One year on, Hong Kong people in this super-capitalist, freewheeling metropolis are up in arms -- not over any loss of their political rights, but over a slump in the economy, the sliding values of their homes and growing joblessness.

"People thought political rights would erode and the economy would have absolutely no problems, but the opposite happened," said Ho Lok-sang, a university lecturer. Freedoms of association and press were respected. In one important test, pro-democracy activists were allowed to go ahead with their annual vigil on June 4 to mark the 1989 suppression of student-led demonstrations in Beijing. Tens of thousands of people attended the candlelight vigil.

On May 24, the first post-handover elections to Hong Kong's Legislative Council drew a record turn-outand a moral victory for the democratic camp, even though a loaded electoral system meant Beijing sympathisers kept most seats.

Newly elected legislator Tsang Yok-sing said people had been too pessimistic over politics and too optimistic over the economy.

In the 12 months after Britain handed its last major colonial outpost to China, unemployment has surged to a 15-year high and in the first three months of 1998, Hong Kong's economy shrank for the first time in 13 years.

Home prices, the supreme success symbol in this territory of 6.6 million people, have fallen by as much as 50 per cent from 1997 peaks.

Many residents now shoulder the burden of high mortgage payments since interest rates were hiked to protect the Hong Kong dollar.

While economists attribute Hong Kong's blues to the regional economic turmoil, residents have vented their anger on the government.

"The government is simply shameless, silly and totally incapable," shrieked one woman during a noisy protest staged recently outside thegovernment's headquarters. She was one of around 100 investors demanding compensation after they lost their savings in the collapse of some local financial investment and brokerage houses.

Chief executive Tung Chee-hwa, appointed by Beijing to run Hong Kong after the handover, has been getting his first taste of public evaluation after enjoying huge popularity since the handover. "People ask me how do I evaluate myself, and I say I have failed miserably because... I was not able to fix the Asian financial crisis," Tung said recently to the amusement of a conference audience.

So far Beijing has abided largely by its "one country, two systems" policy, which permits Hong Kong to stand by its fiercely capitalist ways for another 50 years. But both sides have been testing the new arrangement as one country.

With tourism plunging, the Hong Kong government has turned to the once frowned upon mainland Chinese for salvation, jacking up by 30 per cent the daily quota of travel permits for mainland visitors. HongKong movie-makers, whose films have become much more expensive in Southeast Asia, now clamour to be classified as mainland films.