It has been a bitter two years for Hong Kong. On July 1, 1997, the British Crown Colony reverted to the mainland amid an outpouring of pride and Chinese nationalism. The celebrations were short-lived. The very next day, the Thai baht imploded, launching Asia on a downward economic spiral from which it has not yet recovered. Hong Kong was sucked into the maelstrom. If that trial was not of its own making, other tribulations were. A series of missteps have eroded confidence in the administration of Chief Executive Tung Chee-hwa, and forced many people to ask what the Special Administrative Region now stands for. Two years after beginning a new life, Hong Kong's very identity is in question.

Once touted by economist Milton Friedman as the finest example of pure capitalism in the world, the government's decision last year to intervene in the stock market tarnished that reputation. The purchase of $15 billion worth of shares was designed to scare off speculators, and it worked. But a dangerous precedent has been set. Ten months after the intervention, the government still owns the shares and has yet to explain how it will sell them without sending prices tumbling. The government suspended property sales for nine months to try to firm up land prices. The letting of the $1.7 billion Cyberport project without a public tender is another worrying indication. Each has stained -- perhaps permanently -- Hong Kong's image for international investors.

Those economic worries have been compounded by the soaring cost of doing business in the city. Manufacturing has fled to cheaper locales in the region. At the same time, Singapore is taking aim at Hong Kong's role as the region's financial center. Shanghai is offering a similar challenge as a gateway to China. The result is an economy that seems to be without foundation. The regional crisis is chiefly to blame for Hong Kong's troubles -- the economy shrank 5.2 percent in 1998 and is expected to contract another 0.9 percent this year -- but the government seems unable to offer a vision for the future.