When Britain transferred sovereignty over Hong Kong to China in 1997, the two countries agreed that the former colony would be governed according to the principle of "one country, two systems."

For the people of Hong Kong, the emphasis has been on the "two systems" side of the equation – allowing residents of the territory to continue to enjoy things that are not permitted on the mainland: freedom of speech, freedom of assembly, the rule of law by an independent judiciary, and a large measure of self-government.

Beijing, however, has recently been placing increasing emphasis on "one country" – leaving many Hong Kongers wondering if the institutions that made Hong Kong so free and so wealthy are in danger.

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Beijing's fear has long been that "outside forces" – human rights activists, democracy backers, Western governments, Chinese dissidents – hope to use Hong Kong to undermine China's one-party Communist system.

Beijing is right to worry: Hong Kong, along with Taiwan, proves that democracy, freedom of speech and the rule of law are not foreign, Western ideas, incompatible with China or the Chinese people. On the contrary, Hong Kong and Taiwan are both more prosperous and more free than the mainland. The Hong Kong example is a powerful argument against the Beijing system, and a threat to it.

This week, China's State Council issued a white paper on the future of "one country, two systems." The point of the exercise seems to be to remind Hong Kongers that Beijing is the boss, and that the rights they enjoy are really privileges, given by the Communist government but not necessarily guaranteed.

For example, the white paper recognizes that Hong Kong enjoys "a high degree of autonomy," but "this is subject to the central leadership's authorization." It states that "loving the country is the basic political requirement for Hong Kong's administrators," and it lists "judges" as among those administrators.

The Hong Kong Bar Association fears that this is part of an attempt by Beijing to gradually turn an independent judiciary into what it is in China, namely a servile arm of the state.

"The 'one country' is the premise and basis of the 'two systems,'" says the paper, "and is subordinate to and derived from 'one country.'" Or as a headling in the South China Morning Post put it: "Beijing emphasises its total control over HK."

All of this comes amidst a major pro-democracy protest taking place in Hong Kong, known as Occupy Central. Peaceful protest is largely forbidden in China, but it is perfectly legal in Hong Kong.

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Earlier this month, 180,000 took to the streets to commemorate the 25th anniversary of the Tiananmen Square massacre. To mention the anniversary in China is not allowed; to protest it would land you in prison.

The Occupy movement is about maintaining those unique Hong Kong freedoms, and expanding a managed democracy into a full democracy. On June 22, Occupy plans to hold an unofficial referendum, asking citizens to choose among several possible systems of democratic reform.

Right now, for example, the legislative council of Hong Kong consists half of members directly elected by voters in districts and half of representatives of "functional constituencies," which include about 2,300 voters from business and professional bodies.

The chief executive of Hong Kong is elected by a committee of 1,200 people, most of them from the functional constituencies. The chief executive, in particular, has to be acceptable to Beijing. Democracy protesters want to get rid of this managed half-democracy and move to universal suffrage.

Beijing has said it is open to allowing universal suffrage at the time of the next elections, in 2017, but the suspicion is that it will control the list of candidates, effectively turning the vote into a sham. This week's white paper says, among other things, that China will not allow an "unpatriotic" leader to govern Hong Kong.

The move to real democracy is critical to the advancement of a postcolonial city that bridges mainland China and the rest of the world, and to its stability as a major financial centre. It is also supposed to be the "ultimate aim" of the Basic Law of Hong Kong, which went into effect in 1997 and serves as the city and region's constitution. The people of Hong Kong are only asking for what was promised to them.

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An abrupt change in the city's economic or political freedom could have serious global impacts. Canada alone has as many as 300,000 citizens in Hong Kong. The international community has a huge stake in the next three years of Hong Kong history, and needs to pay close attention. Because the future of Hong Kong – will freedom and democracy be allowed to flourish? – is the future of China.