Chris Patten, the colony's Governor, is due to address the Legislative Council (Legco) this afternoon, when he is expected to put an end to weeks of uncertainty by announcing either that talks are to restart or that he is moving ahead with the publication of his proposed political-reform bill.
The official gazette, which is usually issued every Friday morning, will be withheld until this afternoon so that Mr Patten has the option of publishing the draft legislation today if agreement on talks cannot be reached.
In the war of nerves between the two sides, both Britain and China spent yesterday testing each other's final resolve on the main sticking-point: Britain insists it must include Hong Kong officials in senior positions in its negotiating team, while China only wants them in an advisory capacity.
Events moved quickly during the day. The Governor was originally scheduled to meet Legco at 3pm, and by late morning it was already clear that he was going to set a Friday deadline for gazetting unless the talks about talks were successfully concluded. Then, with less than an hour to go, his speech was suddenly postponed because of an eleventh-hour proposal from China. A brief official statement said 'a further communication' had been received by the British embassy in Peking and was 'currently being considered'.
Contacts between Britain and China were continuing last night, suggesting that Britain was still not satisfied with the earlier Chinese response. The stakes are high for both sides. Mr Patten knows that Hong Kong public opinion would not support confidential Sino-British talks unless Hong Kong officials were part of the negotiations. And, after a four-week delay in publishing the draft legislation, he has been under mounting criticism from pro-democracy legislators and commentators for being outwitted by Peking.
China, on the other hand, wants to cut Hong Kong out of any negotiations, saying that they must be resolved between the two sovereign powers rather than involving a 'three-legged stool' consisting of China, Britain and Hong Kong. But Peking also knows that, once the bill is gazetted, it will swiftly be laid before Legco for debate and possible amendment, a process it will find much harder to influence.
The Hong Kong stock market, which in recent days had reached record levels on the strength of optimism about talks, yesterday collapsed dramatically on opening, losing more than 160 points in early trading when Mr Patten seemed about to announce the gazetting.
It then recovered quickly when the Governor postponed his statement, only to slip back again as traders realised the situation could still go either way. The Hang Seng index closed 116 points down at 6,371.
If Mr Patten is able to announce today that a dialogue can resume, he will also have to reassure legislators that Legco will have the final say on any Sino-British agreement, even to the extent of possibly amending it.
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