The early months of 2010 saw Hong Kong moving slowly but surely toward a fractious political showdown that will influence its governing structure for years. The main question concerns how to adopt electoral reforms that could move it closer to a Beijing-promised "ultimate"goal of universal suffrage—or whether the reform process will stop, perhaps permanently.

The economy, meanwhile, showed further recovery from a 2009 reversal caused by the global financial crisis. However, there are continued worries on at least two fronts: the gap between rich and poor continues to grow and is one of Asia's most extreme, while property and other asset bubbles threaten to burst, bringing a financial relapse.

The specific political issue, coming at a time of great mutual mistrust, concerns how to change the rules governing scheduled 2012 elections to fill all seats in the Legislative Council (Legco) and select a new chief executive; Donald Tsang, the current government head, cannot run again. The central government has said that winners of subsequent elections—for chief executive in 2017 and all Legco seats in 2020—might be decided by universal suffrage, but only if the rules for 2012 are revised first to expand the electoral base modestly.

Without such interim changes, Beijing won't promise when (if ever) the one person, one vote goal will be reached, only that there will be delays. The short-term goal, it appears, is to strike a deal that gives the impression that political reform is continuing, but without risking the possibility that Hong Kong might elect a government willing to question Chinese policies. (There will, in fact, be an earlier legislative election in 2016 but presumably any 2012 rule changes would apply.)

To date no agreement is in sight and none of the major players shows much interest in compromise. On the one hand, Hong Kong's frustrated pro-democracy politicians want a firm Beijing pledge that it will introduce universal suffrage for 2017 and 2020 before they agree to any interim reforms. They also want a promise to abolish "functional constituency"elections—voting by special interest groups—which select half the legislators, and who generally vote the pro-government line. (By one estimate, this system allows 1 percent of the voters to fill half the Legco seats.) However, China has said that it won't promise anything until it sees how the 2012 negotiations are concluded, and adds that the Hong Kong government isn't authorized to strike any deal on its own. The result is impasse; the activists deeply distrust Chinese authorities and contend that Beijing, in collusion with a subservient Hong Kong administration, already has reneged on one basic electoral pledge and could do so again. China, meantime, claims the democrats demand privileges that are excessive.

The Public Isn't Excited

Thus two pro-democracy parties are trying special means to exert extra pressure on the Beijing and Hong Kong governments to speed up true political liberalization. Their main tactic was to have five elected Legco members, one from each geographical constituency, resign to force by-elections now set for May 16. They say this vote could serve as a de facto referendum on democracy, and hope a massive turnout would return the five to office overwhelmingly. Such a result, they say, could shame reluctant governments into more generous terms.

But the tactic seems to be falling flat. Some other democratic parties call the effort futile, many pro-government groups vow to boycott rather than contest it and the public doesn’t seem particularly excited either way. Odds are the five will be returned but without serious opposition and via elections for which few voters show up, even though public opinion polls for years have shown that most Hong Kong residents want a more democratic system.

Though this tactic is entirely legal under present law, Beijing officials have called the ploy a "blatant challenge"to their authority even though it merely will fill those vacant Legco seats and not require either the central or Hong Kong governments to do anything specific. Beijing insists that only negotiations between Hong Kong officials, whom it gives little leeway, and interested groups can determine final terms for 2012, and these won't be swayed by an electoral sideshow.

So far, the Tsang administration's own modest reform proposals have been termed inadequate by most democratic groups—less generous than an earlier plan that failed to win Legco approval in 2005. They would merely increase the appointed committee that selects the chief executive from 800 members to 1200; add 10 seats to Legco (five popularly elected and five chosen by functional constituencies) and in other ways slightly expand the electoral base. Chief Executive Tsang has said these terms are not necessarily final but hasn't shown much interest in major revisions.

Beijing's fundamental objections aren't about negotiating tactics; instead, they reflect deep distrust of Hong Kong's pro-democracy politicians, whom officials say lack the "patriotism"and "loyalty"needed for high office and whom they sometimes suggest are working for foreigners against China's national interests.

Basically, Communist Party cadres seem to fear that open voting might elect office-holders difficult for them to control. Just why they believe so isn't entirely clear; even the most radical Hong Kong politicians don't question Beijing's sovereignty or Hong Kong's need for close ties with the mainland for the sake of prosperity and social stability.

The center's suspicions may reflect current efforts by Chinese leaders, busily promoting what President Hu Jintao calls a "harmonious society", to impose new restrictions on political expression across the entire country. Perhaps they fear a democratic Hong Kong that chooses its own leaders could inspire similar demands on the mainland, where leaders choose themselves.

Time is growing short for reaching a broadly acceptable compromise. The Tsang government is consulting with various interest groups about the pending reforms and wants final terms by yearend. But critics contend these consultations often are more pro forma than substantive, and vow to block Legco passage of the government's proposals unless there are important revisions. But if that happened, China most likely would delay further—perhaps for good—any efforts to introduce the universal suffrage it promised when regaining sovereignty from Britain in 1997.

A System Nobody Loves

That would preserve a political system which all sides find unsatisfactory. The basic structural issue is that the administration, whose chief executive is chosen by a small committee vetted by Beijing, lacks a popular mandate. Legco, meantime, has at least a partial public mandate, even if half the seats are filled by special interest groups which generally support the government for their own business reasons.

In any case, Legco is not authorized to initiate legislation that affects the budget—such as for social welfare programs. Its main power is negative, for a blocking third can stymie government proposals. This often leads to legislative roadblocks, emotional quarrels and showboating that fuels public disdain for the whole system.

Despite complaints about Hong Kong politics, Beijing has put new emphasis on using its government to lure Taiwan into the fold. Recent months have seen a flurry of exchange visits and new agreements involving Hong Kong and Taiwanese officials about commerce, finance and tourism.

In March, former Chief Executive Tung Chee-hwa, now a vice chairman of Chinese People's Political Consultative Conference, met Lien Chan, honorary chairman of the ruling Kuomintang Party, in Taipei; the Tung family shipping company had close ties to Taiwan before the mainland helped it resolve financial problems in the 1980s. Later this year, current Chief Executive Tsang may make his own visit.

On the economic front, most indicators showed gains. Retail sales were up, unemployment was down, bankruptcies hit a five-year low and trade was increasing again. The government forecast economic growth in the 4 percent to 5 percent range for 2010, following a 2.7 percent decline last year.

After years of deficit spending, the next budget is expected to show a small surplus leading to longer term balance. Economic integration with the mainland is continuing, notably with the neighboring Pearl River Delta region, and for the first time Hong Kong has an explicit role in the mainland's five year economic plan. To promote continued recovery, the administration launched several tax relief, social welfare and other programs to aid lower-income residents, though none revised the basic limited-government approach that has prevailed since colonial days.

Reprinted from the Hong Kong Journal, www.hkjournal.org. +a quarterly, online publication hosted by the Carnegie Endowment for International Peace in Washington, DC.