It's easy to picture Hong Kong as a vast urban sidewalk jammed with overpriced boutiques, street-level workshops where bare-chested laborers do deafening things with metal and plywood, and, of course, those ever moving human masses, headed for their ne xt deal while simultaneously working some transaction on a cellular telephone. In few cities in the world is work, as opposed to busyness, such a tangible feature of the landscape. And no other city on the globe imparts such a sense of purpose, thanks to those urgent crowds and their restless and relentless pull.

That feeling of inexorability is growing stronger as Hong Kong passes a crucial marker: one year from next Monday, July 1, the astonishingly prosperous colony built by Britain on a rock in the South China Sea will become the property of communist China . On the metaphorical sidewalk that is pre-1997 Hong Kong, some new figures have appeared, loitering uncharacteristically and refusing to move on. One wears a sandwich board, made in China, saying EVERYTHING WILL BE O.K. The other has a sign with a contra ry message: THE END IS NIGH.

That is the question: Will China's takeover ruin Hong Kong as it is known today, or merely alter it? With only 12 months to go, the answer remains unclear, though the signals are anything but encouraging. China has been obdurate on a host of transition -related issues, from its vow to dissolve the local legislature (a body chosen under rules manipulated by the British, goes the Chinese complaint, in violation of Hong Kong's mini-constitution) to its opposition to a grand ceremony marking the midnight mo ment of the handover (China prefers to downplay Britain's role in Hong Kong during the past 155 years). President Jiang Zemin, involved in his struggle to succeed the ailing Deng Xiaoping as China's leader, has found the hard line the most beneficial in s ustaining support within the Communist Party and the politically powerful People's Liberation Army. One result of that stubbornness is that conjectures on Hong Kong's future are becoming significantly more specific--and darker.

For years there were only two schools of very broad thought. The first was that the mainland needed its "golden goose," on which it relies for the bulk of its foreign trade, management expertise and technology, and thus no harm would come to Hong Kong. Chinese officials publicly endorse that view and add their own reasons for restraint. "Politically, Hong Kong is and will be important in China's reunification process," says Wu Hongbo, a top Foreign Affairs Ministry official. "I f Hong Kong is successful, then Macau will be successful [after China takes it back from Portugal in 1999]. And then Taiwan will see two successful examples." The other vision, however, held that China was incapable even of comprehending Hong Kong, i n particular the personal and economic freedoms that make it thrive, and would unwittingly grind it down. Martin Lee, Hong Kong's leading democrat, has been warning for years that China's mania for control would undermine the freewheeling spirit that has made the territory successful. Says he: "Beijing is putting a noose around the goose's neck and still expecting it to lay golden eggs."

Now there are more subtle competing visions: of an international economic powerhouse with dwindling social liberties, or of a great democratic crucible where local libertarians will teach the Marxists from Beijing a new lesson in historical inevitabili ty. The most probable outcome is an uncomfortable convergence of the two systems. Hong Kong may survive as an international financial center and essential source of capital for rapidly growing China but lose its cosmopolitan luster as English atrophies as the language of commerce, the courts become Beijing's handmaidens and a new nomenklatura class towers above all, eager to be courted by those who wish to make, and are willing to share, a buck. Even the territory's biggest boosters foresee problems. &quo t;It is highly unlikely that we will have a very smooth transition in the 12 to 14 months ahead," predicts Vincent Lo, a real estate tycoon. Lo's advice: "Fasten your seat belts and hope that the next year will pass quickly."

Speed is a natural resource of Hong Kong, and it will come in handy for the pessimists, like those wishing to ship out valuables--or themselves--before the handover. "You have to book a freight forwarder months in advance, there is so much demand, " says a local designer who has relocated an apartmentful of Chinese art to a vault in London out of fear that China might decide to apply to Hong Kong its national laws against the export of antiquities and cultural treasures. The city's numerous, m ostly affluent boat owners are talking about keeping their craft ready for a quick escape to Macau or Manila if things get rough, prompting local wags to predict a wave of refugee "yacht people." C.Y. Leung, another pro-China property developer, compares the entire process of Hong Kong's handover since 1980 to a 90-min. suspense movie. "We are now in the last six minutes," he says, and the suspense is killing. "If I could press a button that would fast-forward us beyond this diffi cult transition period," says Leung, often mentioned as a future chief executive for Hong Kong, "I would."

If Hong Kong 1997 turns out to be a disaster movie, here's what might happen in that last, tense reel. In the Legislative Council, which Britain expanded and made fully elected over the past three years, pro-democracy legislators chain themselves to th eir seats to protest China's plan to dismiss the body. Their supporters take to the streets. When the crowd gets unruly, Chinese soldiers start firing as they did in Beijing's Tiananmen Square in 1989. The Hong Kong Stock Exchange plunges; interest rates rocket; the property market collapses; banks falter; the local currency totters. The possibilities are limitless, but even the darkest cannot be lightly brushed aside. Here's an advance review of that script printed in a March analysis of Hong Kong's futu re by Moody's Investor Service: "Such a sustained flight from the Hong Kong dollar is unlikely," mused Moody's. "However, given the concerns centering around the transfer of sovereignty in 1997, such scenarios cannot be totally dismissed.&q uot;

In fact, very few in Hong Kong, including Moody's, believe July 1, 1997, will be an actual doomsday. But fewer doubt its potential for seismic changes and unending aftershocks. The colony's newly elected legislators, particularly those of the pro-democ racy camp, know a major struggle has begun, and they're unsure how to fight an adversary as formidable as mainland China. "The worst scenario is that we may face the same fate as some of the dissidents on the mainland," says Anthony Cheung, a un iversity professor and vice-chairman of the Democratic Party. "We try to prepare our members psychologically."

The media know that censorship is on their doorstep, and civil servants and policemen are retiring in platoons. Many citizens like Y.F. Chan, a trading-firm clerk, are haunted by the memory of the Tiananmen Square violence, and they wonder whether such an event could occur in their crowded urban corridors. Chan says his 12-year-old son has a frighteningly lucid view of Hong Kong's future. "For him it is very simple: Hong Kong is good and China is bad. When [Chinese Premier] Li Peng comes on TV, he jumps up and down and says, 'Bad man, bad man.' I never told him that. He must have learned it at school." In the past few months, Chinese officials have made a series of alarming statements, saying a "patriotic" curriculum was needed in H ong Kong schools and that judges and senior civil servants might be required to take loyalty oaths to China. The reaction was so bad that China recently tried showing a more sympathetic face: it even invited local journalists and the head of the British m ilitary garrison to visit the Shenzhen garrison that houses the People's Liberation Army soldiers who will march across the border 12 months from now. "They acknowledge they have an image problem," says Major General Bryan Dutton, the British of ficer honored with the invitation.

In its 1984 Joint Declaration with Britain, China promised to leave Hong Kong's social, economic and legal systems "unchanged" for 50 years. That was a dubious promise from the start, which became even less plausible after 1989, when Britain abruptly instituted democratic reforms that Beijing found bafflingly objectionable. China is intent on turning back that clock, and changes are already evident 52 weeks before the turnover. How its actions will affect the ordinary man on the street after 1997 is impossible to forecast, but China's recent moves on business have raised fears about Beijing's regard for the free market. In May, Swire Pacific, Ltd., sold large chunks of shares in the firm's Cathay Pacific and Dragonair airlines to Chinese gove rnment-controlled entities after one threatened to launch a competing Hong Kong carrier that would have had privileged access to the territory's most lucrative routes.

A couple of weeks ago, shareholders rushed to sell the stock of Hong Kong Telecom after China's premier investment vehicle in Hong Kong revealed it was reducing its stake in the British-owned utility. The 10% stake had been viewed as a guarantee of its post-'97 future. Apologists for Beijing--and Hong Kong is jammed with them--said China is only trying to replace monopolies controlled by British firms, especially in "strategic" industries. That explanation was not universally accepted. " If you are a Hong Kong company in a strategic sector," predicts Tai Ming Cheung, a China analyst with Kim Eng Securities in Hong Kong, "and they want a stake, they are going to get it."

But what constitutes a strategic industry--and where will Beijing stop? Many Hong Kong investors believe that China-backed firms will stomp into the colony, largely through shotgun couplings like the recent airline deal, and that the process is unlikel y to be limited to utilities or British-owned firms. "The 'China-ization' process of Hong Kong is proceeding relentlessly," says Marc Faber, publisher of The Gloom, Boom and Doom Report, an investment newsletter, "and increasing interferenc e by mainland Chinese government officials and the P.L.A. into Hong Kong's affairs is almost a certainty." Concludes John Frankenstein, a lecturer at the University of Hong Kong's School of Management: "This place is being recolonized."

Hong Kong's residents saw it coming, and have moved quickly to protect themselves where they can. According to a six-year study by the Hong Kong Transition Project, an international team of social scientists, an estimated 1.1 million of Hong Kong's 6.2 million people have at least one family member with a foreign passport, and an additional 3 million have relatives abroad to sponsor their emigration. "We have hard data that a minimum of 2.2 million people will leave or try to leave if something go es wrong," says the project's director, Michael de Golyer. "That something is a loss of personal freedoms and political stability." According to Red Flag over Hong Kong, a forecast of the territory's future based on economic models that was recently published in the U.S., more than half the companies listed on the Hong Kong Stock Exchange are legally domiciled outside Hong Kong. Last year famed entrepreneur Li Ka-shing transferred a reported $3 billion in assets to an offshore trust on Gran d Cayman Island, a British territory in the Caribbean. Li's move, which generated a trend, was widely viewed as a hedge against likely new kinds of tax claims in Hong Kong.

Many multinationals are stipulating that contracts signed in Hong Kong be subject to arbitration in jurisdictions such as Sweden, Britain or the U.S. The reason is that no one knows how the law will be adjudicated once China severs Hong Kong's connecti on with the Privy Council, Britain's court of final appeal. "There is no common ground for similar understanding of the 'rule of law' between Hong Kong and China in light of their different political histories," write Red Flag's authors Alvin Ra bushka and Bruce Bueno de Mesquita, fellows at California's Hoover Institution, and David Newman, a lecturer in economics at Hong Kong's Lingnan College. "In China the law serves the interest of the state against individuals, and courts serve the sta te rather than restrain it." One U.S. investment manager in Hong Kong sums up the changes he sees on the horizon: "Which country in Asia has the best business environment and the best legal system? Hong Kong. Which has the worst? China. If you r emember your chemistry, it's called osmosis."

That osmosis has already happened. In the nearly two decades since Deng Xiaoping's economic reforms were launched, Hong Kong has become closely integrated into the Chinese economy, to the general benefit of both. Hong Kong manufacturers, drawn by an ab undance of cheap land and labor across the border, shifted production into southern China to the point that today they employ more workers on the mainland than in Hong Kong itself. Hong Kong, meanwhile, has transformed itself into a service economy whose largest client is China. Because of rising costs--along with uncertainties surrounding the transition process--Hong Kong's economic growth is officially forecast to rise only slightly, from 4.6% last year to 5% in 1996, and to remain flat at 5% in 1997. & quot;In the process of merging the cultures there is going to be friction," says Anne Rutledge, a senior analyst at Moody's Hong Kong office. "But on the upside, the merger will also bring synergy."

A big source of uncertainty is the business left unfinished as a result of Sino-British squabbles of the past six years: legal mechanisms, financing of cross-border transit projects and the rules for post-1997 legislative elections. Progress on those f ronts may depend on who is chosen as the first chief executive for the Hong Kong Special Administrative Region, an appointment to be announced in late 1996. Of the three main presumed contenders, Anson Chan, the No. 2 official in the current Hong Kong gov ernment, is the most popular and the most likely to hold firm against unwise orders from Beijing. However, she is not believed to carry enough clout or have cultivated enough trust in Beijing to get the top job. A more likely prospect is shipping magnate C.H. Tung, who served until recently on Governor Chris Patten's Executive Council and is well known and respected in the international business community. The other candidate is T.S. Lo, an outspoken British-educated attorney who is openly running for the job. Lo says he has "very specific ideas of how to run Hong Kong," which include dismissing the Legislative Council and rewriting a Bill of Rights ordinance passed by the government in 1991 guaranteeing free speech and a free press. "I've learned one thing in my life," says Lo, considered the favored candidate of Li Peng. "There is no use in worrying about anything. You just decide what has to be done and carry on."

Those are the kinds of sentiments that make a Hong Kong citizen reach for his passport--if he's lucky enough to have one. Others take solace in crystal balls. Richard Wong, director of the University of Hong Kong's Center for Economic Studies, has thre e visions of how the city could evolve. With luck and deft management from Beijing, it could remain the Manhattan of the Orient, free and open to the world's businessmen and financiers. With heavier interference from the north, Hong Kong could degenerate into a Chinese Bombay, used mainly as a base for businessmen interested in the China market. "It would be another kind of prosperity," he says, "but it would still prosper." Least promising of all, Hong Kong could become the Miami of C hina, dominated by the underworld, awash in dirty and laundered money and swamped with migrants from China. In any scenario, he says, Hong Kong's prosperity will depend on whether it has to absorb millions of China's restless poor. "We have great opp ortunities," Wong says, "but they cannot be realized unless we have a very innovative and intelligent way of managing that border with flexibility and with sternness." Both sides have an interest in stringent immigration laws, a tough custo ms regime and tight border security, to limit the entry of smuggled goods into China and prevent Hong Kong from being overrun by hordes of unemployed Chinese peasants and swamped by corruption.

Change is on the march on both sides of the border, even if the soldiers and the bureaucrats have to wait another 52 weeks. "A lot of measures that will be taken will be very controversial and contentious," warns Vincent Lo, who is also on th e Beijing-appointed Preparatory Committee. "I am sure there will be demonstrations and protests." The crowds on the sidewalks of Hong Kong are unlikely to stop as long as there is a final dollar to be made around the block, or at the next Mass T ransit Railway stop. But they will be rushing with a new anxious energy as Hong Kong begins its most dangerous year. --Reported by Sandra Burton, John Colmey and Rahul Jacob/Hong Kong