Hong Kong and its Fragrant Harbor are, everyone agrees, among the loveliest sights on earth. The British Royal Navy undoubtedly thought so when it seized the 35 miles of rock from China in 1841 and, almost secretly, added it to the great pink map of Empire. Early governors developed the territory even as London contemplated giving it back someday. There were pirates in Kowloon, endemic fevers in the Happy Valley, opium warehouses and sailors' brothels by the harbor. But the imperial fathers took care to build hospitals, a racetrack, and the still-elegant Government House.

The Treaty of Nanking -- which the Chinese still call the "Unequal Treaty" and consider an eternal humiliation -- was signed amid the Opium Wars in 1842. Soon British judges sat in British courts, British doctors relieved the fevers, British enterprises flourished, and British administrators ruled the roost. British statues rose in the parks, British clubs and societies prospered, and British two-decker trams rattled through noisy, cramped Chinese thoroughfares. In the British imagination, Hong Kong became an unashamed success of empire -- a thriving entrepot, a meeting-place of East- West culture, a happy harbor on the Asian shore.

More than a century and a half on, Hong Kong still looks good. Summer mists come up from the network of peaks and islands. Huge container ships just like horizontal buildings edge through the junks and sampans and under the splendid new bridge to the new airport. On the waterfront, elegant high-rise financial buildings rise shinily, like ever-improving statistics, which is mostly what they are. The grand names of world architecture have done some of their finest work here. Norman Foster built the elegant Hong Kong and Shanghai Bank, and I. M. Pei the slant-roofed Bank of China, a handy spy-post for Chinese surveillance.

Hong Kong flourished, but it flourished best when its day seemed just about done -- after the Cultural Revolution. Mao threatened to reclaim the crown colony, "when the time was right." But its effectiveness as a trading post into and out of China doubtless helped preserve it, as did the American navy, the growing strength of the Hong Kong dollar, and the surging energies of the "overseas" Chinese. Mao's revolution really invented turbo-charged, sweatshop, manufacturing, high-spending, glittering modern Hong Kong. In his years, it became an ideal example of an NIC (Newly Industrialized Country) on the Pacific rim, eventually developing into the world's largest container port, the eighth greatest commercial power, "the most international city in the world."

In December 1984, after much troubled triangular diplomacy, came the Joint Declaration, signed by Deng Xiaoping and Margaret Thatcher with much ceremony in the Great Hall of the People. There was a sense of general euphoria, deriving from Deng's new openness, his encouragement of the overseas Chinese to reinvest back home, and, above all, his post-Marxist faith that "to get rich is good." In 1989, the events in Tiananmen Square deeply soured that understanding. But so did British moves to offer more political democracy before the handover occurred.

Hong Kong, home to 6 million people, including 80,000 white expatriates and persons of myriad other citizenships, secured its position by ingenuity, cunning, and the manipulation of far greater powers than it could ever possess by itself. The British trace is obviously strong, but many of the great businesses are international, owned by Americans, Australians, a multiplicity of Pacific tycoons, and increasingly by China itself. Some are moving out, others moving in. The stock market continues to surge. Emigration increases at speed, but the gweilo expatriates ("white ghosts") keep coming in.

All this changes at midnight on June 30. The British flag at Government House will be furled for the last time (no doubt to the strains of "The Last Post"). The Chinese flag will rise (no doubt to the strains of "The East Is Red"). Tony Blair, the new British prime minister, will be there, along with Robin Cook, his foreign secretary. So will Mrs. Thatcher and the Prince of Wales (but not the late Deng, who said the handover was the last thing he wished to see before he joined his ancestors). The Three Tenors may sing, and David Copperfield will do his magic tricks. Mechanical flying dragons are expected to zoom in from China, along with troops from the Chinese People's Army. (As the Chinese Preparatory Committee has already announced, "The real celebration will take place after the British have left. Not too many people care whether the Handover Ceremony is big or small. What they want is entertainment.")

Then the last few British troops will leave, and the British royal party will depart quickly, on the reassuring royal yacht Britannia -- which, alas and maybe symbolically, is itself destined for the scrapyard as soon as it comes home. It will be coming home to another offshore island that risks becoming ever more offshore, even as Hong Kong itself joins with the mainland. It will (save for an island or dependency or two) be a post- imperial Britain, going through a change of history and a crisis of identity - - all pleasantly masked by the election of a new government that has succeeded in invigorating and capitalizing on millenarian expectations and generational hopes for change.

The Blair administration has come to office with the authority of a large majority and all the confidence of a government-in-waiting. It has hit the ground running. Its honeymoon period -- occasioned less by its own policies than a deep-seated national disillusionment with the last administration, which in some quarters amounts to a kind of vengeance -- will last for quite a while yet. Still, one of its first major encounters with world history will come with the handover of Hong Kong. The Blair government will have every reason to hope that the handover goes well and helps set the seal on a post- imperial, yet buoyant, new Britain. It will no doubt hope to see old imperial attitudes slip away and a new post-colonial culture prosper.

Chinese diplomacy, based on the rise of its own dragon empire and the decline of the paper-tiger British one, has been traditionally cunning. It has essentially been to divide the British interest, which was anyway split from the very start (Lord Palmerston in 1841 wondered about the point of acquiring "a barren island with hardly a house upon it"). The old China hands of the Foreign Office have always -- understandably -- regarded Beijing as far, far more important than Hong Kong, 1.2 billion more crucial than 6 million. China has skillfully returned the compliment, often succeeding in isolating successive Hong Kong governors from the diplomatic process.

In recent years, Beijing has upped the ante, even threatening to exclude the present governor, Chris Patten, from the handover ceremony. (Patten is regularly reviled as "Fat Pang" and "Tango Dancer" for his flirtation with democracy.) They have had a good deal of British support in their critical strategy. In recent months and weeks, a number of influential voices in Britain have been distancing themselves from Patten's democratization strategy as the countdown clock in Tiananmen Square moves toward zero.

Leading figures -- including several former British ambassadors to Beijing, most notably the influential Sir Percy Cradock, who helped mastermind the Joint Declaration -- have made one thing clear: The important axis is ever London-Beijing. Former Tory prime minister Edward Heath has long been a bitter critic of the chief voice of Hong Kong democracy, Martin Lee. Sir Geoffrey Howe, the former Conservative foreign secretary, has described the Joint Declaration as a "Ming vase" that has to be handled very carefully. Mrs. Thatcher, as co-signatory, is at once protective of the British heritage in Hong Kong and committed to the effectiveness and solidity of the treaty. And, of course, the Chinese millionaires and billionaires who are, in a sense, the spirit of postmodern Hong Kong have already constructed their own new alliances, economic and political, with the Communist government.

The handover itself will pass in a surge of party sound. The great problem is, What comes next? One large difficulty for Robin Cook is that he has already committed British foreign policy to a highly moral agenda. Even so, he has backed President Clinton's decision to renew China's MFN status, saying it would help secure the future of Hong Kong's people (even as he has solicited firm American support for the protection of their civil liberties).

The fact is, of course, that the future of Hong Kong depends entirely on the future policies of a China that has still not really established its own political direction in the wake of Deng's death. Internal problems and possibilities, risks of new ideological doctrines and divisions in China, will over time determine how safe the delicate "Ming vase" of the Joint Declaration is -- and to what degree capitalistic Hong Kong will continue to prosper. Surrounded by Special Development Zones and experiencing extraordinary internal growth, Hong Kong will very probably fade into status as one of many boom cities, cut loose from the poorer, populous countryside. Its most successful entrepreneurs -- many of them with close contacts in Beijing and Shanghai -- will invest more widely and function more nationally. Many may leave the Fragrant Harbor altogether.

One of the most interesting stories of the next weeks, months, and years, therefore, is the story of the future of the two offshore islands. One is returning to the motherland after a distinctive, internationalized history; the other is slipping its old imperial moorings and trying to shape its international policy in a time of decisive change. For as Hong Kong unites, Britain continues with the long-lived process of finding an effective post- imperial identity -- a problem for the last 50 years, in which innumerable successive policies have been tried, from an Atlantic Alliance to a major role in an alternative, non-federalist Europe.

End-of-century, post-Cold War, New Labour Britain is already seeing fresh internal forces of division: devolution in Scotland, Wales, and perhaps Ireland, as well as changed, and probably improved, relations with Europe -- which imply a further loss of nation-state sovereignty. It is not only for Hong Kong and everything that has been invested there that the new day that dawns on July 1 is important. Britain too will be a different place, its long imperial history gone, its mental maps for the future taking on different contours.

If, once the press corps has departed and the full reality of Chinese possession takes over, things do go reasonably right in Hong Kong, then, in the euphoria of their own political and indeed millennial change, the post- imperial British will probably be able to adjust to their changing (and they hope not diminishing) role. But if the many fearful people are correct, things do go badly wrong, and the new order proves oppressive or simply too corrupt, old responsibilities will not have disappeared. The Empire will still feel them, and so be judged.

Malcolm Bradbury, an English novelist and scholar, last wrote for THE WEEKLY STANDARD about Virginia Woolf.