A BUS packed with Chinese rattles toward the southern frontier town of Shatoujiao, its passengers peering out at watchtowers that dot the lush, green hills dividing China and the British colony of Hong Kong.The bus lurches to a halt at Shatoujiao's crowded depot. Clutching special police permits, people clamber out with empty bags and rush to the heavily guarded entrance of Zhong-Ying (China-Britain) Street, a bustling, duty-free shopping strip that straddles the border. Every day, tens of thousands of Chinese flood the narrow street to snap up imported commodities from Hong Kong ranging from gold jewelry and French satin to instant noodles and chopsticks. "Foreign products are better," says a Cantonese woman leaving the street with several packages of Hong Kong noodles. For the shopping spree, she took a two-hour train ride from Guangzhou and waited overnight for the $2 permit to Zhong-Ying Street. The popularity of the market street symbolizes Guangdong's unbridled enthusiasm for absorbing the lifestyle, know-how, and wealth of the capitalist enclave next door. In one of their boldest proposals yet, Guangdong's leaders have called for merging the economies of Hong Kong and Guangdong into a single economic entity, further reducing the province's dependence on China's inland. Provincial officials and Hong Kong analysts say the plan makes good economic sense. Already, Hong Kong provides about 90 percent of the foreign investment in Guangdong, making the province the source of more than half of China's total overseas investment. In turn, Hong Kong has found a "colossal asset" in the cheap land, labor, and other resources of Guangdong, says British Governor Sir David Wilson. An estimated 1.5 million to 2 million Chinese in Guangdong are producing for Hong Kong firms at only a tenth of the colony's wages. As part of the merger plan, Guangdong leader Ye Xuanping is lobbying for Beijing's approval to open wide the province's 15-mile-long border with Hong Kong to trade, while leaving immigration controls intact. Guangdong would free the flow of commodities to and from Hong Kong by dismantling customs at the current border. New customs stations would be erected along a "second line" four miles inland, creating a giant duty-free zone inside Chinese territory. "We want to become a unified regional economy," says Zhang Yundong, an economist in Shenzhen. The 125-square-mile border region is dominated by Shenzhen and the city would be included in the free-trade zone. "Hong Kong is the major economic model for Shenzhen. If we can break through the 'first line' [the Hong Kong-Guangdong border], the influence would be even greater," says Mr. Zhang. With its industry and exports growing at a rate of 30 percent to 40 percent, Shenzhen should be the first city to fulfill Chinese leader Deng Xiaoping's pledge to create several "small Hong Kongs" on the mainland, Zhang said. The plan would attract new Hong Kong investment to the province, while offering the colony greater opportunities to ease serious shortages by using Guandgong's labor, land, and materials, says Shenzhen Mayor Zheng Liangyu. In preparation for gradually opening the entire border, Shenzhen is setting up duty-free industrial zones at Shatoujiao and Futian along the border with Hong Kong, Mr. Zheng said in an interview. Shenzhen in late May also established its first tax-free markets for imported materials. The markets will cater to Chinese and foreign firms producing for export. So far, Beijing's hard-line leadership has reacted cautiously toward the border proposal, with Communist Party chief Jiang Zemin only agreeing to "study" the plan, provincial officials say. Nevertheless, the plan could serve Beijing's diplomatic goals since closer economic integration with Guangdong could smooth Hong Kong's reversion to Chinese sovereignty in 1997, say the officials.