LONDON -- Sir Percy Craddock has a problem. Or perhaps not. An old saying, conveying cold comfort, is: If you have no choice, you have no problems. Craddock's problem is Hong Kong, concerning which Britain has few choices.

In 1997 the sun that you thought had already thoroughly set on the British Empire will set yet further when China takes control of Hong Kong. Militarily, Hong Kong is indefensible. With that in mind, and with appeasing China in fashion (as it generally is), Britain signed an agreement with Beijing in 1984. It contained one hard fact: Chinese control in 1997 -- and much mushy language about preserving Hong Kong's political and economic arrangements. But the hope for ''one nation, two systems'' looks silly since Tiananmen Square.

There, China's frightened gerontocracy reacted with extreme violence against the Communists' ultimate nightmare: Marxism's dream coalition of workers and students came into existence, but was directed against communism. Beijing made a cold, clear-eyed choice for retention of power and against what threatened retention -- modernity.

Modernity means the rationality of an open society that respects markets. It means capitalism, which exists in Hong Kong in especially concentrated form. Capitalism rests on confidence, which is to say on social sand. The 1984 agreement offers no firmer protection than China's 1971 agreement with Tibet gave to that subsequently butchered country.

Hong Kong is nervous, and it makes China nervous. Craddock sits, figuratively speaking, in the middle. He sits in No. 10 Downing Street, close to Prime Minister Margaret Thatcher, in an office which, with the addition of a few luxuries, could be called Spartan. It has no trappings of power. But then, regarding Hong Kong, Britain has precious little power. However, it has more than it has used.

Since last summer's violent lurch by China away from liberalization, some people have said the lurch should be grounds for declaring the 1984 agreement null and void. Craddock says that might be cathartic, but it would be barren strategy. China will, of course, do what it wants with Hong Kong after 1997. So the trick -- ''the Indian rope trick of diplomacy,'' Craddock calls it -- is to encourage China to want to keep Hong Kong as it is: a huge economic asset to China.

Hong Kong must be valued by China for the fecundity of its capitalist freedom, but it should not frighten China by spreading the infection of freedom. A neat trick, that. Hong Kong is woven into the fabric of life in South China. But 40 percent of Hong Kongers are refugees from communism, which means they are informed and passionate anticommunists.

The government of Margaret Thatcher -- the iron lady of anticommunism, the tribune of capitalist ''values'' -- is offering the right to live in Britain to 50,000 Hong Kong households. That is a derisory number, considering Hong Kong's population of 5.7 million ethnic Chinese. The attempted trick is: keeping the exit door open for a few will encourage everyone to stay calm and stay put.

An argument waged here fiercely by an honorable few is this: Considerations of honor and prudence converge. The right to live in Britain should be granted to the more than 3 million Hong Kongers holding British passports. Providing a potential exit for multitudes is the way to prevent panic and thereby preserve Hong Kong as a vibrant society that China will want to respect. And if China will not respect it, honor requires Britain to protect the people who live on the land Britain cannot defend as it did the islands of the 2,000 Falklanders. Britain's responsibility is particularly deep because Hong Kong is the one colony that never asked for, and cannot hope for, independence.

Unfortunately, immigration is an issue without romantic resonance in Britain, which has no tradition as a melting pot and is increasingly uncomfortable as a social mosaic. In recent general elections, the Conservative Party has stood against large-scale immigration. The Labor Party, that tireless denouncer of racism, practices it by offering no leadership on behalf of nonwhite immigrants.

Britain would be invigorated by a large infusion of energetic Hong Kongers who vivify the values -- industriousness, thrift, family, education -- that Thatcher preaches. Hong Kongers could become the most talented refugees since the Jews who fled Europe in the 1930s. Canada, Australia and the United States benefited from 200,000 Hong Kong refugees in the 1980s.

Britain, exporter of impeccably Anglo-Saxon soccer louts, does not want to be leavened by Asian talent. The United States should know better. It should load a trans-Pacific cargo plane with U.S. passports.

The United States currently takes 5,000 immigrants from Hong Kong per year. We, and Hong Kong, would benefit from revising the ceiling, adding three zeros. That would work either to ensure Hong Kong's future or enhance ours.