Hong Kong has experienced a policy impasse after reunification with China in 1997. This is due not only to the erosion of old institutions and processes inherited from British colonial rule, but also the lack of “fit” between an outdated policy system and a new and more uncertain policy environment. In addition to institutional defects, newly emerging cleavages have also limited the government’s policy capacity. This article examines the growing constraints faced in governing a differentiated polity and in managing social conflict. Changes in terms of policy actors, policy habitat, policy processes, and policy thinking are examined. Copyright © 2007 Informa UK Limited.