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The joint venture, in which the Hong Kong Government will hold a 57% stake, is expected to be up and running in five years.

It will be Disney's third foreign theme park after Paris and Tokyo.

Announcing the deal after several months of negotiations, Hong Kong Chief Executive Tung Chee-Wah forecast that the project would produce an estimated US$19.2bn boost to the economy over 40 years.

He said: "It is a vote of confidence in our future. It is an enormous boost for the Hong Kong tourist industry.

"It's a good deal for Hong Kong. It will produce substantial long-term economic returns."

He appeared in Government House, the mansion of the old British colonial governors, flanked by Mickey Mouse and other Disney characters.

Mr Tung said Hong Kong would put up US$2.88bn. For its part, Disney will initially invest US$320m, according to a company vice-president, Steve Tight.

'Attractive investment'

Alongside a theme park, the project also features a 1,400-room Disney-themed resort hotel complex and a retail, dining and entertainment centre at Penny's Bay on Lantau Island.

The park will be a mix of East and West, centred around a traditional Magic Kingdom castle and featuring performances in Cantonese, Mandarin, and English.

Disney merchandise is already on sale in Hong Kong

However the formula will be similar to those used in Disney theme parks elsewhere in the world.

Mr Tight said: "It turns out to be a very strong and attractive investment both for Hong Kong and Disney, and we are very excited about being able to take it forward.

"It provides us with a fantastic Disney anchor here in Hong Kong."

Mr Tung predicted that the park would see an attendance of more than five million in its first year of operation, rising to 10 million after about 15 years.

He stressed that job creation that would come with the project.

The park would create 6,000 jobs during construction, 18,000 jobs at the opening and 35,000 jobs over a 20-year period, Mr Tung said.

A further 10,000 jobs are expected to be created by land reclamation projects and other associated works being funded by the government.

Green concerns

Although the tourist industry is pleased at the news, environmentalists are concerned about the impact of a Disney theme park on the territory's "green lung" - Lantau island.

Environmentalists fear the park will harm Penny's Bay

The first phase, which opens in 2005, will occupy about 126 hectares of a 280-hectare site at Penny's Bay on the island, partly on land reclaimed from the sea.

Environmentalists say the bay is an important fish breeding ground and a feeding area for Chinese dolphins.

Friends of the Earth said the likely environmental damage, the impact on the territory's heritage and the $2.9bn of public money going into the project meant Hong Kong stands to lose more than it will gain from the Disney project.

The group's associate director, Plato Yip, asked: "Why does not the government invest in ecological projects, or spend the resources on social demand?"

Editorials in local newspapers have also pointed out that Disney cannot solve Hong Kong's other problems.