The resumption of Chinese sovereignty has been a mixed blessing for Hong Kong. On the one hand, economic integration with the mainland has deepened, generating substantial material benefits, as well as providing selectively a cushion against exogenous shocks. On the other hand, the notion of "autonomy," enshrined in international and constitutional law, has been progressively diluted. As matters stand, the local government (the "agent") often tries to "second guess" the powers that be in Beijing (the "external principal"), or simply follows their "directives." The domestic constituency (in theory, the "ultimate principal") is a minor factor in the equation. This has arguably resulted in a system of governance characterized by an erosion of trust between the executive and the public, and even among people in general. The adverse implications of this phenomenon for Hong Kong, particularly its status as a regional/global intermediation center, should not be overlooked.