerate, Yaohan, recently moved its world headquarters from the home islands to Hong Kong.

Yuji Sakuma, Yaohan’s managing director, maintains the city and surrounding southern China possess a growth potential unmatched in Asia, if not the world. “We looked all over for our move,” Sakuma explained at his headquarters in suburban Sha Tin. “We thought of Singapore, Hawaii or America, but only Hong Kong has such good access to the huge market of China.”

Sakuma’s optimism is based not only in the tremendous building activity throughout Hong Kong, but in the related massive development of the adjacent Guangdong Province. Already more than two million Chinese in the province work for Hong Kong-based companies, which account for roughly 70% of all investment in China. By tapping into China’s massive labor base, Hong Kong’s sophisticated business Establishment transformed the Pearl River delta between the Crown colony and Canton into one of the world’s fastest growing economic regions during the 1980s.

Another critical advantage for Hong Kong--particularly in contrast to such Asian capitals as Seoul or even Tokyo--lies in its multi-ethnicity. Although the vast majority of the population is Chinese, significant American, British, Muslim and Indian communities play important roles in the local business scene, giving the city an unparalleled edge as an international trading center.

The city’s 18,000 Asian-Indian community, active in the Hong Kong since its origins in the 1840s, now handles close to 10% of the city’s $73 billion export-trade business. “Indians have counterparts and networks around the world that are different than those of the Chinese,” said K. Sital, chairman of the Council of Hong Kong Indian Assns. “In places like east and west Africa, we are the ones who develop the markets for Hong Kong.”

Beijing’s political control, Sital fears, could imperil the future of his and other non-Chinese economic communities. For Beijing has made it clear that Asian-Indians--particularly the estimated 6,000 carrying Hong Kong passports--could well be considered stateless outsiders after 1997. Only people of Chinese descent will be considered legitimate Hong Kong citizens, threatening the existence of a 150-year record of maintaining a multiracial society.

“They’d probably be just as happy to see the whole Indian community go,” said one top British official who has been negotiating with the Chinese. “When it comes down to it, they’re quite racist.”

Besides destroying Hong Kong’s multiracial culture, many also fear Beijing will impose strict controls on the free flow of information, long a mainstay of the city’s large financial and communications industries. One commonly discussed future scenario, for example, foresees China employing a “Singapore solution” in post-1997 Hong Kong. Modeled on the approach taken by the authoritarian leaders of that island nation to the south, this option sees China keeping Hong Kong open to foreign investment and local capitalists while political activities and the media remain under strict controls.

But most fear that even such a relatively benign solution could undermine much of Hong Kong’s attractiveness as a financial and media center. At the same time, many top Hong Kong executives expect they will never have to confront this scenario. With the current leadership already in its dotage, they predict the likely gradual ascent of more reformist leaders--perhaps even a Chinese Mikhail S. Gorbachev--by the mid-1990s.

Another increasingly popular thesis sees the Chinese state itself at the brink of Balkanization, with a gradual erosion of the central authority in Beijing. Some already see the governor of neighboring Guangdong Province--Ye Xuan Ping, son of the famous Communist general, Marshall Ye--as the forerunner of what Ambrose Yeo-chi King, vice chancellor and professor of sociology at the Chinese University of Hong Kong, calls “economic warlordism.”

Already, King and others observe, the Guangdong government seems virtually independent of Beijing’s control on most business-related matters. “The leaders in Canton have little respect for the central leaders,” explained one Chinese businessman with extensive contacts with the Guangdong officials. “As they say, ‘Beijing issues the regulations, but we interpret them.’ ”