1997 was always going to be a turning point in Hong Kong, as Britain's colonial mandate expired and the territory was reclaimed by China. The transition was smooth, however. It was the financial crisis that swept across Asia-Pacific the following year that shook Hong Kong. The economy shrank by 5% in 1998, land transactions dried up and property developers sat on land they had bought at the top of the market. The economy appears to have bounced back, but the financial crisis caused Hong Kong to re-examine its position in Asia-Pacific. As it has transformed from a manufacturing economy to a financial centre, factories have moved to China, where labour costs are lower. It now faces the threat that China will soon be able to offer international financial services at a bargain price, too.
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