At midnight on 1 July 1997, Hong Kong reverted to Chinese rule in a ceremony attended by British Prime Minister Tony Blair, HRH Prince Charles, Prince of Wales, President of the People’s Republic of China Jiang Zemin, and U.S. Secretary of State Madeleine Albright. A few thousand Hong Kong citizens protested the turnover, which was otherwise celebratory and peaceful. During the latter half of the eighteenth and early nineteenth centuries, there existed a delicate and complicated tripartite trade arrangement between Britain, British India and China.
The British had developed a remarkable demand for tea, which China supplied and which had to be paid for in silver. This put a heavy strain on British stocks of silver and caused a great trade deficit unfavourable to the British, until opium was discovered in British India and was offered as payment to China in exchange for their tea. Opium was very sought after in China for narcotic purposes, and it was realised that this was detrimental to a large part of the population of Guangdong (Canton) and other provinces in China.
It also upset the favourable balance of trade that had once existed when only tea and silver exchanged hands. Imperial Commissioner Lin Zexu was sent by the Emperor to Guangdong to stop the rot. He destroyed over two million pounds of opium, and composed a letter to Queen Victoria of England in 1839 pleading with her to halt the opium trade. In 1839, Britain invaded China to crush opposition to its interference in the country's economic, social, and political affairs. One of Britain's first acts of the war was to occupy Hong Kong, a sparsely inhabited island off the coast of southeast China, on 20 January 1841. The Chuenpi Convention was drafted outlining the terms of Hong Kong’s cession to British rule, but was never formally ratified by the Chinese.
The Treaty of Nanking, signed in 1842, incorporated many of the terms of the Chuenpi Convention, and officially marked the end of the First Opium War, as well as formalising the cession of Hong Kong and imposing reparations and unfavourable terms of trade on the Chinese. Britain's new colony flourished as an East-West trading centre and as the commercial gateway and distribution centre for southern China. In 1898, Britain was granted an additional 99 years of rule over Hong Kong under the Second Convention of Peking. In September 1984, after years of negotiations, the British and the Chinese signed a formal agreement approving the 1997 hand-over of the island in exchange for a Chinese pledge to preserve Hong Kong's capitalist system. On 1 July 1997, Hong Kong was peaceably handed over to China in a ceremony attended by numerous Chinese, British, and international dignitaries. The chief executive under the new Hong Kong government, Tung Chee Hwa, formulated a policy based on the concept of "one country, two systems," thus preserving Hong Kong's role as a principal capitalist centre in Asia.