'They needed to provide both an English curriculum and also Chinese-style education through the local system, whether that meant teaching in English or Chinese,' says Professor Mark Bray, an expert on international education at the University of Hong Kong.

'But that referred to English-style, not just English-language education. The ESF subsidy matched that given to the local schools and the ESF fees were to justify the English curriculum, considered to be more expensive to provide.'

Fast forward to 1999-2000, when the ESF subvention was frozen during tough times following the Asian financial crisis. A review of ESF funding as part of wider government budget cuts was overtaken by the foundation's damning 2004 audit report, which criticised its governance, school administration and financial management.

Crucially, the report triggered the abolition of the foundation's giant 132-member governing board, with the government refusing to resume talks over the subvention until the process was complete. As the crisis-stricken ESF struggled to put its house in order, the subvention was cut by 12 per cent between 2004 and 2007. The foundation's revised ordinance, replacing the board with a 25-member council, was passed by the Legislative Council in March 2009. Although the audit report had called for the review of ESF's public funding to be completed swiftly, the subvention has since remained unchanged, declining in real terms due to inflation.

At the end of last year, ESF made its first attempt to pull in extra government funding, appearing before the Legislative Council's education panel to ask for HK$160 million to rebuild Kowloon Junior School.

At the meeting, legislators called on the Education Bureau to resume talks with ESF about the subvention as a matter of urgency and report back to the panel on what they had agreed.

The bureau responded by writing to ESF in January announcing the start of formal talks and setting out its terms and timetable, involving reporting back to the education panel during the current legislative session. The panel will debate the issue on July 11.

The letter stated that the review would look at the question of whether the subvention should continue and would take into account the recommendations of the 2004 audit report and subsequent Public Accounts Committee hearing. It would also scrutinise ESF's current performance, including its financial management and 'fee-related arrangements'.

Officials will look at whether ESF's stated role and service objective justify its unique position in the Hong Kong education system and whether it is mainly admitting students who speak English as their mother tongue.

They will also examine whether it provides affordable, high-quality English-medium education for both local children who do not speak Chinese and the children of expatriates working in Hong Kong.

Du Quesnay and Tong set out their stance for the negotiations in a recent joint interview, conceding the talks had got off to a slow start.

Du Quesnay aims to get the subvention restored to its 1999-2000 level of HK$295 million - the highest ever - but adjusted for inflation and the rise in ESF student numbers. In real terms, the freeze in subvention has meant a 26 per cent drop in funding per child over 11 years.

'We would like parity of subsidy, but we know that this will have to be justified in the context of the needs of modern Hong Kong, not simply by reference to history,' she says.

'We believe that the government has a duty to provide appropriate education, in the SAR's two official languages, for the children of people who have made Hong Kong their home.

'Because of the special circumstances of Hong Kong, these encompass not only people of all nationalities born in and who have remained in Hong Kong, but also returnees with children who have not experienced a local Hong Kong education or learned to read and write Chinese characters, together with those brought to the SAR for business and other reasons.'

One important group in this category are businesspeople who have settled here and played a key part in the territory's economic development, Du Quesnay says.

'Most of these people require an education in the medium of English for their children,' she says. 'Increasingly, they also require an international curriculum leading to qualifications that have wide international currency.' This was so that children could easily transfer to schools in other countries, if their parents' business required the family to move and also so they were prepared for entry to universities around the world.

When he became chairman in May, Tong declared that fighting for a bigger subvention and more funded places for the ESF were his top priorities, winning him a warm response from parents. 'We know the history. But 70 per cent of children now have parents with permanent identity cards and that is reflected in the ethnic background of the students,' he says.

Critics argue, however, that independent international schools provide education to similar levels, and families seeking such schooling for their children would have to pay a premium for it, as they would in other major cities in the region.

Terence Chang Cheuk-cheung, principal of the elite Diocesan Boys' School which is in the Direct Subsidy Scheme, says: 'I think that schools should only receive government funding or subvention if they offer the Hong Kong curriculum, so that they can accommodate the needs of local students.

'Once you go international, you are running your own business, so you have to be responsible for whatever costs are involved. Since you are free to set the school fees according to your own calculation and approval from parents, I don't think the government should subsidise anything.'

While most direct-subsidy schools follow the Chinese-language syllabus, which is not designed for second-language learners, a handful of top institutions, including Diocesan Boys and St Paul's Co-educational College, have begun to offer alternative curriculums leading to IGCSE exams for non-local students.

Cheng Kai-ming, chair professor of education at the University of Hong Kong, says arguments for the ESF to get a bigger slice of the funding pie on the grounds of educational entitlement or equal opportunities fall down because the entire education system is selective and competitive.

'I don't think it is a matter of entitlement at all,' he says. 'Many children are denied their school of choice. This is a case that can only be argued from a historical point of view.

'The ESF's existence is the main reason for it continuing. It is popular, it is doing a good job and without the subvention they can't play this role. This is the status quo. So perhaps the easy way out is to leave the ESF as a special category and the subvention as it is - a bit lower than it was but still there.'

Just over a week ago, however, ESF upped the ante by e-mailing more than 12,000 parents, urging them to lobby officials and legislators to increase the subvention.

The move has raised eyebrows in some quarters. 'I think that's a bit of a funny way to go about it, frankly,' international education consultant John Crawford says. 'It's a little bit naughty.'

Parents have had to contend with fee rises of 27.3 per cent for primary schools and 17.7 per cent for secondary schools since 2005. In September, they face further fee increases of up to 3.3 per cent as well as a new one-off HK$25,000 refundable capital levy for all new students. (The new fee increase means parents would have to pay HK$63,000 a year for a primary school place, and HK$95,100 a year to keep a child in secondary school.)

Hans Ladegaard, a vocal member of the ESF Concerned Parents group, says the fee rises were squeezing families to breaking point. 'We're fighting for the right to be here,' he says. 'People are leaving Hong Kong over this, but no one seems to care.'

The group's relations with ESF leaders were strained to breaking point last year when it questioned whether fee increases had been used to subsidise the foundation's two loss-making private independent schools.

The ESF books revealed that Discovery College was in the red by HK$19 million last year and Renaissance College by HK$2.3 million. Both had been built with cash from ESF reserves. Du Quesnay told parents the money ploughed into the schools had no impact on fees but admitted that the levy could have been avoided if money had not been invested in the two schools.

The row highlighted the ESF's increasing drift towards the private end of the education system, with its commercial arm, ESF Educational Services Ltd, also setting up a couple of new kindergartens in recent years.

Cyd Ho Sau-lan, vice-chairman of Legco's education panel, says the ESF's commercial ventures, with the fee rises and levy, raises a serious question about whether the foundation still meets its original purpose. 'If they are negligent in performing their duty of providing an affordable English-medium education, I don't think they should continue to receive public funding,' she says.

'We have to send a clear message to the ESF that they have to get back to their core business. If they still want to focus their efforts on setting up private schools, I think the EDB should take over the operation of the ESF's 15 publicly funded schools.'