WITH the merger of Hong Kong and China, the fate of the mainland's de facto embassy here has become a sticky question. The future role of Xinhua, hidden behind the facade of a news agency in Happy Valley for decades, is still uncertain. Chief Executive Tung Chee-hwa has indicated it is not a matter for him to decide, rather one for the central authorities. However, there are clear signs that the State Council's own Hong Kong and Macau Affairs Office is acting as the conduit between the Special Administrative Region and the Council. It is also acting as gatekeeper to prevent uncontrolled entry by mainland organisations. The presence of deputy director Chen Ziying at meetings with Guangzhou officials on the question of illegal child immigrants in April bears witness to this. Whereas the parameters and responsibilities in Hong Kong of the mainland's Foreign Ministry and the People's Liberation Army are clearly defined in the Basic Law, those for Xinhua are not. If Beijing remains undecided on the future of Xinhua, it is because of the agency's sensitive role in history. Established in 1947, it was at first the hub of activities for the Chinese Communist Party (CCP) in the region, co-ordinating the party's work in South China and Southeast Asia. By the time Xu Jiatun became director, Xinhua was directing local CCP members through the Hong Kong and Macau Work Committee. Party members accredited to work in Hong Kong through official agencies and state-funded firms all come under its direction. Another party membership faction operates underground and comes under the direct control of Beijing. Under the auspices of the Hong Kong and Macau Work Committee, the agency supervises party cadres working for bodies such as the Foreign Ministry's visa section as well as for mainland-funded firms in Hong Kong. Another important Xinhua function is to carry out 'united front' activities in the territory. Throughout the past few decades, the agency has contributed a great deal to fostering relations between local grassroots groups and their mainland counterparts. It has rallied local support for Beijing's policies, especially at times of Sino-British bickering on transitional issues. Its senior officials have acted as spokesmen for China in responding to policies and decisions made by the Government. There are fears the SAR's high degree of autonomy would be compromised if Xinhua continues to practise these pre-handover functions. However, Xu Simin, local deputy to the Chinese People's Political Consultative Conference (CPPCC), said he supported Xinhua keeping a similar presence after the handover. 'If the party is to continue to operate in Hong Kong, it is better to have it out in the open rather than hidden in the dark,' he said, noting that Mr Tung had said he would not ban the CCP from operating openly. Echoing earlier remarks by Xinhua deputy director Zhang Junsheng, Mr Xu believes the agency will play a more significant role in cross-strait relations with Taiwan, which do not fit into the terms of reference for the Foreign Ministry. He added there would be a need to maintain the links between local and mainland grassroots bodies, best done under the name of Xinhua. 'It is not viable to set up a China affairs office in the future government,' Mr Xu said. 'If the existing channel is working well, what is the point of altering it,' he asked. He was not worried about Xinhua eating into the SAR's autonomy, noting that any such move would be criticised. An informed source said Xinhua was likely to be stripped of most of its present five major functions. These are: managing the Hong Kong and Macau Work Committee, co-ordinating united front activities in Hong Kong, co-ordinating united front activities in Taiwan, supervising state-funded firms and, vetting mainlanders entering Hong Kong for business purposes. Mr Xu said mainland authorities were being cautious about Xinhua extending its influence in Hong Kong. He said Xinhua's backing for a functional seat for local Chinese enterprises reflected the ties it believed the group had with the Hong Kong community. The ties also entail a diversity of high-powered financial interests. Red-chip companies, or Hong Kong-listed companies whose major shareholders are the Chinese Government, now represent about 15 per cent of market capitalisation in Hong Kong. Professor Lau Siu-kai, a member of the Preparatory Committee, says it is not through institutions that the SAR's autonomy might be undermined. 'The central authorities certainly have constitutional power over the SAR,' he said. 'The question is whether the mainland wants to activate its political influence and put in place someone of high seniority in its agencies in Hong Kong to overshadow the SAR Government.' Pointing out that Mr Tung enjoyed no official position in the mainland hierarchy, Professor Lau said he would have to start out by establishing the trust of the mainland's leaders. 'To a certain extent, Mr Tung has to win the trust and support of leaders in Beijing to be able to counter interferences from all fronts. At this stage, I do not think he is the only Hong Konger who has the leaders' ears. 'He has to compete for the trust of the leaders. Their hearts must be at ease when they hand full control over the SAR to him.' Professor Lau and Mr Xu agreed Mr Tung's lack of official rank in the Chinese hierarchy would allow him to deal with China on SAR-related matters in a more detached manner. Mr Xu cited the recent meeting between Mr Tung and Luo Gan, the secretary-general of the State Council and Premier Li Peng's right-hand man. 'He is not bound by the bureaucratic structure and can make contact with central leaders directly, whenever such need arises.' Professor Lau said there was little evidence of the mainland trying to poke its nose into Hong Kong's affairs. He said the Preparatory Committee's decision to offer the SAR a range of options for the first Legislative Council elections next year - instead of dictating electoral rules - was proof of this. Professor Lau also predicted Xinhua's say over local matters would diminish. 'The idea of having an office representing the central Government was turned down when the Basic Law was drafted. 'If Xinhua is to stay, it should not have any say in local politics and its focus should be on practical work such as co-ordinating contacts between local and mainland bodies.' The crucial quest for Mr Tung will be to find a balance between winning the mainland's confidence and meeting Hong Kong people's political and economic aspirations.