HONG Kong University last night set in motion the search for a new vice-chancellor who knows China, speaks Putonghua and is young enough to lead the institution through the transition to Chinese sovereignty. Arrangements for a selection panel were discussed at a council meeting yesterday. Vice-Chancellor Professor Wang Gungwu, 63, announced recently that he would retire in 1995, a year before his contract ends. Council member Bill Brandon said: ''The new vice-chancellor should preferably be Chinese and have a good understanding about China in view of the handover in 1997.'' Mr Brandon said the new vice-chancellor should also possess a strong character with good leadership abilities to avoid any interference in the university's independence. ''He should be able to continue to develop the university as an international academic body,'' Mr Brandon said. Pro-vice-chancellor Professor Rosie Young Tse-tse and several students agreed that the new head should be Chinese with an understanding of mainland affairs. Professor Young said: ''The new vice-chancellor should be able to speak Cantonese and Mandarin. ''He should preferably be a distinguished academic and be decisive with independent thinking. But he should also be receptive to opinions,'' she said. Professor Young expected the successor to be young and energetic enough to see the university through the transition. Professor Wang, a former Executive Councillor who turned down Beijing's offer as a Hong Kong affairs adviser earlier this year, has rejected suggestions that his decision was related to worries about 1997. He is Emeritus Professor of Far Eastern History at the Australian National University in Canberra, where he spent 18 years, and will return to Australia after his retirement. Professor Wang, who was born in Indonesia and speaks fluent Putonghua, feels his greatest achievements in the past 71/2 years included the building up of the university's reputation, creating conditions for it to become a more international institution, and encouraging research. Professor Young said when his five-year contract was renewed in 1991, he expressed the wish to retire at the age of 65. ''He had said if he served till the end of the contract, by 1996 October, it would be too close to the handover of Hong Kong and there would not be enough time for the new head to prepare for a smooth transition,'' she said. She believed it was unfair to suggest that Professor Wang retired because he had failed to cope with criticism of his appointment as an Exco member between 1990 and 1992. University staff and students, also concerned about a conflict of roles, ranked Professor Wang poorly in a survey on his performance in 1991. Students yesterday seized the opportunity to ask council chairman Sir Ti Liang Yang to allow them to sit in on the future selection board. But the two representatives were requested to leave the conference room after a 15-minute representation, while their demand was vetoed by a majority of the 24 attending councillors. Director of the university's External Relations, Rupert Chan Kwan-yun, said the selection procedure would involve much private and confidential information which the members thought should not be disclosed to the students. ''Under the ordinance of the university, student representatives at the council cannot take part in any committee discussing reserved items,'' he said. ''These items include individual student's academic results and the selection of any academic staff. So unless the ordinance is changed, they cannot sit on the selection board.'' But he said students and staff would be consulted on candidates shortlisted by the board after an international search. A board similar to the one which selected Professor Wang to succeed Dr Rayson Huang in 1986 was suggested. The board comprised the council chairman, treasurer, three teaching staff and three other council appointees.