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Opinion.

Document Cited in Related
Vincent
AuthorAdams, Martin
PositionFinancial Management / August 2014 - Economic condition of china

To outsiders, Hong Kong seems to have little cause for concern about its future as a global financial hub. Positioned between China and the rest of the world both literally and figuratively, it seems ideally placed to prosper from the eastward shift of economic gravity. Yet people here are finding plenty of reasons to fret.

Its rivalry with old foe Singapore remains keen, while intensifying competition from Shanghai, which has a new free-trade zone, is stoking fear. Hong Kong's unique connection with the mainland sometimes seems more of a threat than an opportunity. As China's economy drops a gear and alarm about a debt bubble spreads, it's easy to foresee dire consequences for the special administrative region. The number of Chinese firms conducting IPOs on the Hong Kong Stock Exchange has fallen, too. Its newly tightened listing rules are proving a deterrent for the likes of Alibaba, which recently chose to float in New York--a blow for a city proud of its light regulatory touch. Even the quality of life in Hong Kong, portrayed as an advantage over upstart Shanghai, is tarnished by smog and some of the world's highest property prices. People are asking whether its days as a leading financial centre could be numbered.

Taking a step back, this list of worries is less than the sum of its parts. After all, the latest "Global financial centres index" compiled by the Z/Yen consultancy ranks Hong Kong behind only London and New York on competitiveness. Underpinning this status are strengths not easily eroded: Hong Kong's links with China and the benefits flowing from its legacy of British rule until 1997. A commercial environment founded on the rule of law gives it advantages over Shanghai, while this is the 20th consecutive year in which it has topped the index of economic freedom published by the Heritage Foundation, a US free-market think-tank.

This year the International Monetary Fund, while noting the risks facing Hong Kong's banks (loans to non-bank entities...

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