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Social categorization is very serious in TSW because the population structure in TSW is special. Excluding the rich ones from Hong Kong (HK) local living in Kingswood Villas and Home Ownership Scheme, most residents living in public hosing estates in TSW are new immigrants from mainland China and come from southern Asian countries like India and Pakistan. People divide the community into distinct categories on almost any basis and result in different perceptions of "Us" (named as "in-group") versus "Them" (named as "out-group").  Usually, Cantonese born, grow and live in local HK for a very long period of time are classified as "in-group" and treat other non-HK local born people as "out-groups" because cultural differences is the main reason for the formation of "in-group" and "out-group".
One of the cultural differences is language. Cantonese born and live in HK for a very long time can speak Cantonese (Guangzhou language) fluently and read Chinese as "in-group". For "out-group", new immigrants from mainland China, they may speak Guangzhou language in their homeland dialect or speak directly in their homeland dialect or even speak in Mandarin only. Another "out-group" is southern Asian (also named as "minority ethnic" group in HK). Although some of them can speak English and Cantonese, their main spoken language is Indian or Pakistan and most of them can't write and read in Chinese. Another cultural differences is custom. Even in the "out-group", they also "categorize" in Chinese group ("in") and non-Chinese group ("out"). For example, in Chinese taboo, Chinese don't speak "death" in Chinese lunar new year but people in southern Asian countries do not know or have this taboo. In other words, people in southern Asian countries do not mind to say "dead" during Chinese lunar new year or making Chinese friends. On the other hand, Pakistans like embrace during visiting their friends and relatives but Chinese do not have too many body intimate contact.
Moreover, the negative perception and behaviour of new immigrants from mainland China and minority ethnic group also cause HK local people to discriminate these two "out-groups". For example, Chinese new immigrants do not have queuing habit when waiting some services and like to spit everywhere so that HK local people think them rude and unhygienic. People from southern Asian countries have blacker skins than Chinese yellow skins and the male of southern Asian countries have more body hair than male of Chinese so that HK local people feel them dirty and spread bad smell. Some HK local people prefer to choose another seats to separate when one Pakistan sits next to HK local people in a bus or a train.
The feelings and beliefs are sharply contrasting between the members of "in-group" and "out-group". In "in-group", members feel favourable and positive traits but feel negative views to "out-group".  Most residents living in public hosing estates in TSW are new immigrants from mainland China and come from southern Asian countries ("out-group") and their social status are low because their education level are low or even have no education. They can't find any jobs in HK. Even though they are fortunate to be employed, they can only find low salary jobs like cleaning workers and coolies. Some of members of "out-group" receive Comprehensive Social Security Assistance (CSSA) from Social Welfare Department. HK local people ("in-group") think that people who receive CSSA are lazy and unwilling to find a job to do. This sentence becomes prejudice and gives negative label to CSSA receiver because CSSA resource is very limited and it should not be abused. At the end of 2004, a couple living in TSW cheated CSSA to travel to Thailand and came across great tsunami. Although the wife was saved luckily, HK local people did not pay any sympathy to her and discriminated CSSA receiver. At the same time, HK local people ("in-group") has positive view that they would earn their living (self-sufficient) hardly more than applying CSSA. As more and more poor families live in public housing estates in TSW, the limited resources of CSSA are taken away quickly and drastically by "out-group" and make heavy tax burden of "in-group". The realistic conflict theory can explain why competing for limited CSSA resources between "in-group" and "out-group" as a source of prejudice. 
Furthermore, the social identity theory suggested that individuals seek to feel positively about the groups to which they belong, and part of their self-esteem depends on identifying with social groups. It is because people who are identified with their group are most likely to express favouritism toward their own group and a corresponding bias against "out-groups", valuing our own group has predictable consequences for prejudice.  HK local people feel proud and having pride of the positive core values like hard working and high degree of freedom that they like to live in HK and recognize their HK local identity. They form their own social networks. The influx of members from "out-group" to TSW would destroy positive impression of local HK people.
Methods to Reduce Prejudice & Eliminate Discrimination
Re-categorization in TSW is one of the method to reduce prejudice by shifting the boundary between HK local people and new immigrants from mainland China. It was a fact that a huge number of Chinese refugees came to HK from China mainland after the end of World War II. Why this generation of HK locally born people forget their parents and grandparents whom were immigrants from mainland China before and live in HK for many decades ? However, there was no prejudice and discrimination of Chinese immigrants within Chinese living in HK from 1945 to 1980 but adding many barriers to new immigrants from mainland China in recent years. All living Chinese in TSW and even in whole of HK should be treated equal.
Another way to reduce prejudice is contact hypothesis. Mr. Shafi, the chairman of Mutual Aid Committee of one public housing estate in TSW, comes from Pakistan and he has Chinese name called "Tak Brother". He was born in HK and speaks Chinese, English and Pakistan language fluently. He likes to visit the neighbour including other Pakistans, new Chinese immigrants and HK local people. When they have troubles, he likes to help them voluntarily. 
Moreover, social learning is also important to reduce prejudice because holding prejudice attitude would have less enjoyable life. HK local people can appreciate the positive value of new Chinese immigrants and "minority ethnic" group like saving of materials. We can say "no" to prejudice and discrimination when some HK local people scold to new Chinese immigrants and "minority ethnic" group as a rubbish! Social education against prejudice is very useful. Mr. Shafi is holding a social inclusion programme in TSW that Indian or Pakistan can learn Chinese culture. On the contrary, HK local people and new Chinese immigrants can learn how to make Indian curry and cuisine. Cultural exchange can shorten the distance between "in-group" and "out-group". 
On the other hand, the mass media should take social responsibility that not to report the negative news happened in TSW and don't use the term "city of sadness" anymore. More positive news about TSW should be reported like the Asian Game Exhibition of 2008 would employ hundreds of temporary staffs who live in TSW at the first priority. 
For eliminating discrimination, the government is now formulating the law against racial discrimination in HK. Some racial discrimination minds and behaviour like saying "é˜¿å·®" to Indian or Pakistan should be banned.
Stereotyping, prejudice and discrimination are the obstacles between the relation of different social groups. The barriers are easily built but hardly to demolish because different social groups need a long period of time to understand the other groups. On the other hand, prejudice is not inevitable by increasing communication channels between different social groups.