This article first appeared in the South China Morning Post on August 11.

Hong Kong's headlines in the past month or so have more to do with politics than usual, and less to do with business than one might expect. The casual observer might wonder if this Special Administrative Region (SAR) of China would survive the turmoil. The answer, I believe, is a resounding "yes."

Three events of recent weeks, while largely unrelated, put Hong Kong on the front pages of the world's newspapers. On June 29, Hong Kong and Beijing signed China's first-ever free trade agreement. Two days later, 500,000 people marched in the streets peacefully over pending national security legislation and governance problems. Then, just over a week later, the Fraser Institute named the SAR the most economically free economy in the world, for the seventh year running.

So, which is it? Has Hong Kong been confirmed as the crucial partner for doing business in China, by signing an agreement envied by many other countries? Is the political climate heating up? Or, is the SAR just an excellent example of a modern globalised economy? The answer is -- all of the above.

First, Hong Kong now has CEPA. Under CEPA, Hong Kong companies -- local and foreign-owned alike -- will find it easier to access the booming China market. This agreement, which complies with the rules of the World Trade Organisation (WTO), will open the doors to goods and service-related investments between the world's most dynamic economy and one of the best business cities on earth, earlier than China had promised to the WTO.

While many local companies would benefit, many foreign businesses incorporated in the city also will make the grade. Of course, much will depend on the negotiations over the next few months as to rules of origin and similar technicalities. What is interesting is that to qualify to establish a wholly owned foreign trade company in China, for example, the rules are very simple: the business must be registered in Hong Kong and show proof of premises, taxes and other such bona fides.

The same is true for retail business, management consultancy and a host of other businesses: if the company meets the criteria, nationality doesn't matter. In order for the economy of an international city like Hong Kong to flourish, both local and foreign invested businesses must grow, and CEPA has the potential of helping them do that.

National security legislation is always sensitive in any country, and so the concerns raised in Hong Kong are to be expected. Yet, most people in the SAR -- either protest organisers or pro-government types -- would agree that the draft law was not the main reason so many people felt it necessary to make their views known. General unhappiness with the government, record-high unemployment, the challenges of persistent deflation -- particularly in property prices, certainly all played a part, in addition to concerns about some provisions of the draft legislation.

This law, required under Article 23 of the Basic Law, is based on similar legislation in other jurisdictions, and contains numerous safeguards protecting the rights of the people. And let us not underestimate the solid rule of law tradition here -- witness the appointment of two new foreign senior jurists, who are internationally reputed, to Hong Kong's Court of Final Appeal recently.

But, what stuck in my mind as the spectacle of street politics unfolded on July 1 were not the shouted slogans or colourful banners but the things that didn't happen. There was no tear gas, no baton charge, no burning cars and no shattered windows. The protests were not anti-business, or race related. And, unlike other similar demonstrations elsewhere in the world, the worst injuries were twisted ankles and dehydration.

In the aftermath of the demonstrations, the administration paused, as any responsible government would, to reconsider its position. Perhaps the original law was poorly drafted, overly ambitious, or just badly presented to the public. Certainly, national security legislation is, by its very nature, a sensitive issue. Further, the community needs time to digest the myriad of changes in the draft law, and to recognise that being part of China carries with it both rights and responsibilities.

Many journalists, and not a few business people, have asked me if the draft law or the protests will undermine Hong Kong's attraction as a place to do business. My answer to them is a firm "no." The Fraser report mentioned above, and others like it, supports that assessment.

In their admirable quest to understand better what makes one economy work well and another less so, academic researchers have attempted to quantify concepts such as freedom and competitiveness. Some, such as Fraser, assume economic freedom is related to the size of government and level of taxes, the freedom to trade and invest, and sound regulation of credit, labour and business. The World Economic Forum's Global Competitiveness Report 2002-03, highlights institutional integrity and infrastructure as the key components of competitiveness. A third judge of economic character, The Heritage Foundation's Index of Economic Freedom, is more policy oriented.

Regardless of which measures are used, Hong Kong sits at or near the top in just about every critical category, year after year. The consensus is that the SAR is one of the best business cities in the world.

Given that none of these ratings consider geography, the city's location is the icing on the cake. The combination of competitiveness, economic freedom and the status as the service provider to "the world's workshop" -- China's Pearl River Delta -- underlines the unique position Hong Kong holds in the business world.

We haven't come to a final conclusion to this burst of political activity, but we can point with pride to the fact that the process is developing peacefully, with all views being heard, and in a manner that will not diminish Hong Kong's enormous business advantages.