Is Hong Kong’s Peak Behind It?

Hong Kong skyline, September 2014

NEXT YEAR SEES  the start of the 20th of the 50 years during which the 1997 handover agreement specified that Hong Kong’s way of life would remain unchanged. But with three decades still to go, ennui has settled over the city.

This disquiet goes beyond the chilling of civil rights by authorities that seem far distant from the mass of the population. It is a more existential concern.

Hong Kongers are not living in a place that, as many had once pragmatically expected, would inevitably become just one more big Chinese city but which the motherland would still want for its vibrancy and as a gateway to a wider world. They are, instead, living in a place that matters less and less to a China that has more and more direct access to the world (and bigger things to worry about than 1,100 square kilometers of rocky land on its southern coast).

Hong Kongers greatest fear has become that they are just being left to atrophy.

The chart below gives a sense of the economic driver behind that. As China’s economy racked up year after year of double-digit growth, it was inevitable that Hong Kong would seem smaller and smaller in comparison. But the diminution still points to a reality. Hong Kong remains a trade and investment bridge between China and the rest of the world, but it is no longer the only or most important one.

Hong Kong's GDP as % of China's, 1960-2014

 

Hong Kong’s entrepot role is longstanding, though where once merchandise trade was at the forefront, today it is capital. The city’s rule of law, functioning markets and financial institutions, and supporting social and business infrastructure made it a regional financial centre that was once essential to China.

But over the years, Shanghai has been growing as a rival. In the latest Global Financial Centres Index, Shanghai moved up five places to 16th while Hong Kong fell one to fourth, trading places with Singapore. In in the fullness of time, Shanghai, which in GDP terms is already about one-third larger than Hong Kong, will eclipse it as China’s financial centre. That will undermine Hong Kong’s utility as a regional financial hub.

The same will likely be true for Hong Kong’s recently adopted role as shopping mall for mainlanders if China is successful in rebalancing its economy over the long term towards domestic consumption.

Hong Kong will by then have had to reinvent itself–and Hong Kongers are nothing if not inventive. However, even though Hong Kongers have developed an identity of their own, independence as a Singapore-like city-state is a non-starter politically, as all but the tiniest slither of the population understands. A Taiwanese-like model of arm’s-length separation despite being joined at the hip is perhaps the best that can be hoped for–and even then the arm’s-length separation will be gone in barely 30 years. Little wonder there is a feeling of listlessness at that prospect.

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