Who needs Hong Kong?


'Asia's World City' is Hong Kong's latest tourism campaign

From Lisa Barron
CNN Correspondent Hong Kong

(CNN) -- At the stroke of midnight on June 30, 1997, Hong Kong returned to Chinese rule, and an uncertain future -- a future many feared would spell the death of the former British colony.

Nearly five years later very little has visibly changed, and fears of Hong Kong's political demise have proved largely unfounded.

But now the territory's economic viability is in question.

'Who needs Hong Kong?' queries the latest issue of Fortune magazine, published by CNN's parent company, AOL Time Warner.

The figures are alarming: five years of deflation, unemployment at a record seven percent and declining asset prices.

As bad as the numbers are, the mood is worse.

"Hong Kong's bigger thing is why haven't we done better," explains Bob Broadfoot of the Political and Economic Risk consultancy.

"Here we're sitting looking at cities like Shanghai and cities like Beijing, which are doing a very good public relations campaign as to why they're emerging commercial centers, and Hong Kong, some of its efforts to redefine itself are looking very disappointing."

One example he cites is the 1.7-billion-dollar hi-tech cyberport project, which opened last month with just three confirmed tenants.

Hong Kong also faces a shortage of skilled labor, and it is losing talent to cheaper cities on the mainland.

However, the territory is finally starting to capitalize on being a part of China.


Hong Kong is the regional base for nearly 1,000 foreign firms

"It's only been in the last three or four years that Hong Kong companies have had any realistic possibility of selling things into China," says financial consultant David Dodwell.

"So China is for the first time in our working lifetime becoming a domestic market in its own right that you can hope to sell to."

In the past year, official cross-border talks have built up Hong Kong's economic ties with the Pearl River Delta, China's fastest growing region which includes Macau and Guangzhou.

At the same time, Hong Kong needs to promote what distinguishes it from the mainland.

"We have all the things left behind by the British administration, the rule of law, an internationally acceptable legal system," explains Mike Rowse, director general of Invest Hong Kong, a government department set up in July 2000 to spearhead efforts to attract investment to the city.

"We have all the things we've given ourself, a tax system that's the envy of the world and wonderful physical infrastructure."

These features have helped in making Hong Kong the regional headquarters for nearly 1,000 foreign firms -- more than any other city in Asia.

And that's another reason to suggest that it may be premature to eulogize what the government is billing as the city of life, analysts say.