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The uncertain political and economic future of Hong Kong took a decided turn for the worse recently when communist China's legislators in Beijing voted to disband Hong Kong's legislature and other elected institutions when China takes control of the colony in 1997.

Such action is a major blow to Hong Kong citizens and the confidence of foreign investors as well. If Beijing is not careful, it could cripple what should be a financial crown jewel and source of riches.Under British rule - based on a 99-year lease that runs out July 1, 1997 - Hong Kong has flourished to become a bustling center of world trade, finance and tourism. It is one of Asia's major ports. Taking control of the fabled city could give China a major flow of badly needed foreign exchange and strengthen its international influence.

China's autocratic leaders have pledged for years to maintain Hong Kong's economic freedoms and grant it special status under Beijing control. But this week's action casts serious doubt on the value of that pledge.

Ever since the British agreed in 1984 to allow Hong Kong to revert to China, a sense of nervousness has hung over the bustling city of 6 million people. Many of them had come to the Hong Kong peninsula over the years as refugees from communist rule on the mainland.

Some Hong Kong business leaders slowly and quietly have been moving their operations and financial resources overseas. Many of those who can afford it have sent their money abroad and acquired foreign passports, most frequently British and Canadian.

This week's announcement may increase that outflow. But such privileged people represent only a tiny fraction of those who live in Hong Kong and have no choice but to stay.

Foreign investors, who have long regarded Hong Kong as a great place to do business in Asia, are sure to have second thoughts.

British officials have promoted democratic reforms in recent years, allowing Hong Kong citizens to choose all of their local leaders. The Beijing announcement means that newly elected legislative, district and city councils will all be disbanded when the communists take power.

Like all totalitarian regimes, Beijing is afraid of democratic institutions and may be particularly worried that a too-free Hong Kong may set the wrong kind of example. It might encourage more calls for democracy on the mainland.

Just like glittering West Berlin was once a thorn deep in the side of drab East Germany, a free city as part of repressive China might be a symbol that could lead to serious discontent.

Beijing apparently would rather risk ruining a valuable resource than take that chance.