About Hong Kong > HISTORY OF HONG KONG For most of the past century, Hong Kong has been a home of necessity rather than of choice for its Chinese residents. It was a place of temporary refuge for families in exodus from poverty, or social and political instability in Mainland China. The political and economic upheaval in China has been the key engine driving Hong Kong's relentless quest for prosperity over its 150-year colonial interlude. Were it not for the Sino-Japanese wars, the Chinese civil war, the closing of China's economy for three decades from 1949, the Cold War, the disasters of the Great Leap Forward, and the excesses of the Cultural Revolution, all of which have severely impeded the social and economic progress of China, Hong Kong might still today be a second tier city on China's southern coast. Since the 16th Century, China traded products such as tea and silk with the Western powers. Hong Kong was one of the safe harbors located along the trade routes of the Far East. In 1841, following the Opium Wars (1840-1843), it became a British Colony. A combined British and French force invaded China, in 1859, forced the Chinese to further cede the Kowloon Peninsula and nearby Stonecutters Island to the British. In 1898, the British also obtained a 99-year lease on the New Territories. Prior to the Second World War in 1941, Hong Kong stared a gradual shift away from trade to manufacturing. This change was accelerated by the civil war in China during the 1920s, and by the Japanese invasion in the 1930s, when Chinese capitalists fled to Hong Kong. During the Korean War, a US embargo on Chinese goods threatened to hinder the economic development of the colony. This compelled the colony to expand its manufacturing capacity and develop service industries, such as banking and insurance. During the Second World War, the Japanese invasion reduced the population of the colony by more than two-thirds. Hong Kong survived and re-emerged as an entrepot for trade between China and the world. In 1949, after the Communist's defeat of the Kuomintang, more than one million refugees from the Mainland poured into Hong Kong, causing severe strain to the land and resource scarce city. In 1950, the United Nations declared a blockade on China, cutting Hong Kong off from Southern China, which ruined the entrepot trade that had sustained its economy. Hong Kong's exports (90 percent were Chinese goods) fell by 34 percent from 1951 to 1952. Many observers, during this period, doubted the colony's economic viability and survival. The turning point for Hong Kong emerged when it gained the support of British and other international bankers, and when the barons of Shanghai's textile industries fled to the colony. These factors provided the foundations for Hong Kong to start building export-oriented and transnational production operations across Southeast Asia, as well as laying the grounds for a strong manufacturing sector that subsequently become the colony's economic engine. The British and the Mainland Chinese governments started negotiations on the future of Hong Kong in 1982, which resulted in an international treaty that called for the transfer of administration from the British to the Chinese on the 1 July 1997. Under the Joint Declaration, Hong Kong would become a Special Administration Region (SAR) of the People's Republic of China. This meant that Hong Kong would continue with its capitalist system and way of life for a further 50 years. After 1997, the 'one country-two systems' framework under which Hong Kong is to be governed was further enshrined in the "Basic Law", the constitution for the Special Administration Region.

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