Tin Shui Wai new town in Hong Kong, known as the “city of sadness,” has been narrated by the “Tin Shui Wai Myth” that attributes its urban problems to the planning failures after the colonial government rescued the developers, including a Chinese red capital, from a market slump in the early 1980s. This myth creates misunderstandings, which confuse recent debates about new town development and regional integration with China. To debunk this myth, this article, based on archival research, analyzes the scalar politics of new town planning and explains why the government decided to purchase the land and develop it in a partnership with the developers. It sheds new light on how the regional dynamics in South China after the economic reforms prompted China and Britain to react to the new town proposal at interconnected and contested spatial scales, before the diplomatic negotiations about this British colony’s future officially started.