The Opium War, fought between Great Britain and China, ended in 1842 .

It was waged because of China's discontent with the British sale of opium to an increasingly addicted Chinese population.

The victor received Hong Kong.

But the British, who prevailed, were hardly overwhelmed by the spoils.

British Foreign Secretary Henry John Temple Palmerston III called Hong Kong "a barren island with hardly a house upon it.''

That may have been his sentiment at the time. But more than 150 years later, Hong Kong is a bustling, economically driven region.

Who knew back then?

China ceded Hong Kong Island and Kowloon Peninsula to Britain to ease tension after the war. Outbreaks of hostility continued, and on July 1, 1898 , China was forced to lease to Britain the New Territories, which included more than 230 outlying islands and the northernmost portion of the Kowloon Peninsula, which borders mainland China.

The lease, for 99 years, was to expire on June 30, 1997.

For the early years of the lease, Hong Kong was overshadowed by Shanghai as the financial center of the Far East. But then waves of Chinese refugees abandoned their old lives because of problems with the Chinese Revolution of 1911, followed by the Japanese invasion of China in 1937 , and then the Communist Revolution in 1949 .

"Chinese people are here because many years ago, their parents or grandparents made a very important decision, which is to take the whole family out of motherland to come to Hong Kong, which was then a British Crown colony,'' said Martin Lee , a legislator in the region.

Hong Kong had been virtually starved by the Japanese during World War II, but after Japan's defeat, Hong Kong began finding its strength. Foreign and Chinese businesses started in the colony, which by then was filled with cheap labor.

American and Asian investors poured money into these financial enterprises, and by the late 1950s, products ranging from textiles to watches to electronics were being made in Hong Kong. Fueled by foreign investment, Hong Kong started improving its transportation systems in the 1960s and 1970s, including building a tunnel between Hong Kong Island and Kowloon.

Initial negotiations for the hand-over of Hong Kong began in the 1980s. By treaty, the only portion required to be returned to China was the New Territories; however, Britain tried to extend the lease. China not only rejected that proposal but won the return of the whole region.

The British ambassador and his Chinese counterpart signed an agreement in 1984 that would give all of Hong Kong back to China on July 1, 1997 , and set up a temporary government calling for "one country, two systems.''

"That means the system in Hong Kong vs. the system on the mainland, two separate systems under one country,'' said Shiu Sin Por , executive director of the One Country Two Systems Research Institute in Hong Kong. "And when you can peel it away, we have a united colony."

Some residents of Hong Kong are unsure about their identity, said Han Dong-fang , a Chinese dissident, who is exiled from the mainland and operates a campaign for labor rights in China out of a Hong Kong office.

"Hong Kong is a colonial state. . . . Hong Kong people are residents of this city; they are not citizens in a country,'' Han said.

In 1985, China and Britain signed the Sino-British Joint Declaration, detailing how the agreement from the year before would be carried out. It was registered with the United Nations. The declaration also called for Hong Kong to become a Special Administrative Region for 50 years. This status gave China limited power over Hong Kong, with a separate set of rules that would be followed.

Also in 1985, elections were held for the Legislative Council, Hong Kong's law-making body. But China declared that it would not respect any political changes not approved by Beijing's Communist leadership.

Lee, who was first elected in 1985 and in September was re-elected, described the mission of this first legislature.

"It was our duty as legislators to make sure that the rule of law would be clear, and freedoms would continue to be protected,'' he said.

In 1988, a committee appointed by Beijing introduced the Basic Law, which would govern Hong Kong after the hand-over. The Basic Law allows for Hong Kong to retain certain freedoms such as paying no taxes to China, protection of property and foreign investments, an independent judiciary system and the continued free movement of goods and capital.

In 1992, the last British governor of the colony, Christopher Patten, arrived. Patten began to make many reforms in welfare, health, housing and the environment, which did not please China.

Lee said these economic reforms also led to political reform. He cited Deng Xiaoping, a leader of China from 1978 to 1997.

"Many years ago, Xiaoping said that you cannot have economic reform in China without the corresponding political reform. I entirely agree with him,'' Lee said.

Patten's changes risked relations between Britain and China, which already was looking for a new leader to rule Hong Kong after June 1997.

In 1992, the Chinese government appointed Tung Chee-hwa, a Shanghai businessman who had been part of the colonial government appointed by Patten.

On the night of the hand-over five years later, Tung gave his acceptance speech in Mandarin, the official language of China. This was a surprise to many in Hong Kong, 95 percent of whom speak Cantonese as a preferred language.

Tung's leadership has disappointed the people in many ways. Because he was a businessman and never a political leader, many in Hong Kong think he seeks affirmation from China rather than to decide what is right for Hong Kong.

Lee is one of the people who has been unhappy with Tung.

"I think he has failed miserably. Because as chief executive of Hong Kong, under the system of one country, two systems, his duty is not just to make sure Hong Kong's economy will continue to thrive, but that Hong Kong must thrive as a separate system under Chinese rule. Tung Chee-hwa invariably moves to accommodate Beijing,'' Lee said.

Bob Howlett , the principal information officer for the information services department of the SAR government, said it all boils down to Tung's business roots and lack of political savvy.

"He doesn't know how to shave the truth just enough so that it is not a lie. He also does not have a platform.''

Tung's approval also falls short with the people. In a recent poll conducted by Hong Kong Baptist University, 63 percent of Hong Kong residents approved of Jiang Zemin, the Chinese president, while only 32 percent approved of Tung.

"I never dreamt before that it would get so (bad) that we have restrictions on every area -- social security, housing, right of abode, press, demonstrations,'' said Franklin Tong , 23, the executive officer of the Hong Kong Human Rights Monitor.

Housing is of particular concern for people in Hong Kong. Sixty percent of the population lives in government-subsidized housing developments because land values are among the highest in the world. The chief executive promised in 1997 that the government would provide 85,000 subsidized flats annually. In a three-point plan presented in June, Tung scaled down this figure, promising instead to provide at least 50,000 flats.

Despite the critics, Karn Bulsuk , a 15-year-old student at Island School, supports the program.

"I believe that the real estate agents are taking advantage of Hong Kong,'' Karn said. "They have made prices go ludicrously high. Basically, normal people have suffered. What Mr. Tung Chee-hwa has been doing, by providing flats and making prices of houses go down, is correct.

"So people have a chance at owning their own houses.''

The right of abode has been another problem for Tung. In 1998, a Hong Kong court gave all mainland Chinese children who have one Hong Kong parent, including those born out of wedlock, the right to live in Hong Kong. A Chinese court overturned the ruling because it affected more than a million people who might choose to move to Hong Kong.

While some view the Chinese ruling as interference, others see it as common sense.

"It was done to remedy a situation in Hong Kong which we cannot resolve ourselves,'' Shiu said. "As a consequence of that court decision, we would end up with, suddenly overnight, anywhere from an increase in population of a million to 1.5 million.''

In this and other areas, Shiu said he thought the Chinese government is not meddling in Hong Kong affairs.

"I cannot say that the mainland government is pulling the strings in Hong Kong, 'cause that's not generally the feeling of the people. That was really the biggest worry of the community before 1997,'' he said.

"Many things, of course, are unchanged. The legal system, commercial system, the economy, social lives are unchanged,'' he said.

Others are more uncertain of the new arrangement.

"You have to live together with the lion. Better tell the lion how to behave or get used to it and try to change it. So scary is the lion,'' said dissident Han.

Others are more optimistic.

"How can you lose when you are betting on democracy in the rule of law, particularly when the whole world is going in that direction?'' Lee said. "All those wonderful values that we have been fighting for will come to China.''

ASSISTANT EDITORS: Megan Minkner , 15; Drew Reissaus , 16; and Kristen Schubert , 15.

REPORTER: Courtney Sampson , 13.