It has been said time and again that Hong Kong has no asset but its people.

Indeed, it was the talent and hard work of the people that turned this "barren rock" into a vibrant financial centre.

The regional economic environment has gone through several sea changes in the past. But every time, Hong Kongers could fend off the challenges and exploit the opportunities to their benefit.

Of course, they owe at least part of their past success to a largely non-interventionist government and a fiercely independent judiciary. Such a political and social environment has provided the flexibility and security for many entrepreneurs to constantly adapt their businesses to meet changing market demands.

But it takes people with a keen business sense and a willingness to take risks to adapt so well to changes that were mostly outside Hong Kong's control. Without them, Hong Kong would probably have long ago regressed into a remote trading outpost, its spectacular harbour notwithstanding.

Many successful entrepreneurs in Hong Kong are first- or second-generation immigrants from the mainland. Recognizing the past contributions of mainland immigrants, Hong Kong should be making serious efforts to entice young talents from around the country.

The success of such efforts could be decisive in the future of Hong Kong as it makes its transition from a provider of traditional services to a knowledge-based economy. This is not just an empty slogan. If it fails to make this transition, Hong Kong could become truly irrelevant to the mainland's economic development.

Hong Kong's role as a trans-shipment centre for the industrial hinterland of the Pearl River Delta is diminishing rapidly as more and more goods are diverted to the new container ports in Shenzhen and other cities. This is just one example showing that Hong Kong can no longer compete with many mainland cities in providing traditional services.

This is not the end of the world for Hong Kong. The nature of the challenge is not new to Hong Kong either.

Memories of the massive exodus of industries to the Pearl River Delta in the 1980s are still fresh in many Hong Kongers' minds. Despite the hollowing out, Hong Kong did not collapse. Instead, it took the opportunity to transform itself from a low-cost manufacturing base into a high-value-added services centre.

During that time, many factories were closed and hundreds of thousands of workers were laid off. But most of these workers were quick to adapt to the new economic environment, learn new skills and find employment in the services sector.

Now, Hong Kong is facing competition from many lower-cost services centres on the mainland. The opening of the mainland's banking sector to foreign financial institutions could lead to a gradual shift of at least some financial services to Shanghai. Many foreign banks in Shanghai have already begun to look for larger premises to expand.

Driving down costs to compete with Shanghai or any other mainland city is totally untenable. The erosion in living standards would have made such a move completely meaningless. What's more, it may not work because the competitors all enjoy other advantages, such as proximity to the markets and well-established connections with prospective clients.

The way to go is to move further up the value-added chain. To compete, Hong Kong will have to nurture talents who can produce new solutions by leveraging on its distinct advantages, which include the rule of law, free flow of information and a pro-business administration that is relatively free of corruption.

In addition to training its own, Hong Kong has been scouting for talents from the mainland with various degrees of success. Many mainland university graduates have expressed an interest in moving to work and live in Hong Kong not only by the promise of higher pay but also by the more open social environment.

A personal friend of mine from Guangzhou has told me that her ambition was to find a good job in Hong Kong after graduating from business school at a top US university. If she comes, it will be a net gain for Hong Kong.

Another friend from Shanghai won a scholarship to study for a master's degree in journalism at a Hong Kong university. She wants to stay and work in Hong Kong after graduation because she is captivated by the vibrant lifestyle and creative energy of the young people there.

But she is worried that she may not be able to find a job in Hong Kong because not many employers are willing to go through the arduous process of securing a work permit for an inexperienced mainland candidate. It would be a waste for Hong Kong if she were forced to leave after obtaining an advanced degree.

Perhaps the Hong Kong government can find a way to make it easier for young mainland talents to make Hong Kong their home. The contributions they can offer to the transformation of Hong Kong to a "knowledge-based economy" seem obvious.

Email: jamesleung@chinadaily.com.cn

(China Daily 09/08/2006 page4)