Pressure On Tung

HONG KONG -- Hong Kong's new leader Tung Chee-hwa began a delicate task on Thursday of working out a fresh relationship with Taiwan, but immediately found himself caught in a cross fire between Taipei and Beijing. Shortly after his talks with senior Taiwan figure Koo Chen-fu, Beijing's Foreign Ministry made clear that any dealings between the two sides needed central government approval.

Taiwan instantly fired back by saying communist China was trying to squeeze the Nationalist-ruled island by requiring that all Hong Kong-Taiwan contacts be vetted.

Meanwhile, torrential rain and a stock market slump overshadowed the first day of business in Hong Kong since the freewheeling capitalist territory was handed back to China by Britain at midnight on Monday.

The heaviest rains in 50 years sparked floods and landslides, blocking roads and badly disrupting public transport as people returned to work.

A hangover after the handover saw the blue chip Hang Seng index slip 141.05 points, or 0.93 percent, to 15,055.74 after briefly surging to a record high.

Chinese mainland-backed red chips, which had rocketed on handover euphoria, were also hit.

Separately, Beijing-picked legislators sought to project an image of tolerance by ruling out action against groups that staged a defiant pro-democracy protest on the balcony of parliament on handover night.

The Provisional Legislature, which replaced a democratically-elected body, called the action "regrettable."

After throwing himself into his new role of post-colonial chief executive by outlining ambitious domestic policy initiatives, Tung on Thursday trod cautiously into the delicate area of ties with Taiwan.

There was no word on the content of his talks with Koo, who runs a semi-official body through which Taiwan handles relations with the communist mainland.

But a host of issues need to be ironed out in an economically crucial Hong Kong-Taiwan relationship that has became even more sensitive politically since the return of British-led Hong Kong.

Much of Taiwan's massive trade and investment with the mainland passes through Hong Kong. Taiwan trade is an important source of revenue for Hong Kong's container ports, banking and other service industries.

The Chinese Nationalists on Taiwan have banned all direct contacts with China since they fled to the island in 1949 after defeat in civil war. China views Taiwan as a renegade province.

With Hong Kong back in the embrace of the motherland, the spotlight is now on Taiwan, the final target of China's efforts to reunify the whole country.

Portuguese-run Macao across the Pearl River estuary reverts to Chinese control in 1999.