Report: Hong Kong Becoming ‘Mere Second-Tier’ Chinese City

HONG KONG — Hong Kong is losing its edge as a global financial and commercial center, and the territory’s economic clout will be overshadowed by China’s major cities by 2022. That’s the argument in an August 27 report released by Trigger Trend, an independent Chinese research firm based in the southern metropolis of Guangzhou. The report emerged just days before Beijing declared it would not countenance open nominations in the planned 2017 popular election for Hong Kong’s chief executive, and its findings are likely to stoke further anxiety about the former British colony’s economic and political future.

In the wake of Beijing’s decision, Hong Kong’s democracy advocates now face a hard choice between carrying out what some have called a "nuclear option" to occupy the city’s Central financial district en masse, which could disrupt businesses, or swallowing what they call a "fake election" for the Chief Executive, the head of Hong Kong’s government. Either way, Beijing says it does not plan to yield to acts of civil disobedience in the special administrative region, even if protests make investors or business owners jittery.

In taking a hard-line stance against granting true democracy to Hong Kong, the Chinese government has made clear to the rest of China — as well as Taiwan, which Beijing considers a rogue province — that threats of civil disobedience will not lead to political concessions. The central government probably also believes that it can now cast a menacing shadow over Hong Kong with its increasing economic weight. The report by Trigger Trend does not appear to be commissioned by the Chinese government, but the report’s conclusions have been widely publicized in mainland media and align nicely with the central government’s unspoken message to Hong Kongers: The special administrative region is no longer very special.

To bolster its claim, the report states that Hong Kong’s annual GDP growth rate has hovered around two percent in recent years, while major regional centers in China have been growing at over seven percent per year. Hong Kong’s 2013 GDP, at an estimated $261 billion, already pales in comparison to Shanghai‘s, at $354 billion, and Beijing‘s, at $317 billion. The report also states that at the time of its handover from the British in 1997, Hong Kong’s GDP was 15.6 percent of China’s national total; by 2013, the city’s share had shrunk to 2.9 percent.

According to Trigger Trend, if current growth rates continue, the southern cities of Guangzhou and Shenzhen as well as the northern municipality of Tianjian will likely overtake Hong Kong in terms of GDP by 2017. Inland metropolises such as Chongqing, Chengdu, and Wuhan will catch up by 2022. "In the ranking of Chinese cities by economics, Hong Kong may become a mere second tier city" by 2022, the report warned.

As the mainland’s foremost commercial city, Shanghai is often seen as Hong Kong’s direct competitor. Shanghai announced the establishment of a free trade zone (FTZ) in Sept. 2013, setting up tariff-free ports and offering tax and policy breaks to foreign investors. While the Shanghai FTZ has so far offered more hype than substance, Hong Kong’s policymakers have warned that its businesses must be prepared for competition. Some in Hong Kong, particularly members of its business community, have also bought into the logic that the fight for democracy harms the territory’s economic competitiveness, or at least presents a serious distraction from the issues that concern Hong Kong residents’ livelihoods, like employment and social welfare.

But Hong Kong’s position as a global financial center rests on more than just the size of its GDP. The city boasts superb infrastructure, a well-established legal system, and a cosmopolitan culture that no mainland city, including Beijing or Shanghai, has yet been able to replicate. In 2012, the Economist Intelligence Unit, a research outfit, ranked Hong Kong the fourth-most competitive city in the world, far ahead of Beijing (ranked 39th) and Shanghai (ranked 43rd). Hong Kong is also a much wealthier city in terms of per-capita income than its mainland peers. What’s more, it remains a golden goose for China in terms of its function as a gateway to international investment and human capital. Investors, expatriates, and new immigrants flock to Hong Kong because the city is perceived to be more livable, with safer food, cleaner air, freer media, and a fairer judiciary than Chinese metropolises.

The hard data on Hong Kong’s decline in economic clout relative to the mainland may be undisputable, but it remains a first class global city on the strength of its soft power. Hong Kong’s ability to maintain its advantages is largely based on its relative political autonomy from China and the strength of its civic institutions — the very things that recent rumblings from Beijing imperil. Should it lose its uniqueness, Hong Kong’s future as a second tier city in China is all but assured.