Fading Dragon

The word in Asia is that Hong Kong may be a has-been. In April, Chinese officials announced they want Shanghai to become a global financial center by 2020. Premier Wen Jiabao then told Hong Kong to raise its game or face decline—chilling news for the Hong Kong Stock Exchange, where more than 70 percent of daily trading is in shares of Chinese mainland firms, many of them state-run enterprises that Beijing could easily order to trade in Shanghai. Like most financial centers at the moment, Hong Kong is in a drastically weakened state: GDP shrank 7.8 percent in the first quarter of 2009, even as China's continued to grow. So, Hong Kong is looking to expand beyond financial services, on which its entire economy is now based. It's adapted before; in the span of 50 years, Hong Kong went from selling cheap plastic flowers to becoming a global financial capital. One possibility is to rebrand it as a consulting hub, helping less-sophisticated Chinese businesses sell themselves to international audiences. For now, at least, Hong Kong still has key advantages over Shanghai, including a fully convertible currency, as well as the perception that it's a fairer, better-governed financial capital than Shanghai. Should it lose that, though, it's sure to become, as former Chinese premier Zhu Rongji predicted a few years back, Toronto to Shanghai's New York.