It is only a little more than two years since Hong Kong was careering headlong towards one of its biggest-ever share market crashes. October 28, 1997, will live long in the memories of many people as the day when the SAR finally surrendered to the forces of the Asian financial crisis. From the opening moment of trading on that day the market dived and as the rout continued, the session ended with the Hang Seng Index down 13.7 per cent. That day's performance propelled Hong Kong to the centre of the financial world's attention and set the tone for wild gyrations on international markets which were waking up to news of the slump. The events that unfolded in the following months, largely as a result of the asset devaluation which the Asian crisis provoked, have had such a profound impact that the Government and the business community are still struggling to come to terms with them. There is ample evidence to show that the worst of the turmoil is over. The Hang Seng Index has more than doubled since the Government took the decision to make its unprecedented intervention in the markets in August last year and after several successive quarters of negative growth, GDP was up 0.7 per cent from a year earlier in the second quarter of this year. However, a sense of hesitancy and weariness persists as Hong Kong is being forced to redefine itself and the way it does business after the events of late 1997 shook the foundations that generations of prosperity were built on. In part, the mood and climate in which business is being conducted in the SAR are being shaped by political as well as economic factors. Hong Kong is only 28 months into a momentous political change and remains on a steep learning curve in its dealing with China on commercial or diplomatic issues. Less overt deference by the Government in the direction of Beijing would reinforce confidence locally and abroad that the 'one country, two systems' formula remains intact. But more importantly, the crisis has torn the fabric of people's financial security. Unemployment is at historically high levels and guidance from the Government on when it might begin to decline is vague. But it is the depreciation in property values and the resultant rise in numbers of people with negative equity which have done most to darken the outlook. The result is that Hong Kong, on the verge of the new millennium, faces challenges from all directions and is scrambling to formulate responses. This feeling of ferment is reflected in most of the articles included in this year's annual review of business in Hong Kong, Beyond 2000. This sense of drift is largely due to the failure of the Government to provide policies for the future. It is agreed that Hong Kong cannot go on as before but how will it reinvent itself and how will its role change? Chief Executive Tung Chee-hwa attempted to explain his vision in the recent Policy Address, but he lacked clarity. Hong Kong is to become a great international city and a knowledge-based society, he said. While these are admirable ambitions, they remain little more than slogans until the Government can provide a clearer image of what Hong Kong is to become, and how. An obstacle to Mr Tung spelling out a vision for the future is the uncertainty about the SAR's role as part of China. Questions remain unanswered about how Hong Kong interacts with the mainland, especially the southern provinces, and these will continue to hinder the Government's ability to focus on the path ahead. But in the absence of government direction, industry has been taking its own measures to adjust. In the property sector, prices have fallen up to 50 per cent and there is the threat of vast new supply stemming from the Government's recently announced Urban Renewal Authority. The circumstances in the industry, which for decades sustained bumper profits from the construction of mediocre buildings, have forever changed. To fill the gap in the profit stream, companies are being forced to branch into unfamiliar territory like high-technology industries such as the Internet and telecommunications. The lesson for the banking sector from the crash of Guangdong International Trust and Investment Corp and its mainland cousins is that the industry has much to learn about lending practices. The senior management of several of the firms was simply sub-standard. Compounding the problem, there are too many small banks which is giving rise to inefficient operations because of a lack of sufficient reserves to maximise the advantages to be derived from technology. In retailing, hotels and tourism, the sharp downward adjustment in prices has forced the industries to overhaul their operations and drag cost structures more into line with general regional levels. The hope is that this process will ensure leaner and keener sectors when more rapid growth rates return. As a measure of the difficulties being faced, the consumer price index for August registered a record year-on-year decline of 6.1 per cent. The reform of the banking industry has been inspired and monitored by the Hong Kong Monetary Authority. It has remained intimately involved in several senior appointments within the sector and would be in a strong position to offer evidence if ever legal action was initiated against former or present bank executives relating to their lending policies. But with so much of Hong Kong's industrial and commercial base searching for new direction and inspiration, the Government has shown a worrying willingness to become directly involved. This tendency towards greater intervention has earned the scorn of domestic and international analysts and tarnished the SAR's reputation as a bastion of free enterprise. The Government's decision not to hold an open tender for the Cyber-Port land has been particularly costly to Hong Kong's standing as local politicians have discovered during travels abroad. The reaction, which included unprecedented public opposition from major property developers, has stung the Government and ensured that it will attempt to tame its interventionist tendencies when considering future measures to encourage industrial innovation and growth. To fully erase the interventionist label the Government must push forward in the coming 12 months to offload at least a considerable part of the stock it acquired during its market intervention. There seems no doubt about the sincerity of the Government's commitment to sell off the holdings as soon as possible, taking into consideration the state of world markets. This determination has been influenced by the international reaction which has calmed in recent months after being initially highly critical. The book-building process for the first part of the disposal programme is under way. But with this aspect of the sell-off expected to raise a maximum of $14 billion and the total value of the portfolio at around $216 billion, the size of the task ahead is obvious. Nonetheless, the Government is sitting on a massive paper profit and lingering objections to the intervention might abate if it succeeds in clearing its books of the shares in quick time. The sale of the stock would also have a huge symbolic importance, signalling the end of at least a chapter in one of the most turbulent periods in Hong Kong's history.