Hong Kong has now been part of China for five years and only a few of the dire predictions of economic malaise and political suffocation that were so widespread among international pundits before 1997 have come true so far. But there are worrying signs of trouble ahead.

The Special Administrative Region -- as Hong Kong is now officially known -- is developing increasingly close ties with the neighboring Special Economic Zone of Shenzhen in accordance with Beijing's long-term strategy, first articulated in the early 1990s, of "internationalizing" this and other zones. Hong Kong's political environment, though still relatively free, is chilled by press self-censorship. Hong Kong's "flower vase" democracy has less authority over the executive or the budget than it did immediately before 1997. And Hong Kong Chief Executive Tung Chee Hwa's appointment this week of a super-cabinet, apparently accountable only to himself and through him to Beijing, has not reassured either Hong Kong's people -- or anyone else, for that matter -- that representative government faces a bright future in the SAR.

At first glance, despite suffering some fallout from the global economic downturn, Hong Kong's economic situation is relatively healthy. Five years after its return to Chinese sovereignty, it remains -- by many measures -- the world's freest economy, the world's 10th-largest trading entity and ninth-largest banking center. With per capita gross domestic product at $23,571 in 2001, its standard of living is about the European Union average. Hong Kong's banking system is sound, and the government treasury maintains massive operating reserves from previous surplus years. This is in large part because Hong Kong has benefited from its rule of law, lack of trade barriers and low taxes. That's the good news.

But clouds are gathering. The Hong Kong government continues to ease barriers to economic flows with mainland China, particularly those affecting the flow of "people, cargo, capital, information and services" from China back into Hong Kong. As such, Hong Kong's labor force, which lost 650,000 manufacturing jobs to mainland China over the past decade, and which still suffers under a record high unemployment rate of 7.4% in the latest three-month period, will continue to feel the pain of integration with China's lower-cost manufacturing and services base. Integration will also equalize property values (further depressing Hong Kong's real estate market), enable Chinese from Shenzhen to compete directly in the Hong Kong labor market, and begin the process of gradually integrating Hong Kong and Shenzhen into one seamless zone.

This integration was first envisioned in 1992 when the Shenzhen authorities suggested that the "hard line" border checks on their southern boundary with Hong Kong could be eventually moved to the northern boundary between the zone and the rest of Guangdong province -- leaving a "soft line" on the south with Hong Kong.

Many Hong Kong businesses have urged the government to streamline traffic across the border and better coordinate infrastructure development with Shenzhen. But the degree of integration between Hong Kong and the rest of China is already raising concerned eyebrows in Washington, especially among those who argue that blurring the line makes it increasingly difficult to justify keeping the two jurisdictions separate for export purposes. Outgoing U.S. Consul General Michael Klosson recently alluded to this anxiety in a speech to the American Chamber of Commerce in Hong Kong, extracts from which were published on this page ("Preserve Hong Kong's Identity," June 10).

There are also new fears that the government may abandon its traditional laissez-faire stance following Hong Kong Financial Secretary Antony Leung's announcement in March 2002 that the government intends to become a "proactive market enabler." After decades of successful deference to the market, the last thing the Hong Kong government needs to be is "proactive," if it hopes to retain international business confidence.

On the political side, Beijing has generally kept out of direct meddling in Hong Kong's daily life. Since the handover, there have been persistent worries about Chinese interference in the SAR's independent judiciary, but Hong Kong has largely weathered the storm. Even the U.S. State Department admits that  "Hong Kong's courts remain independent and the rule of law is respected."

The independence of the press is another matter. While press freedoms are respected, several journalists critical of China have lost their jobs in Hong Kong-owned newspapers over the past two years, and the specter of self-censorship casts a pall over Hong Kong's mass media. The April 2002 firing of the South China Morning Post's former Beijing bureau chief Jasper Becker is only the most recent example of this. Although smaller magazines and periodicals still present lively political debate, many mass-market newspapers are trimming their sails to avoid annoying Beijing.

Nor are Americans used to being harassed by Hong Kong immigration, and many in the U.S. were unsettled to read that Princeton professor Perry Link was held for questioning upon his arrival in Hong Kong this week. Prof. Link was eventually allowed to enter, but just a few days earlier it had emerged that American human rights activist Harry Wu had been denied a visa, the second time this year Mr. Wu has been prevented from visiting Hong Kong. It is the Hong Kong authorities' right to deny entry to whomever they want -- but Mr. Wu would never have been denied entry before 1997. So much for former Chinese leader Deng Xiaoping's promise that Hong Kong would enjoy "50 years with no change."

Nor was Mr. Tung's appointment this week of "principal officials" under a new "accountability system" a particularly reassuring exercise. The appointments were delayed over last weekend while Beijing vetted them, and then announced summarily by Mr. Tung's office. Mr. Tung had unveiled plans for such an accountability system last year in response to popular complaints that Hong Kong's government was not accountable to its people. But instead of introducing genuine accountability, all the new system does is introduce a new layer of senior, politically appointed officials beholden to Mr. Tung, who will run the politically neutral civil service. In what was surely the diplomatic understatement of the year, the U.S. State Department dryly noted, "it is not clear how this reform would increase accountability to the legislature and people."

Until recently, there had been some hope that Hong Kong's chief executive would eventually be popularly elected. After all, the Basic Law -- Hong Kong's constitution -- states that "the ultimate aim is the selection of the chief executive by universal suffrage upon nomination by a broadly representative nominating committee in accordance with democratic procedures." But Mr. Tung's administration has not taken any steps in this direction. And on Wednesday, it was reported that China's Vice Premier Qian Qichen had made the depressing announcement that he supports Hong Kong's current electoral system. "This should be kept intact," he declared.

After five years, this is Hong Kong's "one country, two systems" model. If its goal is to entice Taiwan to return to the embrace of the Chinese motherland, then it's not working and probably never will.

John J. Tkacik, Jr., is a research fellow at the Heritage Foundation in Washington, D.C. He is a retired officer in the U.S. foreign service who served in Beijing, Guangzhou, Hong Kong and Taipei.