THE clock is ticking as Britain's time runs out in Hong Kong. On Saturday the last stamps bearing the profile of Queen Elizabeth were sold. Red flags have been hoisted over villages in the New Territories. The neon "countdown" sign in Beijing's Tiananmen Square yesterday showed just 155 days to go.

When Margaret Thatcher and Deng Xiaoping signed a joint declaration in 1984 restoring China's sovereignty over the British colony on July 1st 1997 and broadly agreeing the terms for the transition, it had been hoped these would be days of celebration.

But the atmosphere has soured and it is getting worse. There is deep bitterness in the residence of the colony's last governor, Chris Patten, over China's moves to get rid of the democratic reforms he introduced in the last days of empire.

Beijing has already announced that his democratically elected legislative council will be replaced with a provisional legislature made up mainly of pro Beijing politicians at midnight on June 30th. A preparatory committee legal sub group last week proposed to amend or repeal 25 pieces of civil liberties legislation voted on to the statute books in recent years, among them provisions of Hong Kong's Bill of Rights.

Mr Patten is blamed by the Chinese - and British critics such as Sir Percy Craddock, a former British ambassador to Beijing - for trying to force China's hand in proceeding with disputed reforms.

But the divisions over constitutional developments in Hong Kong go back to the days following the signing of the joint declaration. The British and Chinese agreed then that Hong Kong's future government should be under a chief executive nominated on the basis of "elections or consultations to be held locally" - hardly a commitment to democratic reform.

Indeed a British government White Paper at the time stated that there was "little evidence" of support for a move towards immediate direct elections. It recommended a cautious approach.

But speaking for the government, Baroness Young told the Lords of the prospect of a "solidly based democratic administration" by 1997 and this commitment helped win Westminster approval of the joint declaration.

Beijing soon afterwards announced that the political system after 1997 would be fixed by the Basic Law, its constitution for the "special administrative region which Hong Kong would become. Based on the joint declaration, the Basic Law provided that Hong Kong would enjoy a high degree of autonomy and the capitalist way of life for 50 years. By invoking it, China could claim the right to co determine pre 1997 policy decisions.

At the time this seemed feasible. For all its fine words, the Thatcher government was in no hurry to give democracy more than a toehold.

But the population of Hong Kong was becoming politicised and it was evident that there would be contradictory pressures on the last governor of Hong Kong. He would be expected to increase democratisation, while co operating with a communist leadership which did not envisage fully democratic elections as part of its "one country, two systems" policy.

Then came Tiananmen Square, the military suppression of the prodemocracy movement in Beijing in 1989, which cast the problem into stark relief. One million Hong Kong people demonstrated, against the Chinese government's actions. To restore confidence, the then governor, Sir David Wilson, introduced a Bill of Rights. A beleaguered Beijing government hardened its attitude and refused to deal with the leaders of Hong Kong's new Democratic Party, which won a big following after Tiananmen and came first in elections in 1991 and 1995.

Britain and China continued to co operate on other aspects of the handover. But in 1995, angry at the holding of the first mainly democratic elections in Hong Kong without its agreement, Beijing declared it would modify the Bill of Rights on the grounds that it contravened the Basic Law and reintroduce six ordinances to deal with subversion and street protests. China would not be bound by any measures to which it had not agreed.

It is against this background that the recent acrimonious exchanges between China and Britain have taken place.

Chris Patten argues that everything he has done since he arrived in Hong Kong in 1992 was an attempt to implement what was promised in 1984 "in a decent way". Chinese officials, he said, wanted his endorsement of an arrangement which would allow them to get rid of elected members of the legislative council and he saw no case for doing their "dirty work".

Recently, Mr Patten again defended his legislative record by stressing that Hong Kong society remained stable (the joint declaration requires Britain to maintain "social stability" up to the handover) after the Bill of Rights and other measures were enacted, and that during 175 anti China demonstrations last year outside the Xinhua (official Chinese) news agency, there was not a single arrest.

At the heart of the matter now are questions of concern to both Beijing and London: how damaging is the public squabble to confidence in Hong Kong; and can Beijing regain sovereignty without undermining that confidence?

Governor Patten is derided in Beijing but he is highly regarded by Hong Kong's western correspondents and his criticisms of China are having an impact as a farewell to British freedoms. China's case that Britain violated the 1984 deal by changing the rules before it gives up the playing field cuts little ice in western capitals, and particularly in Washington where it really matters.

Indeed, China has a growing public relations problem. The US Senate foreign relations committee, under China critic Senator Jesse Helms, wants to deny visas to the provisional legislature, and the decision to abolish key parts of the Bill of Rights has angered Capitol Hill.

The incoming chief executive, Tung Chee wha, feted the world over when he was elected to the post by a pro China committee in December, can expect to be "read the riot act" when he visits the US capital, according to the South China Morning Post. Mr Tung has defended China's plans to cancel some civil liberties, calling them mere "technical adjustments" to the law.

So while the red flag is being raised over Hong Kong villages, warning flags are going up elsewhere for the Chinese government. Beijing is doing now precisely what it has said it would do for the past two years, but the effect of the current row is to shake confidence in a successful transition, and put at risk good US China relations, essential to the stability of the Far East. That is what is at stake now.