When the paramount Chinese leader, Deng Xiaoping, devised his plan for one country, two systems, he was mainly thinking of its application to Taiwan, while suggesting that the model would be tested in Hong Kong after the return to Chinese sovereignty on 1 July.
However, as the handover nears, tension between China and Taiwan has again risen with the latter announcing a major military exercise to start on Monday. China is rumoured to be planning a counter-exercise.
The presence of John Chang, Taiwan's foreign minister, in the United States has also raised the temperature, following official Chinese protests and allegations that the visit is in breach of agreements to "restrict US-Taiwan relations to the unofficial arena". Taiwan, which seems to be taking the lead in upping the ante, is nevertheless in the embarrassing position of having to join China in welcoming the end of colonial rule and the reunification of a part of China.
This is why some 60 Taiwanese representatives will be present at the handover ceremony. The delegation is likely to be headed by Koo Chen-fu, a businessman and leader of the quasi-official Straits Exchange Foundation which is taking the first steps in holding reunification talks with Chinese counterparts.
As ever, Taiwan's presence is no simple matter. The Taiwan government insists that its representatives must not be seated with Chinese local government officials, implying that Taiwan is no more than a province.
Earlier in the year the Chinese Communist Party distributed an internal document describing 1997 as a "crucial year" which would see `the historic resumption of sovereignty over Hong Kong' and signaled that an attempt would be made to initiate talks with the Taiwan government under President Lee Teng-hui.
However, President Lee is showing no obvious enthusiasm for participation in talks about reunification. Beset by domestic crises, the Taiwanese leader sees little advantage in engaging in a risky bout of diplomacy when public opinion remains heavily against a return to China. A poll published this week in Taiwan showed that just 13 per cent of the population were in favour; 53 per cent were happy with the status quo.
Nevertheless, China is in the throes of reunification celebrations and has hinted that the handover might be an appropriate time to resume the dialogue on this matter.
Although China has made it clear that it will not tolerate what it regards as Taiwan "separatist" activity in Hong Kong, it has not insisted on the closure of Taiwan's semi-official government offices. Pro-Taiwan organisations have staged a strategic retreat, lowering their profile and, in some cases, sending leading members to live in Taiwan. The government has closed down the last remaining pro-Taiwan settlement and the once influential Taiwan- backed trade unions are now barely visible.
But China has given no sign that it will prevent Hong Kong retaining its role as a transit point between Taiwan and the mainland. In January, a tentative start was made in establishing direct shipping links but direct air routes and most cargo transfers remain banned. The largest group of overseas visitors using Hong Kong's airport come from Taiwan, and many Taiwan investors operating in China do so from a Hong Kong base. The establishment of direct ties between China and Taiwan would have a serious impact on the Hong Kong economy.