After the British gained control of Hong Kong Island in 1841, they faced a paradox: The more successful their colony became economically, the less viable it was physically. Nothing has changed. Hong Kong is still a victim of its own success. The city ought to have imploded under its own weight long ago, and yet it continues to grow, defying its topographic limitations. Its greatest weakness — an acute lack of space — is also one of its greatest strengths.

The original island, situated within swimming distance of the southern coast of China, was barren, mountainous and barely habitable. But it was also highly strategic, and was quickly identified as a key possession that provided a trading gateway to the Orient. In 1860, under the Convention of Peking, the British acquired the Kowloon Peninsula on the mainland to bolster their burgeoning colony.

But it was not enough. Tiny Hong Kong attracted a huge influx of Chinese and European fortune seekers, and soon the population density reached unprecedented levels. When bubonic plague broke out in 1894, it was clear that the colony was unsustainable. The British entered negotiations with the Chinese and secured a 99-year lease on what became known as the New Territories — 200 islands and a slice of mainland totaling 368 square miles.

For much of the 20th century, the combination of a liberal British colonial administration and an industrious, largely Chinese population helped to make Hong Kong the paradigm of free market economics. “If you want to see capitalism in action,” observed Nobel Prize-winning economist Milton Friedman, “go to Hong Kong.” His invitation holds true today.

Day and night the city pulses with activity. The action is frenetic and ceaseless. Cranes haul their loads above sprouting skyscrapers encased in rickety webs of bamboo scaffolding. Dense but orderly crowds shuffle on and off the sleek metro trains. The Star Ferry service shuttles back and forth across Victoria Harbour, the pungent stretch of water that separates Hong Kong Island from Kowloon. Narrow alleys lined with shops and food stalls are a round-the clock melee of exotic noise, color and smells.

For first-time visitors, culture shock is inevitable. At ground level, the tide of humanity is unrelenting, pummeling the senses. But step into one of the many marble-floored, air-conditioned office blocks, and you are instantly amid the familiar trappings of international corporate culture.

In Central, the financial hub of Hong Kong Island, I stood in the office of an Australian banker and savored the panoramic view of the harbor. “Make the most of it,” said my host. “We’re about to lose it.”

“What, the harbor?” It seemed unlikely. It is the seventh busiest port in the world. But I knew that land reclamation projects had already altered its shoreline substantially.

“No, the view. A new skyscraper’s going up in front of us.”

I looked down 30 stories to the foundation hole, and could feel the dull percussion of jackhammers through the window. The seismic shudders of the construction industry provide the constant rhythm of this ever-expanding city.

Few places have experienced population growth as dramatic as Hong Kong’s in the past 60 years. At the end of World War II, there were 600,000 residents. Within two years, immigration from the Chinese mainland tripled that figure. By 1971, the population reached 4 million. Today it is close to 7 million.

Real estate is at a premium, with property prices among the highest in the world. Curiously, despite its reputation as the flagship of the free market, there is no private land ownership in Hong Kong. All land is owned by the territory’s government and is sold on 50-year leases.

The biggest lease of all changed hands in 1997. With their tenure on the New Territories due to expire, the British had no option but to relinquish their prized colony to China. Under the terms of the Sino-British Treaty, the territory’s autonomy — including its legislature, legal system, police force and currency — is guaranteed until at least 2047.

Several bumpy years during which Hong Kong was buffeted by an Asia-wide financial crisis followed the uncertainty that had preceded the handover. Then, in 2003, an outbreak of the virulent SARS virus created massive disruption and temporarily crippled the local tourist industry, costing around 4 percent of the total gross domestic product that year.

But in the past five years, the Hong Kong administration’s guiding principle of “Market leads, Government facilitates” has borne fruit. In 2006, the GDP increased by 6.9 percent, largely fueled by an increase in trade between the territory and mainland China.

In the last decades of British rule, financial services overtook the traditional twin pillars of trade and manufacturing as the dominant sector of Hong Kong’s economy. Banking, insurance and brokering have continued to be the economic linchpins since 1997, but many Hong Kong-based companies have expanded their operations into China’s Pearl River Delta, where relatively cheap land and labor costs have led to a resurgence in the manufacturing and construction industries.

This relentless growth has its downside. Air pollution has reached dangerous levels, and in urban areas the persistent pall has caused a 33 percent reduction in visibility within the past decade. The famous view of the Hong Kong Island skyline from Kowloon is more often than not lost in murky haze. Meanwhile, the city’s landfill capacity will be exhausted within nine years.

As ever, Hong Kong’s success threatens its very existence, though in the territory’s customary fashion it is likely that tackling these latest environmental challenges will be turned into an advantage.

For years, financial analysts have tried to identify exactly what makes this tiny place the paradigm of free market economics. Many of the ingredients can be identified — economic non-intervention, expensive real estate, low taxation — yet there is something else, something mysterious and unquantifiable. Ultimately all we can do is shrug and look on in admiration. It’s impossible, it’s paradoxical, it’s just Hong Kong.

LODGING

INTERCONTINENTAL HONG KONG

InterContinental Hotels & Resorts’ Asia-Pacific flagship property lives up to its reputation as one of the world’s top hotels for business and leisure. Located on the Kowloon waterfront just steps from the Star Ferry terminal, the InterContinental Hong Kong offers panoramic views of Victoria Harbour and Hong Kong Island. Its 495 guestrooms, including 92 harborview suites, feature high-speed Internet, BOSE sound systems and 24-hour butler service. The rooftop swimming pool is a tranquil oasis in a bustling urban setting, but if pampering is your pleasure, retreat to the feng shui-inspired I-Spa. $$$$
INTERCONTINENTAL HONG KONG
18 Salisbury Road, Kowloon
tel 852 2721 1211
http://www.hongkong-ic.intercontinental.com

MANDARIN ORIENTAL HONG KONG
Before 1963, the Peninsula was indisputably the best hotel in the territory. Then the Mandarin Oriental opened its doors right in the heart of the Central Business District on Hong Kong Island. The two properties have vied for top spot ever since. Neither has rested on its laurels: The latest salvo came in 2006, when the Mandarin Oriental underwent a $140 million refurbishment, reducing the number of rooms from 541 to 503 and increasing the average floor space (a real luxury in this crowded city). Rooms on the harbor side offer one of the world’s great views (on a clear day, that is). Tea in the hotel’s Clipper Lounge is an enduring Hong Kong tradition. $$$$
MANDARIN ORIENTAL HONG KONG
5 Connaught Road, Central
tel 852 2522 0111
http://www.mandarinoriental.com/hongkong

THE PENINSULA HONG KONG

History and tradition in Hong Kong have all too often been swept away by the relentless tide of progress. But while the city around it has transformed beyond recognition, the Peninsula Hotel — the Grande Dame of the Far East — has retained its trademark sophistication and elegance. Since it opened in Kowloon in 1928, this venerated hotel has been regarded as one of the best in the world. The changes over the years, in cluding the construction of a tower extension in 1994 and the addition of state-of-the-art technology in every room, have never been at the expense of the essential atmosphere of the place. When you step into the lobby you are instantly immersed in a bygone age. For the full Peninsula experience, arrange for an airport transfer in one of the hotel’s legendary Rolls-Royce Phantoms.$$$$
THE PENINSULA HONG KONG
Salisbury Road, Kowloon
tel 852 2920 2888
http://www.hongkong.peninsula.com

DINING

PIERRE

When you’re top of the tree, surnames aren’t necessary. Esteemed 3-star Michelin chef Pierre Gagnaire has long been the toast of Paris with his innovative fusion cuisine. Now he has lent his Midas touch — and his name — to the flagship restaurant at the Mandarin Oriental. As ever with Gagnaire, expect the unexpected. Seemingly bizarre combinations explode on the tongue: prawns with raspberry ice cream, Mimolette cheese with grapefruit. This kind of culinary experience comes at a steep price: Expect to pay $170 for the eight-course set menu. Mandarin Oriental Hong Kong. $$$$
PIERRE
5 Connaught Road, Central
tel 852 2825 4001
http://www.mandarinoriental.com/hongkong

KUNG TAK LAM

If you love Chinese food but are wary of the critters you might inadvertently consume, this is the place for you. Guaranteed no critters on the menu — it’s strictly a vegetarian restaurant, utilizing fresh produce grown on its own farms. The dishes are mostly cooked in the Shanghai style, dressing up familiar ingredients with exotic Chinese flavors. The original restaurant is located in Kowloon, with a branch at 280 Gloucester Road in Causeway Bay on Hong Kong Island. $$
KUNG TAK LAM
One Peking Road, 7th Floor, Tsim Sha Tsui, Kowloon
tel 852 2367 7881

LUK YU TEA HOUSE

This is the place for dim sum, not just in Hong Kong, but in the world. Located in Central on Hong Kong Island, Luk Yu has been in business since 1933 — and you could almost believe that some of the notoriously tetchy waiters have been here as long. The Art Deco interior evokes Hong Kong’s Golden Age. The famous dim sum is served during the day, 7 a.m. – 5:30 p.m., when the place is packed with locals; avoid the mid-morning and mid-afternoon rushes, when it’s virtually impossible for a non-regular to get a table. $$
LUK YU TEA HOUSE
Luk Tea Building Ground Floor, 24-26 Stanley St., Central
tel 852 2523 1970

DIVERSIONS

In Hong Kong, transport is an attraction in its own right. Sadly, with the closure of the old Kai Tak Airport, flying into the city is no longer the adrenaline ride it once was, but two old favorites endure, each with more than a century of history. The Star Ferry (http://www.starferry.com.hk) shuttles between Kowloon and Hong Kong Island. Ferries depart every six to 10 minutes. One-way fare starts at less than 30 cents. The Peak Tram (http://www.thepeak.com.hk) is an 1888 funicular railway that links downtown Hong Kong Island with an outstanding viewpoint high up on Victoria Peak (try to make the journey on a clear day). Victoria Peak offers a very pleasant two-mile walking trail, the Peak Circuit, through sub-tropical woodland — the perfect antidote to the unrelenting noise and bustle of the city down below. The Hong Kong Wetland Park (http://www.wetlandpark.com) in the New Territories provides a window onto Hong Kong’s marshes, which are important gathering places for migratory birds. A different kind of avian spectacle occurs at the Bird & Flower Market in Kowloon, where bird owners congregate with their caged songbirds.

Pet birds are one popular local hobby, gambling is another. The main legal opportunity to gamble is at Happy Valley Racecourse(http://www.hkjc.com) on Hong Kong Island, where the floodlit after-dark races are an unforgettable experience.

Entertain the whole family at Hong Kong Disneyland(http://www.disney.com.hk), located on Lantau Island not far from Chep Lap Kok Airport. Note that during local holidays, admission must be booked well in advance.

Perhaps Hong Kong ’s greatest attraction is its shopping. Nathan Road in Kowloon is the city’s “Golden Mile.” In truth, it’s a seedy chaos of tenements, neon signs, shops and cheap restaurants, but it’s full of atmosphere and is a great place to buy a tailor-made suit or to shop for bargain electronics (though it pays to know the value of what you’re buying; the vendors can spot a greenhorn and will happily take advantage). Hollywood Road in Central is the best place for antiques and traditional Chinese furnishings. Causeway Bay is the epicenter for up-market department stores and designer labels. Always try clothes before you buy; sizes tend to be smaller than in the States.

Just the Facts

Time Zone: GMT +8
Phone Code: 852
Entry/Exit Requirements: U.S. citizens require a passport valid for six months beyond their intended stay. No visa is required for a stay of up to 90 days. For the latest information, check the Web site of the Hong Kong Immigration Department (http://www.immd.gov.hk).
Currency: Hong Kong Dollar, divided into 100 cents
Official Languages: English and Cantonese
Key Industries: Banking, financial services, tourism, manufacturing, construction, import/export

A Matter of Taste

Certainly some of the dining options in Hong Kong will challenge even the most adventurous Western gourmand (snake soup, anyone?). Yet, as you would expect from an international city, all other cuisines are well represented, and the trend in recent years leans toward restaurants opened by superstar European chefs. Still, some of the best food — and the cheapest — is served by the ubiquitous street stalls that you’ll find lining some streets, notably Spring Garden Lane on Hong Kong Island.