Leading the Chinese team that negotiated the end of British rule in Hong Kong and then heading the local branch of China's Xinhua news agency, Zhou Nan has helped shape the territory's destiny. He rarely gives interviews, but he met last week with TIME Asia editor Donald Morrison, Hong Kong bureau chief Sandra Burton and correspondent John Colmey at Xinhua's Hong Kong offices. Excerpts from the talk:

TIME: What is Hong Kong's future after July 1, 1997?

Zhou: I am very optimistic about it. The great concept of one country, two systems put forward by Mr. Deng Xiaoping will be fully implemented, and Hong Kong will become increasingly prosperous and stable. Former British Prime Minister Mrs. Thatcher said to me year before last that at first she was in doubt about one country, two systems, but now she believes this concept is fully feasible. She even said she would like to buy a house in Hong Kong.

TIME: Why are you so optimistic?

Zhou: There are several reasons for this. First is that many people around the world are generally convinced that Hong Kong's capitalist economy, social system and way of life will remain unchanged. A recent opinion poll showed that the great majority of people in Hong Kong are optimistic about its continued stability and prosperity. A large number of foreign firms have increased their investments. More than 800 regional headquarters or foreign offices have opened here in the past five years. And local companies are also optimistic. This is demonstrated by the large amount of investment in Hong Kong, and also in mainland China, in projects that take a longer period of time to recover their capital.

There is another very important reason why I am optimistic: Hong Kong needs mainland China, and mainland China needs Hong Kong. Hong Kong's prosperity in the past few decades benefited from mainland China's reform and opening. Similarly, mainland China needs Hong Kong as a window and a bridge to the outside world. China will maintain a high-speed economic growth in the years to come. A Chinese saying goes, "If a big river has enough water, then a small stream will not be dry."

We need to maintain Hong Kong's capitalist system because this conforms to the interests of China. Only stupid people undermine their own interests. The Chinese nation has a civilization, a tradition, a culture of 5,000 years. Mr. Deng Xiaoping and his successors, namely Jiang Zemin and his close associates, are statesmen with a high political wisdom. How can you imagine these people doing anything unfavorable to China's interests?

TIME: What will Xinhua's role in Hong Kong be after the handover?

Zhou: I personally think that after 1997 the Xinhua news agency Hong Kong branch will continue to exist, but its functions will be modified. Xinhua will absolutely not interfere in matters within the scope of the "high degree of autonomy" of the special administrative region [SAR].

TIME: What about political parties--and the Communist Party--after 1997?

Zhou: For those political organizations composed of local Hong Kong people and now operating in public--so long as they operate within the framework of the Basic Law--they will continue to function freely, including participating in elections. But according to the Basic Law and the Sino-British Joint Declaration, after 1997 the political structure in Hong Kong will continue to be executive-led, not legislative-led. If one party wins a majority of seats in the Legislative Council, it has no right to form the government. Hong Kong will be a special administrative region, not an independent state. So this particular system is quite different from that of the Western countries.

TIME: Will there be restrictions on the flow of news or information in Hong Kong?

Zhou: The Basic Law has given adequate guarantees to such questions as freedom of the press, human rights and democracy. So there is no need to worry about this. After 1997, Hong Kong residents will enjoy more democracy and freedom than in the past, not less, because Hong Kong, in more than 100 years under the British, was always ruled by the Governor, and there was no democracy to speak of. This situation is quite similar to the situation in the U.S. more than 200 years ago, before the War of Independence. Am I right?

The former British Governor in Hong Kong, Sir David Wilson, proposed a step-by-step approach to introducing democracy in Hong Kong. We immediately agreed, and Mr. Deng Xiaoping said that idea was very good, because we cannot go to a complete democracy overnight from no democracy at all. An honest old man who was a member of the House of Lords and Privy Council, Lord Shawcross, came to see me in 1993. He told me he couldn't possibly understand why the British authorities had changed their mind on the step-by-step approach, why they wanted to push the process of democracy overnight. He told me it took Britain 400 years to achieve the Westminster system. He could not understand the motive for the change.

TIME: What do you think the motive was?

Zhou: Very simple. Because the then British government made a wrong assessment of the situation in China. I have read a British parliamentary document that said: whether the present Chinese government will survive until 1997 is doubtful. Therefore the British would have to adjust their policy toward China and Hong Kong. I think the time has come for them to realize that was a totally wrong assessment.

TIME: Is there any chance the current legislature would be allowed to remain?

Zhou: It was the British authorities who derailed the through train. Now the problem is how to fill the legislative vacuum in 1997. Some put forward the idea that the National People's Congress Standing Committee act on behalf of the sar. But we thought it was not proper, because it is not in conformity with the principle of Hong Kong people ruling Hong Kong. The second choice was to have the [Hong Kong] Chief Executive issue executive directives as laws, but we believed that was also contrary to the spirit of the Basic Law. So after much consideration, we decided to establish a provisional legislature. This is the only feasible choice.

I hope that more than one-half of the present sitting [Legislative Council] members will be selected [for the provisional legislature]. However, this is a matter for the selection committee to decide.

TIME: What about freedom of assembly in Hong Kong after 1997?

Zhou: Within the framework of the Basic Law, Hong Kong people will not have restrictions on freedom of assembly. Again, on this point the future sar will enact laws on its own to implement the requirements and spirit of Article 23 of the Basic Law. We should have full confidence in the wisdom of the Hong Kong people. Since they have demonstrated such wisdom in the management of the economy, they can also do so in the management of the politics.

TIME: Will foreign-owned businesses in Hong Kong be pressured to sell shares to mainland companies, as Cathay Pacific did?

Zhou: I don't think foreign businesses in Hong Kong will be forced to cooperate with or sell stakes to mainland China-funded enterprises. There have not been such practices in the past, nor will there be in the future. We want to maintain the international character of Hong Kong. I do not expect mainland China-funded enterprises will take a dominant role in the economy. I can tell you, though, that at the moment China supplies a large amount of fresh vegetables and live poultry to the Hong Kong market--but very few cows!

TIME: Will China accept foreign criticism of the way it handles the transition?

Zhou: This event is of great concern to all Chinese people around the world. Deng Xiaoping also mentioned that the settlement of the question of Hong Kong by one country, two systems might set an example for the settlement of international territorial disputes by peaceful means around the world. So it is only natural that this event will attract international attention. All sorts of people and newspapers and magazines will make all sorts of comments on the future of Hong Kong. We don't mind. Now it is one thing for foreign media to make a comment and another for foreign governments to point their fingers at China and say "do this" or "do that." That is tantamount to meddling. I don't think any sovereign country or state would accept such practices, and I hope all foreign governments will adopt a wise and prudent attitude on this matter.

I wish to point out that to maintain Hong Kong's prosperity and stability is in everybody's interest, and I hope in the last 370 days before the handover, all those who truly care about Hong Kong's future will do everything possible to help stabilize Hong Kong. Some time ago, when Sir Leon Brittan, vice president of the European Commission, was asked by the press here to answer all sorts of questions of a negative nature, he commented that it seemed to him to be the best way of destabilizing the situation rather than keeping the confidence.

TIME: Will Sino-American relations improve after the new copyright agreement?

Zhou: China, the largest developing country, and America, the largest developed country, have many common interests. These surpass our differences. I sincerely hope this agreement will lead to the development of closer relations.

In passing I would like to mention that I fail to understand this futile annual exercise on MFN [most favored nation]. The granting of MFN [by the U.S.] is of mutual benefit; it is not one side giving a special favor to the other side. I know quite a number of distinguished persons in the U.S. are in favor of settling this matter in one strike. I know the Hong Kong people do not like this exercise either, because if anything went wrong, they would be the first to suffer.

TIME: And Sino-British relations. Is there any chance they will improve?

Zhou: In the past year, the relations have been improving. We have many common interests. I hope both sides can stand higher and look farther into the next century. I'm still nostalgic about my many happy moments as leader of the Chinese delegation in 1982 and '84, when we negotiated the settlement. We had quarrels, we had differences, but all these have been settled in the spirit of mutual understanding. Honestly, when I was first sent here from Beijing, I was expecting very cordial and friendly cooperation with my counterpart [Governor Chris Patten]. I did not expect their change of mind and policy. But that is in the past. Let's look forward to the future. I hope in the remaining days before the handover we'll have less trouble with the British and more cooperation. I hope a happy beginning will lead to a happy ending, although in between there may be twists and turns.

TIME: You must have some concerns about 1997. Can you share them with us?

Zhou: I do not foresee much trouble because all conditions are favorable. If there is any trouble, it won't be the making of China, because that is against our interests. Let us witness together the concept of one country, two systems becoming a reality. I hope you ladies and gentlemen will be here.

TIME: We will be, whether there is a joint ceremony or two ceremonies

Zhou: We are in favor of a joint handover ceremony. We never said we would do it alone. I also believe and hope that this matter will be settled in the joint liaison group. This is no big deal, is it? I can say that Hong Kong after 1997, the Pearl of the Orient, will shine brighter, more prosperous and stable. It will be one of the most wonderful places for all foreign investors. Please come.