June 30, 2007, is an unforgettable part of history for Britain as it is the 10th anniversary of the controversial handover of Hong Kong to China. For the British it was the loss of the most valuable of her few remaining vestiges of empire. For China it was the acquisition of a prize that gave her a bustling, thriving financial hub, a portal into the Western capitalist world, complete with its own stock exchange index, the Hang Seng.

Negotiating the transfer proved to be one of the more painful episodes of Britain's withdrawal from her former colonial status. As the 99-year lease drew to an end, the two parties negotiated hard. The British eventually accepted Chinese premier Deng Xiaoping's "one country, two systems" formula, which allowed Hong Kong a high degree of commercial and social autonomy and guaranteed its capitalistic structure for 50 years.

At midnight on June 30, 1997, after 156 years of British rule, the union flag was lowered, folded, and handed to Chris Patten, governor of the tiny colony. The sadness of the handover was reflected in the tears of the governor's wife and daughters, and he fought to hold back his own emotions. The heavy rain seemed to magnify the poignancy of the occasion, as did the unhappy faces of gathered dignitaries, including Prince Charles, British Prime Minister Tony Blair, and two former British premiers, Margaret Thatcher and Edward Heath. Prince Charles summed up the mood in a diary entry, referring to the event as "the great Chinese takeaway."

Hong Kong is an ancient island settlement with archaeological artifacts dating back to Neolithic times. When the British arrived in 1821 it had very little to commend it, as it lacked good soil or even fresh water. The main habitation at the time was a small fishing village, but the island has an excellent natural, deep and sheltered harbor with two entrances ("Hong Kong" means "fragrant harbor"). The British realized its great potential, lying as it does on a major trading route.

Initially, Hong Kong was used primarily for the notorious opium trade, and after the First Opium War (1832-1841), the Chinese ceded the island to Britain. Following the Second Opium War (1856-1860), the Chinese had to relinquish the Kou-lung (Kowloon) peninsula, giving the British an important link to the mainland. Through the Convention of 1898, the New Territories, together with some 235 islands, were leased to Britain for 99 years commencing July 1, 1898.

Hong Kong's population expanded rapidly from 120,000 in 1861 to more than 300,000 by the end of the 19th century. In the early 20th century its population expanded even faster as it became an economic and political refuge from China, and yet further as a result of people seeking refuge from the Sino-Japanese War of 1937.

After the Second World War (when Hong Kong was temporarily lost by Britain to Japan), immigrant labor was used to establish such light industries as textiles and plastics. Throughout the West, the labels "Made in Hong Kong" or "Empire Made" (often the same thing), became bywords for cheap and shoddy goods. Yet, as with larger Eastern neighbors such as Japan, the hardworking entrepreneurs and laborers of Hong Kong effected an economic transformation. Poor housing and oppressive labor conditions improved from the end of the 1960s, and high-technology industries such as electronics developed. Relationships between Hong Kong and China gained strength, and--despite the setback of a financial collapse in 1973--Hong Kong developed into a major financial and light industrial hub. What is now mainland Hong Kong is 422 square miles, while Hong Kong island itself, and smaller adjacent islets, are just 35 square miles in area.

The vexing question of British jurisdiction over the leased areas of the New Territories began to loom large as the lease approached its 1997 expiration date. The Chinese-British joint declaration on the future of Hong Kong was, however, agreed in 1984. There followed further difficult negotiations between Hong Kong and China on the details of future Chinese rule and the territory's special status. Nonetheless, the basic structure of law for Hong Kong was ratified by its National People's Congress in April 1990.

On the day of the handover, July 1, 1997, a token detachment of Chinese troops rolled into Hong Kong. But so far, the Chinese have recognized the unique and mutual benefit that results from the territory's current status, and the mutual benefits accruing from the agreed "one country, two systems" formula. Hong Kong continues to prosper, albeit timorously, 10 years after the historic handover.