HONG KONG (AP) — From the cranes towering over its sparkling skyscrapers to the sampans bobbing alongside cruise ships and barges in Victoria Harbor, this city appears as busy and prosperous as ever five years after Britain handed it back to China.

A closer look finds shuttered shops and huge banners advertising office space: CHEAP!

Hong Kong, expected to prosper after its 1997 return to Chinese rule, instead found itself a victim of the Asian financial crisis that began that year. Making matters more difficult for this city of 6.8 million, China’s growing affluence and openness is challenging its reputation as a centre of capitalism.

Chan Hing-to, a former millionaire restaurateur, is among millions in Hong Kong struggling to regain ground lost since 1997. He now peddles children’s books for a living.

“I earn an adequate income. If I earn today, I have food to eat tomorrow. If I don’t, I won’t have food to eat. It’s quite simple,” said Chan, who declared bankruptcy last year after several years of desperately trying to save his Farm House restaurant chain.

A day after the lavish July 1, 1997, handover ceremony, Thailand was forced to devalue its currency, the baht, triggering an economic crisis across Asia. Property and stock prices tumbled, unemployment soared and Hong Kong’s economy sank into a 15-month recession.

A brief recovery in 1999-2000, thanks mainly to the US economic boom, ended with a global slowdown, and now Hong Kong is on the verge of recession again. Prices have been falling for 42 straight months, and unemployment is at a record 7.1 per cent, the highest level since recordkeeping began in 1981.

Steady seven per cent-plus growth in rapidly industrialising China has so far done little to boost Hong Kong’s economy, which is managed separately under a one-country, two-system arrangement intended to preserve the former colony’s capitalist way of life. In fact, many jobs lost in Hong Kong have gone to the mainland.

Hong Kong families once planned their lives around rising asset prices. They now are adjusting to the harsh new realities of pay cuts and negative equity — mortgages worth more than the current market value of their property.

Property prices, though still high, are barely half the pinnacle hit before the crash. The benchmark Hang Seng Index trades at about 11,400 Hong Kong dollars, well under the peak of 18,292.86 reached on March 27, 2000, at the height of the dot-com bubble.

“Hong Kong was too good to be true. People got used to the ‘good old days.’ They think they’re normal, but they’re not,” said Chan, the former millionaire, whose family of five gave up a spacious home in the prestigious Midlevels for a 440-square-foot (40-square-metre) apartment in a drab industrial district.

The loss of wealth spans the economy.

Former white-collar workers have joined the downwardly mobile, competing with laid-off construction workers and newly arrived migrants for low-paying jobs as security guards and waiters.

Job losses helped push the number of personal bankruptcies from 639 in 1997 to a record 13,000 last year, in typical Hong Kong fashion, creating new profit-making opportunities: One law office set up an online bankruptcy service, www.theBroke.com, offering to fend off creditors for a basic fee of 14,500 Hong Kong dollars (US$1,858), most of which goes to the government.

Even in hard times, window shoppers abound. Often these days, though, those actually buying jewellery and designer fashions speak not in Cantonese of Hong Kong but in the Mandarin dialect of the mainland.

The ascendance of Shanghai and other Chinese cities into new commercial giants worries many who fear Hong Kong’s could lose its status as China’s No. 1 port and financial centre.

People feel “if the mainland is doing well, Hong Kong’s got to be doing badly,” former legislator and independent analyst Christine Loh said. “In Hong Kong, we always thought we were doing better than the mainland. Today, when the mainland is doing well, we wonder if there’s a place for us in the sun.”

Until now, Hong Kong has thrived as a go-between for China’s dealings with the rest of the world.

The government has boosted spending on big construction projects and campaigned successfully for a tourist-drawing Disneyland theme park, trying to make up for jobs lost as Hong Kong’s manufacturers have shifted factories to the mainland. But Loh and other experts say many workers lacking advanced education or marketable skills eventually will be forced to take pay cuts or move to the mainland.

Nick Lardy, an expert on the Chinese economy at the Brookings Institution, believes Hong Kong’s prices must fall further. The city should focus on legal, financial and logistics services where it enjoys an advantage due to its autonomy and Western-style legal system, he says.

“I think there’s a substantial financial role left for Hong Kong,” Lardy said.

Chan, who delivered newspapers and washed cars to put himself through school after his father’s toy factory failed when he was 11, said he believes setbacks are just part of life.

“Maybe I’ll go back into the restaurant business. Maybe I’ll open restaurants in China. If you are a real businessman, you can do anything,” Chan said. “If you ask Hong Kong people, they’re pessimistic about this city and very confident about China’s economy. That’s ridiculous. This is part of China. If China has a good future, then why not Hong Kong?”