Can capitalist Hong Kong be made to fit into communist-ruled China without losing its prosperity and free-enterprise ways? British and Chinese officials are sitting down in the Chinese capital this week to try to find an affirmative answer to this question.
The outlook, so far, is hopeful. British Prime Minister Margaret Thatcher has apparently decided that Hong Kong is not the Falklands, and that stubborn refusal to concede the Chinese claim of sovereignty will simply prolong an impasse which benefits neither Britain nor China.
The usually well-informed Far Eastern Economic Review of Hong Kong suggests that Mrs. Thatcher cleared the way for substantive talks beginning July 12 by a letter to her counterpart, Chinese Prime Minister Zhao Ziyang. According to the Review, Mrs. Thatcher indirectly conceded Chinese sovereignty over Hong Kong. The Chinese had refused to go on to specifics until the sovereignty issue was settled.
Hong Kong island and the tip of Kowloon peninsula were ceded to Britain in perpetuity by the imperial Chinese government following the Opium War of 1841 and the Anglo-French intervention of 1860. Most of the rest of present-day Hong Kong, however, is ruled by the British under a 99-year lease which is to expire in 1997. Without the leased territories, Hong Kong island itself is not viable.
In a contentious meeting with China's senior leader Deng Xiaoping last September, Mrs. Thatcher is said to have stood on the legality of the treaties under which Britain successively obtained Hong Kong, Kowloon, and the leased New Territories. The Chinese maintain that the treaties are invalid, having been forced on China at gunpoint.
Mrs. Thatcher's letter to Mr. Zhao two months ago is reported to have indirectly acknowledged that the issue of British sovereignty over Hong Kong cannot be considered in isolation from that of China's sovereignty over the leased territories. Mrs Thatcher's letter was apparently couched in terms sufficient to meet China's insistence that Chinese sovereignty is non-negotiable.
The British negotiating team is headed by Sir Percy Craddock, British ambassador to China, and Sir Edward Youde, governor of Hong Kong and former ambassador to China. The Chinese side is headed by first deputy foreign minister Yao Guang. Day-to-day attention to the issue is being given by central committee member Xi Zhongxun, an ex-governor of Guangdong province next to Hong Kong.
Premier Zhao Ziyang, in his marathon report to the National People's Congress last month, set the tone by saying that China would recover sovereignty over Hong Kong ''at an opportune moment and take appropriate measures to maintain its prosperity.''
Mr. Xi, meeting various delegations from Hong Kong, has pledged that ''we will not change the capitalist system in Hong Kong.''
''The solution of this problem will bring honor to China on the one hand and Britain on the other,'' the Review quoted Mr. Xi as saying on May 19. ''Of course, sovereignty is non-negotiable. But we have a high regard for Mrs. Thatcher . . . . Fourteen years (until the expiration of the lease) may seem long but it is actually very short. We said last year we would like to make a proposal within one or two years. Could it be this year? Could it be next year? The solution has to be negotiated between two countries. It cannot be resolved unilaterally.''
Mr. Xi is from Shaanxi province in the northwest. In the 1950s, when almost every other major Chinese city was following Peking's example (at Chairman Mao Tse-tung's behest) and tearing down its city walls and gates as obstructions to traffic, Mr. Xi was instrumental in enabling Xian, capital of Shaanxi, to keep its walls and principal gates. Also in his new role he seems prepared to be a sympathetic conduit for the transmission of Hong Kong hopes and fears to the central leadership.
China has already created a constitutional framework for bringing a non-communist Hong Kong inside the People's Republic by providing for ''special administrative regions.'' Exactly what constitutes a ''special administrative region'' and how much autonomy it shall enjoy is not spelled out. If a mutually acceptable and viable status can be worked out for Hong Kong, this could create a powerful new propaganda tool in China's continuing campaign to win back the far larger, far greater prize of Taiwan.
Hong Kong has been jittery since Mrs. Thatcher's visit to Peking last September. The property market is depressed and a great deal of Hong Kong money is said to have fled to other, presumably safer, financial centers.
But Hong Kong has had similar jitters before, notably in 1967, during China's Cultural Revolution. Eventually investors returned to Hong Kong because they could not easily find elsewhere the same combination of stable government, the rule of law, and an almost 19-century attitude toward capitalism and entrepreneurship.
China under the leadership of Mr. Deng and his associates is a far different place from China during the anarchic days of the Cultural Revolution. Still, there is a perception gap between Peking's views of what may be required to keep Hong Kong prosperous and those of Hong Kong's citizens, the vast majority of whom are Chinese.
China has tolerated a capitalistic Hong Kong under British rule. Can it tolerate a capitalistic Hong Kong under its own rule? Would it consent to let the British stay on under, say, some form of management contract? Alter-natively , would it give Hong Kong self-rule, a luxury it has not so far enjoyed?
Hong Kong under Chinese rule may well serve as an example for Taiwan, but what about serving as an example for China's own mainland provinces, each of which is striving for a greater degree of economic autonomy?
Even with sovereignty no longer the stumbling block in Sino-British negotiations, there are a great number of awkward questions the Chinese leadership will have to ask itself, as well as the British, as the talks proceed.