Hong Kong people know how to have a good time. Happy faces abounded during the Christmas week I was in my home town. Most of the better restaurants were packed with diners. Department stores and shops seemed to be doing a roaring business. An $800 (we're talking US, not Hong Kong, dollars) pair of shoes? "No problem, think of the money that can be made in the stock market these days," a husband was overheard saying to his wife.

At a popular camera shop in Mongkok, a salesman was showing a $600 digital camera to a customer. After playing with it for a few minutes, the customer, not the salesman, pronounced that it was a real bargain. Not only did he buy the camera, he also bought two lenses and a $300 flash to go with his new toy.

For the more affluent segment of the population of this commercial town, these are the best of times since it was hit by the Asian financial crisis in 1997. The resulting stock market crash and the property market meltdown have now become distant memories.

The stock market is once again on the boil and property prices are shooting to near record highs.

In most other relatively advanced economies, prosperity is usually reflected in the increase in retail sales and a low unemployment rate. But in Hong Kong, the most trusted indicator is the property price.

On that front, the outlook seems to be totally rosy. It is often said that the stock market performance precedes the property market by at least six months. With the stock market index shooting to a record high of above 20,000 points, there is every reason to believe that the property market boom still has a long way to go before losing steam.

The surge in confidence in Hong Kong's economic future has touched off a spending spree. While the feel-good factor is on the climb, Hong Kong people should perhaps spare a moment from celebration to reflect on the economic fundamentals that have been worrying many economic planners. It must be born in mind that wealth in Hong Kong is generated mainly by adding value to the export of goods and services.

The traditional Hong Kong advantage in this respect is seen to be rapidly eroded by the fast build-up of large infrastructure facilities in various mainland cities, particularly Shenzhen and Shanghai.

For example, an increasing portion of mainland exports are now being shipped from mainland container ports rather than through Hong Kong as was done in the past. The loss in business to Hong Kong in this re-routing is not limited to cargo handling. A whole range of trade services, including logistics, quality control and packaging, is being moved to other ports of embarkation.

In the longer term future, the rapidly maturing capital markets in Shanghai will begin to pose serious competition to Hong Kong for long-term investment funds. Some major Hong Kong-listed "red chip" companies are already making plans to obtain an additional listing on the Shanghai Stock Exchange.

The growth of the Shanghai financial services sector has created a strong demand for supporting services, including legal, accounting and business consulting.

To be sure, the Hong Kong government, together with the private sector, is taking these potential problems seriously. But they have yet to produce a credible master plan to address the core issues of competitiveness that have been troubling economists for several years. There is nothing wrong with enjoying the good times. But let's not forget that wealth is generated by the export of goods and services.

Email: jamesleung@chinadaily.com.cn

(China Daily 01/09/2007 page10)