A panorama of the richest waterfront in Asia across a century of colonial history

The transformation of Hong Kong: When the photograph on the right was taken in 1912, Chinese were second-class citizens in their own territory. They were not even allowed to live on the desirable Peak. Now the British are almost irrelevant. Paradoxically, the handover to China in three months' time is set to be an occasion for mixed emotions. Hong Kong is flourishing. Its skyline changes constantly, with an energy that seems the essence of the territory itself. This is a city of extraordinary vibrancy, where billions are made and lost. The future under Chinese rule is confused, at best. But Hong Kong seems unlikely to lose the identity that it has forged.

Wherever you are in Hong Kong, at whatever time of the day or night, you are likely to hear one sound: drilling. The city has an estimated 4,000 building projects in progress at any one time, and as the tower blocks nestle ever closer together, its profile is not just changing upwards but outwards.

Hong Kong, with a population of 6.2 million, needs to house nearly two million extra people within the next 15 years. The Government is bracing itself for an extra 55,000 mainland immigrants annually and the 100,000 Chinese who will be eligible to live there following the handover. Many more Hong Kong Chinese are returning, pushing up demand in the private sector, while astronomical property prices have created a waiting list of nearly 150,000 for public housing. In response, the Government plans to build 400,000 flats a year for the next five years, but it needs an estimated 3,000 hectares of land on which to build.

In a territory that is no more than two hours travelling distance from any two points, and in which most people's windows already look into someone else's windows, something has to give. And that something is the sea. Hong Kong's biggest reclamation project is the new Chek Lap Kok airport, where in an awe-inspiring feat, a mountainous island was levelled and reshaped into 1,248 hectares of flat land.

But the South China Sea is having to beat a retreat elsewhere - most notably in its famous "fragrant" harbour. On Hong Kong island, a major reclamation programme began a year ago to create 123 hectares of land for commercial and infrastructure purposes, which is slowly but inexorably bringing Hong Kong and Kowloon closer together.

This has elicited protest from, among others, one of Hong Kong's few preservation societies - the Society for The Protection Of The Harbour, which says its "unique and irreplaceable public asset" should be preserved. It raised a petition of 148,000 signatures opposing the project, citing concerns about safety if the already crowded waters are narrowed further.

But the most vocal opposition has come from environmental protesters, who say that Hong Kong's development fever is getting out of control, and that the eventual effect on the territory could be catastrophic.

Lisa Hopkinson of Hong Kong's Friends of the Earth says the dredging and dumping involved in reclaiming large areas of land is destroying marine life. "They take up the layer of soft mud which is highly toxic and move it to a site near the new airport which is right next to a marine park," she says. The marine park was built to protect the Chinese White Dolphin - whose numbers are rapidly depleting because of pollution.

As well as making Hong Kong's already polluted waters even more poisonous (few of the territory's inhabitants would eat seafood they knew to be local) the dredging of sand from the bottom of the sea bed for "fill" is also problematic, she says. "There's lots of it coming down from China - we don't know whether it's toxic, or where it's coming from.'' Much of the damage, she says, has already been done, with corals destroyed on the relatively clear eastern waters, and the depletion of fish stocks and nursery grounds and the few remaining areas where sea birds roost and nest.

Hong Kong's Governmental Environmental Impact Agency makes recommendations for all major projects, but Ms Hopkinson says they are often ignored as there are no enforcement mechanisms in place. "We're not against reclamation in general," Ms Hopkinson said. "But we're questioning the need for it. The Government says there's an urgent housing problem but if you look at the land use breakdown, the amount sidelined for housing is only around 5 per cent.''

Ms Hopkinson accuses the Government of "wringing their hands'' and so Friends of the Earth have sent a position paper to the chief executive- designate, Tung Chee-hwa, asking to discuss the long-term sustainability of Hong Kong's development.

"We're very concerned that the Government's Territorial Development Strategy ... is basically going to result in the severe degradation of environmental quality. Hong Kong will end up with a highly polluted harbour bringing more traffic, noise and air quality problems in populated areas.''

She adds: "We've projected until 2047 and looked at ideas to show how it could become more sustainable, even if the population increases to 10 million. We're trying to get the Government to think about these things differently.''

As yet there has been no formal response. Meanwhile, it emerged yesterday that the Government is expected to reap windfall land revenues on the back of more than HK$34 billion (pounds 2.7bn) in premiums paid by developers - thought to be the highest for a single fiscal year. Noise pollution complaints are up 800 per cent since 1991. And across Hong Kong the drills keep drilling.