THE announcement that Anson Chan Fang On-sang will stay as Chief Secretary for Administration until mid-2002 marks the end of a transitional phase of SAR leadership and the beginning of a new era.

Over the next three years, the SAR team led by Chief Executive Tung Chee-hwa with the assistance of two top aides - Mrs Chan and the Financial Secretary - and with high-flying mandarins in charge of key policy areas is poised to govern with clearer direction, greater unity and self-confidence.

Having learned bitter lessons from the crises and controversies in the past 20 months, Mr Tung is determined to show the strong leadership that he promised after he was named Chief Executive before the handover.

As Mr Tung and Mrs Chan stood together last Tuesday to announce Mrs Chan's lengthened tenure, the scene resembled the one when the pair also stood together outside Mr Tung's Deep Water Bay Road villa at the end of December, 1996.

It was then that the pair gave rise to hope for a smooth transfer of power after they emerged from a meeting inside. Wearing big smiles, they announced Mrs Chan had accepted an invitation to serve the SAR Government.

Billed as the "dream team", the "Tung-Chan pair" was widely welcomed by the two sovereigns, all sectors in the community and politicians from rival camps.

But the honeymoon soon ended in disillusionment and scepticism. Cracks emerged in the Lower Albert Road corridors of power. The two were rumoured to have clashed on some important issues. The relationship between Mr Tung's Executive Council and policy secretaries was said to be tense.

Mr Tung, it was suggested, had been advised by pro-Beijing hardliners to consider a shake-up at the policy-secretary level. The "natural" retirement of Mrs Chan when she reached 60 next January was seen as a breakthrough point for Mr Tung to appoint another outsider to take a top position.

The "dream team" had ironically become a liability, according to some analysts. They believed Mrs Chan had become a stumbling block to the Chief Executive in leading the SAR in accordance with his road map for Hong Kong.

But it appears something has changed.

The signs are that the team has begun to function with more mutual trust and understanding of each other's thoughts and work style.

In a tacit confirmation of reported discord in their early months of co-operation, Mrs Chan said: "There are occasions when I don't agree with Mr Tung past and there were occasions in the past when I didn't agree with [former Governor] Chris Patten.

"Our relationship is based on one of trust and frankness. I think the way in which I can best assist Mr Tung is to be frank in tendering advice, to have mutual respect for each other's views, and to always try to reach a decision which we believe to be in the best interests of Hong Kong."

In response, Mr Tung made a rare acknowledgement of their differences that he had attempted to play down in the past.

That the pair were able to talk publicly about their differences underlined the development of the relationship. And the decision to keep Mrs Chan in the top post makes it possible for them to openly talk about their differences without having to worry about the negative political ramifications.

While the new form of the "Tung-Chan" partnership may be able to dispel further speculation about their future, it also removes one of the major uncertainties over the governance of the Tung leadership.

With Mrs Chan and Financial Secretary Donald Tsang Yam-kuen keeping their posts for three more years, there will be breathing space for other policy secretaries some of whom have been appointed since the handover - to consolidate their respective policies and their implementation.

This is especially important to officials involved in the last two

rounds of musical chairs. They include Gordon Siu Kwing-chue, Secretary for Planning, Environment and Lands; Education Department Director Fanny Law Fan Chiu-fun, Central Policy Unit head Edgar Cheng Wai-kin; Secretary for Information Technology and Broadcasting, Kwong Ki-chi; and Treasury Secretary Denise Yue Chung-yee.

The consolidation period of the SAR team comes at about the time the Tung administration is putting together the various pieces of its grand picture of Hong Kong in the 21st century.

On the economic front, the two mega-projects - the Disney theme park and the Cyberport - will significantly change the scene. If the Disneyland plan goes ahead, it will play a pivotal role in keeping Hong Kong's long-term attractiveness as a tourist destination.

The Pokfulam project will help speed up the development of the SAR's information technology and services, which is one of the key recommendations in the report compiled by the Commission on Innovation and technology. More significantly, the project marks a change in the Government's role in the economy.

Having originated from an idea initiated by a private firm, the Cyberport project has been described by Executive Councillor Henry Tang Ying-yen as "a good example of a private sector-led model that will offer greater flexibility and allow us to achieve faster results in the development of our information technology industries" .

Against a background of strong public discontent with the civil service following a spate of government blunders, Mr Tung and his top aides have decided to overhaul the whole public sector in a now-or-never mentality.

Under a time-frame of 10 to 20 years, the Government has set a target of keeping only one-third of the 189,000-strong civil service on permanent contract terms. Sweeping changes are in the pipeline to peg pay with performance and open the door wider to non-civil servants to take up senior positions.

The reduction of staff on permanent contract terms will be vital for the Government to privatise more of its services in the long run. Taking that plan with the one to sell part of the government stake in the Mass Transit Railway Corporation, the fundamental role of the Government is set to be re-defined.

On the policy front, a fundamental rethink of two major areas is to enter the public agenda this year. A consultation on medical services financing will be launched to help reduce the growing burden of medical expenditure on public finance.

And education reform will enter its second phase when the public will be asked to give their views on specific options on how to invest in human capital for a future knowledge-based society.

On the political front, the abolition of the two municipal councils will be completed this year with the revival of appointed seats to the new district councils.

Despite criticism of going against the democratic trend, the Government is determined to name more moderates to help reduce the influence of pro-democracy forces in the district councils and dilute the politicisation of the districts.

And regarding Legco, the administration has adopted a more flexible and pro-active strategy in countering its political opponents in the legislature.

Rocked by drastic changes to the political, economic and social scene which emerged at the end of 1997, the Tung leadership now appears to be standing on its feet and moving forward with fresh momentum .

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