Hong Kong officials on Tuesday called for the MTR Corporation, the mass transit system, which is 76 percent owned by the government and 24 percent by the public, to conclude merger talks by the end of August with the Kowloon-Canton Railway Corporation, which is entirely owned by the government. No details of the merger proposal were given.

The territory's financial secretary, Henry Tang, said that the government would let the minority shareholders cast the deciding vote on whether to complete the merger, and that the government had no intention of buying out these shareholders.

"I think this is a very democratic process," he said.

K.C.R.C., as the Kowloon-Canton Railway is known, has its roots in the construction a century ago of the railroad from the Kowloon peninsula here up along the Pearl River to Canton, now known as Guangzhou. Japanese armies battled Chinese Nationalist and Communist forces through the late 1930's and much of World War II for control of the strategic route, said Philip Snow, a historian of Hong Kong.

The Hong Kong border with mainland China was heavily guarded and sometimes closed during Mao's rule of China, but the railroad bridge at the border, over the concrete-channeled waters of the Shenzhen River, remained open for freight and was Hong Kong's lifeline for food imports. Britain returned Hong Kong to Chinese control in 1997; while Hong Kong and the mainland maintain separate immigration procedures, the border has become one of the world's busiest land crossings, with most people crossing on foot or by car or bus. Passenger trains still creep slowly across the aging railway bridge, past barbed wire and guards who check for anyone trying to slip across without proper papers.

Mary Ellen Olson, a credit analyst at Standard & Poor's Ratings Services, said that a merger would help both companies by reducing competition and possibly making room for cost savings.

MTR has 400,000 shareholders, in a territory of 6.8 million people, because the government has encouraged retail ownership of stock. MTR is starting to expand on the mainland as well, having reached a deal last month to invest $725 million in the construction and operation of a subway across the border in the city of Shenzhen. MTR and the Kowloon-Canton Railway together have $22 billion in assets.

Mr. Tang said that the government would approve only a deal that was in the best interest of the public. A common complaint now is that people who ride the city's rail system, operated by the Kowloon-Canton Railway, and connect to the subway system, run by MTR, must pay two separate fares, and Mr. Tang said this would be addressed.

Dr. Sarah Liao, the secretary for the environment, transport and works, said the government did not think it was creating a monopoly that would be harmful to consumers, because the train and subway services compete with buses, minibuses and taxis operated by other companies.

"What I want to emphasize,'' she added, "is that the government would have a regulatory system to ensure that even under a natural monopoly for rail, we would still have measures to make sure that the provision of service would be up to the highest standard."

There has been frequent speculation here that the government might sell more of its stake in MTR to cover part of the territory's budget deficit, which is equal to nearly a third of government spending. Mr. Tang said that the merger was not intended as a budgetary measure, but that the final structure of a merger might be to the government's benefit.

"We are not looking for any short-term monetary gain from it," he said, "although we will probably end up with some."

The Kowloon-Canton Railway owns the railway only up to the Chinese border. Britain obtained permission from Beijing in 1898 to build a railroad from Hong Kong to Canton, as part of the same treaty that granted Britain a 99-year lease to Hong Kong's New Territories. Work was slow to start, however, because of Chinese hostility to the presence of British engineers, according to the Hong Kong Railway Society.

The British finally completed the project in 1911 after an agreement that allowed the Chinese provincial government to operate the railroad, with British help, on the Chinese side.

All that is left of the old railway terminus on the Kowloon side is the clock tower, one of Hong Kong's most famous landmarks.