Next Step : Taiwanese Worried Over Hong Kong : China’s heavy-handed treatment of the British colony is seen as a warning against dreams of unity.

No one is watching this territory’s reversion to Chinese rule more closely than Taiwan--the 1997 Hong Kong transition, after all, is supposed to be the model for Taiwan’s own eventual return to the Chinese fold. And what Taipei’s representatives here see gives them the jitters.

Far from tempting Taiwan home by gentle handling of British-ruled Hong Kong, Beijing is growing increasingly heavy-handed as the July 1, 1997, transfer of power nears, disrupting the delicate balance of the triangle of Chinese interests.

Just ask the people of Rennie’s Mill, an enclave of pro-Taiwan sentiment in Hong Kong’s rural New Territories. Here, where the white starburst of the Taiwan flag flutters above the settlement’s jumbled stone buildings, residents say they see no reason for confidence in rule by China. They are being forced out by redevelopment but also because Beijing does not want to inherit a camp full of Taiwanese supporters in 1997. Chinese officials have warned the residents to cool their ardent stance before the transition.

“There will be no difference between being based in mainland China and Hong Kong after 1997,” says Paul Lau, who was born in Rennie’s Mill and grew up there. “Beijing promises ‘one country, two systems,’ but the two systems for us will be believe it or leave.”

That Communist leitmotif, “one country, two systems,” which pledges 50 years of autonomy for Hong Kong after the hand-over, sounds increasingly hollow to Taiwanese interests.

Examples of China’s economic interference alarm Taiwanese here the most. Beijing recently obstructed Hong Kong’s renewal of commercial air service agreements between the territory and Taiwan, and in June, blocked an agreement that would allow Taiwanese investors into Hong Kong’s futures market.

But the real signal that the party will soon be over in Hong Kong came this fall when China tried to stop a celebration of Taiwanese Founding Day organized by the Kuomintang, Taiwan’s ruling Nationalist Party. Beijing immediately protested that Hong Kong was encouraging the creation of “two Chinas.” The Hong Kong government refused to withdraw its permission, but celebrations throughout the colony had a wistful tone.

“This may be the last year we can do this,” said a party-goer at a National Day banquet in the Hong Kong Hilton, as Taiwanese politicians and starlets linked arms and belted out nationalistic tunes. An event planned for the 100th anniversary of the founding of the Kuomintang itself in November was quietly canceled.

“It’s not even 1997 yet,” said Suzie Chiang, a top Taiwanese representative in Hong Kong. “It’s a little bit early.”

Hong Kong has acted as a neutral middle ground between the two Chinese governments since 1949, when the Communist Party won a bitter civil war and the Nationalist Party set up a rival administration in Taiwan. Although links between Taiwan and the mainland are still strained, billions of dollars in goods are transshipped through Hong Kong. The territory also is a transit point for traders and tourists. But when the British territory returns to Chinese sovereignty in 1997, Taiwanese organizations here fear that they will be on unwelcome ground.

Until now, Taiwanese organizations have operated discreetly but freely. Because Britain recognizes China, not Taiwan, Taiwanese organizations maintain a shadowy profile: the de facto Taiwanese embassy goes by the name Chung Hwa Travel Service; Taiwan’s economic office here is known as Far East Trading Co. Suzie Chiang’s government information office just changed its name from the provocative Free China Review to the Kwang Hwa Culture and Information Center.

“It’s schizophrenic, it’s crazy, but it’s something we have to do,” a Kwang Hwa staff member said.

Like half of a bitterly divorced couple, China will not show up anywhere Taiwan is invited and constantly tests the loyalties of friends who try to maintain polite relations with both.

The conflict makes international meetings, from economic summits to Asian sporting events, awkward. Although Taiwan is the world’s 14th-largest trading nation and a full-fledged member of the Asia-Pacific Economic Cooperation group, it cannot send its president to APEC summits. Beijing recently argued against Taipei’s bid to re-enter the United Nations, and threatened to pull out of October’s Asian Games in Hiroshima, Japan, if Taiwanese President Lee Teng-hui showed up. The Asian Olympic Committee rescinded its invitation to Lee, though a Taiwanese deputy premier went, and China stayed in the competition.

“I think it’s absolute nonsense,” said Wu Chieh-ming of Taiwan’s Far East Trade Service.

“They welcome our investment in mainland China,” he said--up to $15 billion worth, most of it funneled through Hong Kong. So Beijing should not disturb those who help get it there, Wu argued. “It’s difficult to promote trade and investment if people are scared,” he said.

Unlike his Foreign Ministry (or Chung Hwa Travel Service) counterpart, Wu may be able to stay after 1997. Money is supposed to be OK, politics are not.

John Ni, head of the travel service and Taiwan’s de facto ambassador here, said he has a long-term lease on his posh office space in central Hong Kong, where he issues visas that China does not recognize to a country that China will not admit exists. Beijing says that if he continues stamping passports, the travel agency-embassy must close.

“We didn’t ask too much,” said Ni, sinking into a black leather sofa, “just that we should be treated as an individual entity and given reasonable room for international activity.”

Taiwan’s one card is economic power, but it’s an ace. The political rifts are in some ways being quietly bridged by a steady flow of investment to the mainland. About 1.5 million Taiwanese visitors went to China through Hong Kong last year. According to a recent report by the World Bank, the combined total economic output of mainland China, Taiwan and Hong Kong is the world’s second-largest--behind the United States--and represents a $3.2-trillion economy.

The clout of a fully united Greater China--which would add Taiwanese investment and Hong Kong’s services to China’s already huge economy--is one element driving Beijing’s push for reunification. Since the Nationalists fled the mainland after losing the civil war in 1949, Beijing has been anxious to reclaim what it considers a renegade province and pretender to the throne. Hong Kong’s 1997 reversion represents the first step toward bringing Taiwan back to the motherland. Taiwan, though wary, has not ruled out the possibility. But continued bickering could propel the potential triumvirate farther apart.

“Some people say the next century belongs to the Chinese,” said Shaw Yu-ming, cultural director of the pro-China United Daily News Group in Taipei. “Whether the Chinese end up as a leader in the 21st Century, however, will depend in large part on the status of relations across the Taiwan Strait.”

Even with a common language and culture, Taiwanese companies admit that it is not so easy doing business on the mainland. Almost half of Taiwanese investments on the mainland lost money last year, according to the China Daily newspaper, though some may report large losses to avoid taxes.

“We are Chinese, we know what’s happening in China,” said Tracy Hui, the financial manager of the Taiwanese shipping company Bimerco Air Forwarders. “But still we face quite a lot of problems--not necessarily related to Taiwan, but things modern societies cannot accept. People ask for money (bribes) all the time.”

“Doing business in China can be very dangerous,” Ni said. Newspapers frequently report kidnapings and corruption, and Ni described a Taiwanese businessman who was beaten with a steel bar by the military police in China’s industrial zone of Shenzhen.

“All these things are frightening,” Ni said. “It is more (because China is like the) Wild West than because of political reasons, but since there are so many Taiwanese businessmen, the chances are higher they will be hit.”

In the meantime, Taiwan would like to hold its money card as close to the vest as possible. While China’s low-cost labor and common culture is appealing for business, Taiwan’s government is encouraging investors to spread their money around other parts of Asia, especially prosperous Southeast Asia, to avoid over-dependence on China.

“The more money going to China from Taiwan, the less bargaining power for the Taiwanese government,” said a Taiwanese banker in Hong Kong. “Those who are heavily invested tend to be pro-China.”

The “go South” policy has had some success. Taiwan is one of the top investors in Vietnam, and is building up Subic Bay--the old U.S. Navy base in the Philippines--as an alternative transshipment center to Hong Kong. That would hurt Hong Kong as Taiwan’s entrepot, but would boost Taiwan’s leverage.

“If Hong Kong is harmed, Taiwan will go independent,” predicted a Taiwanese investment banker who channels compatriots’ funds through the territory. “And no one in Beijing wants to be responsible for losing Taiwan.”

Powerful Potential

China is already a huge economy, but “Greater China” would benefit from Taiwanese investment and Hong Kong’s services.

Gross National Product (Bases on purchasing power parity, a measurement that takes into account the price differences among countries. Source: World Bank, 1992.