As the HKSAR celebrates its 16th anniversary on Monday, alarm bells have sounded - the global financial competitiveness and luster of the 'Pearl of the Orient' are waning. Is it a time for celebration or a time to reflect on what may be going wrong? SL Luo examines the possible remedies.

On Monday, Hong Kong marks the completion of its 16th year as a Special Administrative Region of China.

It all began on a confident note, marked by auguries of good fortune on July 1, 1997 as Hong Kong prepared to take the full measure of its standing not only as a financial center of global importance, but as the gateway to the People's Republic of China.

Reason enough for the high spirits was the fact that after 150 years under British rule, the people of the city had become masters of their own destiny - the city's leaders were brimming with confidence that the promise of "One Country, Two Systems," would be fulfilled and the city would have a high level of autonomy.

Sixteen years later, the principle of "One Country, Two Systems" remains the guiding light illuminating Hong Kong's path forward. Practice inspired public confidence with support for the policy rising from 20 percent in 2005 to 60 percent in 2008.

One of the keys to inspiring confidence among the people was the decision by the National People's Congress Standing Committee, in 2007, to allow for the Chief Executive to be chosen by popular vote in 2017, followed by all members of the Legislative Council in 2020. There were three other events of significance in 2008 which drew the bond tighter between Hong Kong and the motherland. The 2008 Beijing Olympic Games ignited the flame for an outpouring of national pride here in Hong Kong. That year also brought the Sichuan earthquake which stirred compassion among Hong Kong's people for those whose lives had been devastated by the cataclysm. Then, came the first spacewalk carried out by Chinese astronauts. The year that saw the onset of the 2008 financial crisis was a watershed year for cross border relations. Let it not be forgotten either, that the central government's economic recovery measures kept Hong Kong from sinking into the mire that devastated economies around the globe.

The bold economic reforms of Deng Xiaoping in the 1970's and the country's opening up to the world outside became part of the legacy that Hong Kong inherited upon its return to the motherland. Political, economic, cultural and social links between the HKSAR draw closer, year by year.

Hub status threatened

Nevertheless, the world around us isn't standing still and Hong Kong cannot afford to be complacent under Beijing's helping hands. The globalized economy is lean, mean and ferociously competitive.

Reports of Hong Kong's economic performance can be a little disturbing, casting a shadow over the city's once glowing self-image as the region's unrivalled and unassailable financial, business and trading center.

HKSAR already is losing out to mainland cities and sliding down the rankings, says the latest "Chinese City Competitiveness Report" from the Hong Kong-based China Institute of City Competitiveness. The report, which ranks the nation's provinces, municipalities, autonomous regions and special administrative regions, blames the lackluster economy and ceaseless political bickering that have made it difficult for lawmakers to get any work done, as big contributors to Hong Kong's precipitate fall from second to fifth place. The institute admonishes that Hong Kong needs to take a new look at competitive strategies - get away from its mesmerized fixation on handing the key to the city to the wizards of the worlds of finance and property development. More investment in research and development, greater integration in the nation's economic development are the right prescriptions to get the city back on the road to buoyant good health.

Guangdong, Jiangsu, Shandong and Zhejiang provinces took the top four spots in the rankings that dropped Hong Kong into fifth place. Taiwan, Shanghai and Beijing have moved up in the rankings to sixth, seventh and eighth positions. Macao was 13th.

Looking at future prospects - that is, growth potential, Hong Kong ranked 17th among Chinese cities.

The prestigious National Chinese Academy of Sciences also warned that Shenzhen is likely to surpass Hong Kong this year, as the world's third busiest container port.

The United States and Switzerland have thrust down the city's standing in global competitiveness ranking. Hong Kong no longer holds the crown, according to the Swiss-based Institute for Management Development (IMD).

The IMD cites Hong Kong's slow GDP growth, political squabbling, low spending on education, poor social cohesion arising from a wealth gap that fuels a widespread "hate the rich" culture. The cost of living here is infamous. Top talents from the mainland and overseas are inclined to think twice before moving into the city's "high rent" climate.

These liabilities have crept in and are demanding of attention.

Not only have the squabbles and social disharmony affected Hong Kong's competitive position, the well-being of the city's people has been harmed.

Part of the manifestation is the trend aggravating the political climate: the sudden surge of student militancy. Many of Hong Kong's young people have fallen prey to political demagoguery by opposition leaders intent on disrupting the city's social fabric.

The IMD report also noted the issue, arguing that Hong Kong is not a political city and that it should focus on economic development.

Legislator and Executive Council member, Jeffrey Lam Kin-fung, accused some politicians of opposing the government for their personal interests and for the votes, citing filibustering over the funding for the Hong Kong section of the Express Rail Link and the judicial review of the Hong Kong-Macao-Zhuhai Bridge project.

"We businessmen are realistic. While we look at the investment environment, we can't ignore what's happening around us. The 'Occupy Central' protests will only scare away investors. We should concentrate all our efforts on economic development," Lam says.

The opening up of major coastal cities on the mainland, including Shanghai, Tianjin and Ningbo, poses a direct threat to Hong Kong's traditional standing as the mainland's southern window to the world.

Hong Kong's economic advance has been further eroded by growing public disquiet over property prices, living costs, inflation and air pollution attributed to growing industrialization in the Pearl River Delta (PRD).

Property prices have continued to go through the roof despite the government's drastic measures announced in February this year to cool the market. Prices for even public housing estate flats have registered more than HK$11,000 per square foot, while a tiny 374 sq ft (37 sq meter) flat in the Western District goes for an astronomical HK$8.7 million. Many potential homebuyers, even those with higher incomes, have become priced out of the market. Many have been forced to quit for the mainland in search of greener pastures with cheaper, more comfortable accommodation.

Hong Kong remains one of the world's 20 most expensive cities. Its inflation stood at 3.9 percent in May this year, slightly below the average of 4.5 percent for the past two decades.

Where next?

Gui Qiangfang, president of the China Institute of City Competitiveness, suggests that the HKSAR strive to become more integrated with the mainland to reestablish its position.

He lists lack of strategic planning and innovation, added to rivalry with mainland cities like Shanghai and Shenzhen, among the chief reasons for the HKSAR's waning competitive edge.

The city's exorbitant commercial rents are driving small industries out of Hong Kong, says Terence Chong Tai-leung, executive director of the Institute of Global Economics and Finance at the Chinese University of Hong Kong.

"Only industries with good economies of scale in the use of land can survive. Investment banks and jewelers will be among the last survivors. The most important [policy] is to encourage diversity," he believes.

Political scientist Sung Lap-kung of the City University of Hong Kong argues much of today's social friction has accumulated over the years.

Poor social upward mobility and perceived injustices, he says, have moved more young Hongkongers to radicalism. "The vocal dissatisfaction has started to influence the direction of policy making, such as housing," Sung says.

Calls have also been made to urge the central government to intervene and negotiate with the indigenous community in the New Territories to get them to release more land for housing development in return for financial incentives, such as giving them a share in development projects.

More aid should also be extended to small and medium-size enterprises (SMEs) to help them diversify and invest on the mainland. Service industries should be upgraded and co-operation with the PRD stepped up to reduce air pollution. In trade and tourism, tough policies should be enforced to get rid of the black sheep and reward those who stick to the rules of the game.

Whether Hong Kong can regain its competitiveness and ride it out also relies a lot on how well we can attract and make talented people stay. Hong Kong must diversify and broaden its economic base, and create new investment opportunities and a level playing field for all who choose to remain, with tax incentives and free of discrimination.

Contact the writer at theam@chinadailyhk.com

Kahon Chan contributed to the story.

(HK Edition 06/28/2013 page1)