You could stay in Macao which is thriving at the moment and its cheap for now. You have the markets and lots of interesting places to visit..
The reason I say Macao is because you can hop on the ferry into H/K which takes about 30 minutes and avoid the high hotel cost there.
This place is unbelievable, go to their virtual tour.
http://www.venetianmacao.com/en/property/index .aspx
You can also have a day trip into China, that will open your kids eyes.
I think people are mixing H/K up with China (Beijing)regarding the pollution, after all the press reports about the Olympics.
Hope this is some help?.