Special Report on Hong Kong: Flag still flying over economy: Who understands the colony's risk-reward equation? Martin Vander Weyer reports

THE WANCHAI branch of Harry Ramsden's fish-and-chip empire and the growing chain of Marks & Spencer stores, are, to the casual eye, rare signs of new British business activity in Hong Kong. It is a city where neon brand-names are Japanese, smart cars are German, loud voices in hotel lobbies are American and whisperers are mainland Chinese.

But appearances - and definitions of Britishness - can be deceptive. As the territory's wealth has multiplied in the past 20 years, the British slice of the pie has certainly shrunk. What is perhaps surprising, given the untiring enterprise of the local Chinese and the overwhelming power of Japanese goods and money in the region, is how widely, if unobtrusively, the Union Jack still flies over Hong Kong's economy.

The accusation of having squandered the advantage of colonial tenure, and thereby missed the boat in booming south China as well, is a familiar one which suits the current British mood of self-flagellation. In the era of China's Cultural Revolution, Hong Kong was regarded as a high risk area: important British companies like P & 0 and Bowater reduced their presence, a new breed of rich local entrepreneurs emerged, the Japanese arrived, and the old British business hegemony began to fade.

The perpetual problem of weak export performance dragged Britain down to eighth place in the table of Hong Kong's external trade partners. Only five per cent of new manufacturing investment now comes from the United Kingdom, and the number of British expatriates - many of them civil servants, servicemen and professionals - has long been surpassed both by Japanese and Americans, almost all of them in commerce and finance.

But this picture of decline ignores a substantial block of businesses so indigenous to Hong Kong that they tend to be omitted from statistics measuring 'British' activity. Chief among these are the Hong Kong & Shanghai Bank and the two great hongs or trading companies, Jardine Matheson and John Swire. Also to be counted is HK Telecom, the telephone monopoly, controlled by Cable & Wireless.

Perhaps slightly less British, at least in origin, are the electricity and hotel interests controlled by the Kadoorie family - third-generation Hong Kongers who migrated from Baghdad, but loyal believers in buying British for a succession of massive power projects.

These five groupings between them still account for about a third of the pounds 150 billion capitalisation of the Hong Kong stock market, and a range of activities which penetrates every corner of the territory's economic life.

The family-controlled Swire group, run from London, holds 58 per cent of Cathay Pacific, the territory's hugely successful (and entirely Rolls-Royce powered) airline. It also has commercial properties worth pounds 3.5bn, and the Coca Cola franchise for the whole of south China. Professing 'absolute confidence' in Hong Kong's future, Swire has just bought a pounds 250m development site in Kowloon, in joint venture with mainland Chinese interests.

Only a dozen years ago, the Hong Kong Bank - run by Scotsmen - was labelled foreign by the Governor of the Bank of England, and thereby unsuitable to buy the Royal Bank of Scotland. Having now acquired Midland Bank instead and moved the group's headquarters to London, the bank's Britishness is no longer open to question. But the bulk of its profits, pounds 1.1bn out of a spectacular total of pounds 1.7bn for 1992, continue to come from Hong Kong. And despite the rising influence of Chinese institutions, it is likely to be the biggest bank in town for long after 1997.

The bank has shown considerable delicacy in shifting its nerve centre to London while keeping its face in Hong Kong. It is a transition fraught with difficulties - as Jardines, technically domiciled in Bermuda and controlled by the Keswick family in London, has found out. The company has been accused by Peking of interfering in Hong Kong politics while scuttling back to Britain.

Sir Charles Powell, a former Thatcher adviser and now a Jardine director, says that 'understatement of British business commitment to Hong Kong is a source of constant irritation' to him and his colleagues. Jardines has plans for a new container terminal and land reclamation project in Hong Kong harbour which, he says, will dwarf its recent stake in UK property and the engineering group Trafalgar House, seen by analysts as a shift away from the east.

Constant development of the harbour area vividly illustrates Hong Kong's propensity to rebuild itself, but British firms have rarely been prominent in construction work there. The controversial new airport, the biggest project of all, was not an opportunity for the Hong Kong government to right that balance by deliberately buying British - the Chinese were on the watch for a capitalist plot to cream off the territory's currency reserves before 1997 to the benefit of British contractors.

It therefore came as no surprise that Japanese firms, who have a virtual stranglehold on civil engineering in Asia, took the lion's share of the pounds 3bn of airport contracts so far awarded. But a Hong Kong government spokesman says that British firms like Costain and Trafalgar House - partners in a consortium to build a pounds 600m suspension bridge linking the airport to the New Territories - did 'just as well as they should have done' in areas where their reputation is high.

That British business more generally has not profited as it might have done in Hong Kong is patently true. But throughout its history the territory has been a place of unique opportunities and risks; it is all the more so as integration with China advances. And the old Hong Kong British traders and bankers, who understand that special risk-reward equation so much better than their cousins at home, are still making the most of it.

(Photograph omitted)