The Empire, long divided, must unite. History comes to a .

During the Patten era, Hong Kong became positively infested by the British. This was partly because flights were cheap and it was the last chance to see the last decent chunk of The Empire and partly because, with Hong Kong's GDP per head now larger than Britain's the British were cheap labour for jobs where command of Cantonese was not a requirement.

At the same time, Deng's "Southern Tour" triggered investment in Guangdong, and the economies of Hong Kong, with six million people, and Guangdong, with ninety million, became intertwined.

Hong Kong, which had been flourishing in the Eighties, developed a sort of super-boom, especially in real estate.

Where did all the money come from?

I have never seen this set out in print, and what follows is my own theory, but on the strength of a question raised with the National Peoples' Congress by Li and Fung, I think I am on the right track here:

Hong Kong, as you know, has very low personal and corporate taxes.

China on the other hand has a normal sort of corporation tax rate - 35% - more than twice Hong Kong's, and VAT, which Hong Kong does not have.

Let us suppose we set up a shirt factory in Shenzhen. We export our shirts, collecting the VAT rebate on exports as we go, to our own subsidiary in Hong Kong, at a low price, on which we pay Chinese corporation tax.

Our Hong Kong subsidiary re-exports them at market price, paying the low Hong Kong corporation tax on the profits, and we then re-inject some of those profits into our factory in Shenzhen as foreign direct investment, collecting the Chinese FDI tax rebate as we go.

The rest of our profit sits in our HK subsidiary, outside the Chinese tax net, in hard currency, so we use it to buy real estate...

Another phenomenon of the years from 1989 to 1997 was the "astronaut".

"Astronauts" were so called because of the extraordinary amount of time that they spent on aircraft. They were the members of the Hong Kong middle classes who had moved their wife and children overseas to a place of safety, most commonly Vancouver, but also Sydney, London or even, occasionally, Singapore, in order to chalk up the necessary years of residency needed to get a passport, whilst the husband and father stayed in Hong Kong and worked at his well paid job.

The strain on family life can be imagined.

Lower down the social scale there were also rather similar things going on. A lot of factory managers and accountants found themselves working in Guangdong, getting back to Hong Kong at the weekend. Very often these men found an agreeable companion from Monday to Friday in the shape of a Mainland girl, and an awful lot of them started second families...

There was a new source of employment for working class men; as truck drivers, bringing goods from China into Hong Kong for re-export. They also very often found agreeable female companionship in China...

In Hong Kong there was a new social phenomenon - the "sandwich class" - couples who were in Government housing but whose income had risen to the point where they no longer qualified for it, yet were unable to afford a mortgage in the private sector.

A lot of people speculated in apartments by "buying off plan" in new apartment blocks, putting down the deposit and hoping to sell before the balance came due.

Often, this worked...

The hollowing out of Hong Kong's manufacturing industry and the expansion of the financial sector have widened the gap between haves and have-nots in Hong Kong. This is a marked change from the Maclehose era, and to my mind it has not been a change for the better.

In particular, I think that social mobility in Hong Kong, an intensely meritocratic place, has actually decreased.

Hong Kong's trade union movement is divided in two along the usual fault line; on the one side the pro-Beijing trades unions, often still run by the organisers of the '67 riots, and on the other hand the "independent" trades unions, with a social democratic agenda.

These unions are commonly accused by the pro-Beijing unions of being pro-KMT, but that is a bit quaint, given the rapprochement over Taiwan between the CCP and the KMT, with the CCP seeing the DPP as a far bigger danger.

The consequence of this split has been to greatly weaken the bargaining power of the Hong Kong working man, and this has contributed to the widening of the wealth gap.

The handover itself passed off smoothly. China and Britain are both nations that can be relied on to do that sort of thing well, and they managed it, although by this time the two sides were barely speaking to each other.

I was watching the ceremony on television in Beijing and I phoned an old friend in Hong Kong who, over ten years of working together, had never failed to pull my leg about my impossibly reactionary, imperialist, male chauvinist and racist approach to life.

"Well", I said, continuing the vein of a decade's mutual joshing, - "You've got your wish - you are free of us British at last!"

She burst into tears. "You've got it all wrong!" she said, "As usual!"