On 1st July 1997 Britain will hand over sovereignty of Hong Kong to the People's Republic of China (the "PRC"). In 1984 the two governments signed the Joint Declaration Treaty to regulate the transition. According to the Joint Declaration, Hong Kong is to retain a high degree of autonomy as a Special Administrative Region of the PRC, in particular :

- the PRC is to assume responsibility for defence and foreign affairs and Hong Kong is to retain responsibility in most other areas including economic, social and legal matters;

- the Hong Kong Dollar is to continue to circulate and be freely convertible;

- the free flow of capital is to be safeguarded;

- the central government of the PRC is not to levy taxes on Hong Kong;

- Hong Kong is to retain its status as a free port and separate customs territory;

- private property, ownership of enterprises, legitimate rights of inheritance and foreign investment will be protected by law.

In 1990 the Basic Law was passed by the PRC and will become effective on 1st July 1997. The Basic Law will be Hong Kong's main constitutional document and contains detailed legal provisions, including provisions stating that the previous capitalist system and way of life in Hong Kong shall remain unchanged for 50 years. The English law based judicial system will remain substantially unaltered, but appeals from the existing Court of Appeal will go to the new Court of Final Appeal rather than to appellate courts in England.

A recent judgement delivered in Massachusetts, USA relating to the death of a U.S. citizen in a Hong Kong hotel swimming pool. The court was of the view that the US courts should have jurisdiction to ensure the plaintiff's opportunity to obtain legal redress because of uncertainty over the future of the Hong Kong legal system. The judgement appears to ignore the statutory framework in place for the legal system in Hong Kong after 1997.

On the other hand there is little point dwelling on the intricacies of the legal system without placing it in context. However the economies of Hong Kong and the PRC are closely connected. For example :-

- at the end of 1992 the PRC was the biggest direct investor in Hong Kong;

- it is estimated that half of Hong Kong's currency is circulating in Southern China;

- it is estimated that Hong Kong companies employ 3 million people in China (a figure equal to half the population of Hong Kong).

It is likely that this mutually beneficial relationship will strengthen after 1997 and enable the statutory framework regarding the legal system to operate as intended.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".