Forget past glories, Hong Kong must find relevance in a changing world
Hong Kong’s economic malaise is structural. China will remain a powerful economy and global player, but this does not ensure the city’s relevance unless it shakes itself up
The crucial question is what it can offer as unique advantages, and how its limitations can be overcome through self-reform and collaboration
With the pressure of enacting Hong Kong’s Article 23 domestic security law off, the government is keen to focus on restoring the city as a global hub, events capital and “superconnector”.
It must be recognised, though, that reliving legacies is unrealistic. Some fundamentals have changed: the economy is ageing, the geopolitical climate is unfavourable and several advantages have been lost.
Hong Kong has gained immensely from China’s economic reform and opening up, with local businesses among the first to partake in mainland reforms. Apart from being a gateway for foreign investors and a window on international practices, the city was also a role model for modernisation.
As a venue for risk diversification, Hong Kong became the preferred base for many companies’ regional headquarters and offices, and a talent hub. Its transshipment trade, logistics, shipping and aviation benefited from China’s emergence as the world’s largest factory and major market.
As the Chinese economy grew, demand for investment escalated. Mainland corporations sought Hong Kong listings as they went multinational. Hong Kong’s financial intermediary functions became vital. As an international financial centre, Hong Kong soon surpassed Tokyo to sit on a par with London and New York.
Asymmetries with the mainland – in wages, operating costs and market penetration – worked in Hong Kong’s favour when its goods and services as well as brands and cultural styles were sought after. Those were the heydays.
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Cantopop: a genre for Hong Kong that went global among music lovers
Cantopop: a genre for Hong Kong that went global among music lovers
But the Asian and global financial crises exposed vulnerabilities in Hong Kong’s economy and its bias towards the financial and property markets. China’s rapid economic and technological rise also reduced Hong Kong’s impact as a role model. Hong Kong’s port has steadily lagged behind and its relevance now rests mostly in its international financial centre.
The economy is ageing, as is the city, which faces growing capacity constraints. Before, Hong Kong’s congestion and high costs of living and business might have seem justified by its geopolitical advantage, connectivity and abundant opportunities.
Wealth creation was almost guaranteed by a booming mainland. Now there is uncertainty with even the mainland experiencing setbacks and a slowdown.
Closer integration with the mainland, while opening up opportunities, can be a double-edged sword. The asymmetries have gradually worked to Hong Kong’s disadvantage as it loses business competitiveness. The trend of Hongkongers travelling to other Greater Bay Area cities like Shenzhen for dining, shopping and entertainment is just the tip of the iceberg.
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Hongkongers hunt for roast chicken, soap and more bargains at US warehouse store in mainland China
Hongkongers hunt for roast chicken, soap and more bargains at US warehouse store in mainland China
Hong Kong’s government and businesses cannot expect Beijing to continue rolling out support and skewed policies to solve its problems. Asking for more mainland visitors cannot save the city’s tourism industry. Hong Kong must find its own momentum for rejuvenation.
Competitiveness in a new context is key. There must be determination, not just by administrative fiat, but strong business incentives for economic upgrading aimed at high-end value-added production to take advantage of a better educated population, merit the cost structure and keep substitution in check.
The blue economy remains Hong Kong’s strength. Maritime services such as finance, insurance and arbitration remain strong and should be expanded to serve neighbouring ports. Hong Kong remains the world’s busiest cargo airport though passenger traffic was badly hurt by the pandemic. Aviation finance and other services can be scaled up.
The new-found enthusiasm for innovation and technology is encouraging. Apart from a proper strategy and investment, it requires an active government-business-research ecosystem. Quick wins cannot be expected just by the government throwing money at it.
The international financial centre is still the city’s trump card though it has become overdependent on mainland capital. A recent University of Hong Kong economic policy green paper observed that Hong Kong now functions as a centre predominantly for China while Singapore has emerged as a centre for Asia excluding China, especially Southeast Asia. Should the city be content with this or diversify?
Most critically, worsening geopolitics are eroding its East-West intermediary role and tapering its international impact. Hong Kong no longer enjoys a neutral space. Amid US-China hostilities, many international investors equate the city’s political risk to the mainland’s.
Political uncertainties and national security concerns have induced a migration of young professionals and some foreign firms (some relocating their regional offices to other Asian cities). Hong Kong relies even more on mainland talent and corporate investment.
China will remain a powerful economy and global player, but this does not ensure Hong Kong’s relevance unless it shakes itself up and shapes up. Its economic malaise is not cyclical but structural.
Pedestrians in Jordan walk past a digital billboard displaying the Hang Seng Index on March 12. Photo: Eugene Lee
To restore its relevance, Hong Kong needs a dual strategy of regionalisation and re-intermediation. It must embrace a firm regional vision embedded in both the Greater Bay Area and Asian – especially East Asian – contexts.
The crucial question is what it can offer as unique advantages, and how its limitations can be overcome through self-reform and collaboration. Understanding the region’s people and culture is as important as its economics. Deeper thought should be given to a Hong Kong-Shenzhen twin-city framework as interdependence grows.
The new normal of geopolitical confrontation will stay. Hong Kong must be careful not to let reclusion creep in. Re-intermediation is the hardest part and hinges on whether China values the city as an outreach post and the West needs it as a connector to China. Even if the answers are yes, the past cannot be repeated.
To overcome adversity, Hong Kong should redouble efforts to reach out, especially through Track 2 diplomacy. It must make itself heard by the nation and the world. Government officials should learn to craft a narrative beyond what lines to take and shed the reluctance to engage with international critics and sceptics.
Anthony Cheung is a former secretary for transport and housing (2012-17) and former president of the Education University of Hong Kong (2008-12, then known as Hong Kong Institute of Education)
