In June 1995, two years before the return of Chinese sovereignty, veteran Fortune Magazine correspondent Louis Kraar confidently predicted the “death” of Hong Kong in its “role as a vibrant international commercial and financial hub” and that it would become another Chinese city indistinguishable from others, although one “where you can make plenty of money.”

Two years later, competitiveness expert Michael J. Enright, along with international lawyer, Edith Scott, and former Financial Times correspondent David Dodwell, challenged that prediction. In their book, published in 1997 just before the handover, they denied the doomsday narrative and argued that Hong Kong occupied an “array of unique roles: a capital base for tens of millions of overseas Chinese; a magnet for mainland investment; and a developer of dispersed manufacturing practices that were both driving, and benefiting from, globalization (South China Morning Post, June 24, 2022).

In this issue’s Q&A with Enright, AmChamHK e-Magazine editor Edith Terry asks if it is still true that “Hong Kong’s economy and its industries are likely to be able to ride out even relatively substantial storms.”

Q. Looking back at The Hong Kong Advantage, do you think you got the Hong Kong story largely right? In broad terms, do you still believe that “Hong Kong prospers…because the seamless nature of Hong Kong’s local and overseas business communities fosters a level of interaction that is unmatched in Asia and the world”? (South China Morning Post, April 7, 1997).

A. Did we get it right? Of course we got it right! What do you expect me to say?

Seriously, the Hong Kong Management Association held a daylong seminar in 2007 at the 10 year anniversary of the Hong Kong Advantage to see how well our thesis had held up. There were a few similar seminars elsewhere focused the overall Hong Kong story.

The conclusion then was that we had gotten it remarkably right. Back in 1997, my co-authors Edith Scott and David Dodwell and I wrote that the “death of Hong Kong” was not imminent, Hong Kong would play a much expanded role as an intermediary between China and the rest of the world, Hong Kong’s interaction with the rest of the Pearl River Delta would become much more important, and “One Country, Two Systems” would work, at least for the foreseeable future, because it was in everyone’s interest to make it work.

All of this seems obvious today, but back then foreign analysts were writing Hong Kong off, there were questions about Hong Kong’s roles, people underestimated China’s development, some were leaving Hong Kong, few could even name all the Pearl River Delta cities, and many expected “One Country, Two Systems” would last three to five years if that. In the runup to the change of administration in 1997 nearly 100 international news organizations contacted us. When they learned we were upbeat about Hong Kong’s future about 80 of them immediately asked us to refer them to someone who wasn’t. They didn’t believe us. Some thought we were crazy.

We did write that the interaction between local and foreign businesses was more fluid in Hong Kong than anywhere else in Asia. That is still true, and it is an advantage. But Singapore is very close, Shanghai is getting there, and several Chinese Mainland cities are sufficiently user-friendly that when combined with local market size and productive capacity, the argument to locate in the Mainland is often compelling. Seamless interaction within the Hong Kong business community still helps, particularly for finance and management, but it is not decisive today.

We also projected that if Hong Kong’s position as a regional headquarters for multinational corporations would be challenged, it would not be by Shanghai or Singapore, but by shifts of corporate structures away from North Asia Pacific/South Asia Pacific structures to Greater China/Rest of Asia structures. That is largely what has happened, even for many Chinese companies, with a combination of Shanghai/Singapore often winning out over Hong Kong for regional management roles. It is not that another city has outcompeted Hong Kong, it is that some of the roles Hong Kong used to play don’t exist as such anymore.

Q. In your latest book, Developing China: The Remarkable Impact of Foreign Direct Investment (Routledge, 2016) and its section on Hong Kong, you argued that Foreign Direct Investment (FDI) has a multiplier effect far beyond its face value, and that Hong Kong, as the largest single investor in China in stock terms, was also the pioneer accepting frontier risk well before multinational investment came into play. In 2022, Hong Kong contributed about 35% of inward FDI to China at a time when overall investment has declined. Light industry has been replaced by real estate and other sectors. How do you view Hong Kong’s current role in the Chinese economy?

A. Hong Kong companies were clearly the early movers into the Chinese Mainland after its economic opening. Hong Kong companies had enough local knowledge, the ability to go back and forth to manage investments, and sufficient knowledge of global markets to leverage Chinese labor and resources for global markets. This made them more able to take the risks of entering the market than others. Edith Scott, David Dodwell, and I described this in the 1997 Hong Kong Advantage and then Edith Scott, Ka-mun Chang, and I updated that analysis in the 2025 Regional Powerhouse: The Greater Pearl River Delta and the Rise of China (John Wiley, 2005) and I updated it again in the 2016 book.

Hong Kong’s role as an inward investor for the Mainland has changed. Hong Kong companies were leaders in China’s initial opening, established export-oriented businesses, helped build some of the initial infrastructure, brought international caliber business practices, and provided access to international markets. Today, other companies have become as knowledgeable about China, the Mainland has more than enough investment capital, international companies and sourcing offices can access Mainland resources, and Chinese companies themselves have become very strong and capable.

Hong Kong still provides expertise in particular sectors and a potential base for companies accessing the Mainland. But much of the investment through Hong Kong either comes from the Mainland itself or from elsewhere and is deployed through Hong Kong offices. The investments from Hong Kong companies are in sectors that help the Mainland’s development and facilitate the creation of new business. But the investments that are cutting edge in the Mainland today are not in industries where Hong Kong has much ability. Hong Kong has no Apple Inc. (AAPL.US) investing US$250 billion in China over five years, or BASF SE (BAS.DE) investing US$10 billion in a single petrochemical complex in Guangdong, or Tesla, Inc (TLSA.US) investing US$2.5 billion in cutting-edge electric vehicle (EV) and battery factories in Shanghai.

Today, Hong Kong is more a financial transit point for foreign investment to and from China as compared to the days when Hong Kong companies were setting up their first factories in the Mainland. That is true for large-scale investments serviced by the Hong Kong financial sector, the Hong Kong offices of venture capital companies funding startups in the Mainland, and the Hong Kong Stock Exchange raising international capital for Mainland firms.

Q. Hong Kong’s role as external financial platform for China has only grown stronger as US-China politics have led to de-listings from Nasdaq and the New York Stock Exchange (NYSE) as well as dual listings. In 2023, mainland companies accounted for 76% of the market capitalization of HKEx, despite a two-year market slump in IPOs. How do you view Hong Kong’s role as a financial gateway for China? Is this a temporary or permanent feature.

A. Yes, Hong Kong’s role as a China financial platform has grown stronger and that is very interesting business that shows there are opportunities as well as challenges for Hong Kong arising from East-West tensions and restrictions. The question there is whether foreign governments will restrict investors from investing in Chinese companies no matter where the listing is located. Beyond that, Hong Kong should have an important role as long as the Mainland’s capital account and markets are closed. There is no particular indication this will change soon. Hong Kong’s financial sector is also benefitting from expanded access to the Mainland market through the Closer Economic Partnership Arrangement (CEPA), the Greater Bay Area (GBA) program, and other initiatives. The ability to provide a wider range of services to Mainland customers is another significant development for Hong Kong.

Q. In broad terms, looking at the Greater Bay Area, has Hong Kong become a knowledge industry multiplier for Shenzhen? Some pieces of evidence are the two university hospitals and Hong Kong Science Park’s new branch in Shenzhen. The Hetao innovation cooperation zone in Shenzhen already has a quantum-computing center, data exchange and institute for cooperation with the BRICS group (Brazil, Russia, India, China and South Africa, now expanding).

A. Hong Kong’s position in the Greater Bay Area has changed dramatically. In 1997, Hong Kong’s Gross Domestic Product (GDP) was three times that of the nine Guangdong GBA cities combined. Today, the nine Guangdong GBA cities have a combined GDP more than four times Hong Kong’s and both Shenzhen and Guangzhou have economies much larger than Hong Kong’s. Hong Kong has become more of a follower and less of a leader in the region than it once was.

The biggest opportunity for Hong Kong in the GBA is for Hong Kong companies to serve the local market of the US$2 trillion economy in Guangdong. There are opportunities in nearly every industry and activity if one knows where to look. The second biggest opportunity is for Hong Kong companies to use their financial, managerial, marketing, and logistics know-how to provide supporting services for the cities and companies in the GBA. This could mean connecting some of the less advanced cities like Jiangmen, Zhaoqing, and Huizhou to the rest of the world; connecting Shenzhen tech companies to international venture capital; and so on. The third biggest opportunity for Hong Kong is to attract the international operations of Mainland companies, not just from the GBA, but from all over China. Just as Hong Kong has served as a bridge into China, it can now provide a bridge from China due to its free flows of funds, information, people, and goods. These are by far the largest opportunities for Hong Kong in the region. We have to remember that Hong Kong is no longer the lead economy in the GBA, it is a city of 7.5 million in a region of 87 million or more, a region with incredible dynamism, technological capabilities, and entrepreneurship.

Hong Kong and Hong Kong entities may participate in the GBA’s tech and knowedge economy drive, and may provide knowledge inputs in some areas, but the impetus is from the Mainland, the resources from the Mainland dwarf those from Hong Kong, and the leading firms driving tech development in the region are from the Mainland, not Hong Kong.

Q. Hong Kong’s international reputation has once again taken a beating, through the protests, Covid lockdown policy, and difficulties attracting multinational business in a time of fragmented globalization and US-China conflict/competition. Has its time finally passed? What are your views on the macro forces that will make or break Hong Kong going forward?

A. Hong Kong’s reputation has suffered internationally. When Hong Kong appears in the Western press today it is usually about the National Security Law and court cases. Quite frankly, it would be better for Hong Kong not to appear in the international press at all. There is also a lingering fear that another pandemic could result in lockdowns in Hong Kong, the Mainland, or both. The China story has also changed, with slower growth, demographic challenges, and a perception of increased scrutiny and assertiveness by the Mainland Government.

There are ongoing dangers of Hong Kong getting caught between Washington and Beijing. The United States has already revoked Hong Kong’s special status for certain trade matters.  The bigger concern is that while in 1997 it was clearly in the interest of all parties to make “One Country, Two Systems” work, Hong Kong is less important to the Mainland as it once was, any decline in Hong Kong would be less of a loss of face to either Beijing or the United Kingdom today, and the US is likely to view Hong Kong through the lens of its geopolitical, economic, and technological rivalry with China, rather than through the lens exclusively focused on Hong Kong. What was a remarkably supporting environment for Hong Kong for many years is changing.

Having said that, Hong Kong is far from “over.” Its roles are changing and it occupies a smaller share of a much larger economy. It is more the little brother or sister than the big brother or sister it once was. But it still benefits from excellent business infrastructure, from its separate economic system under “One Country, Two Systems,” and its location in one of the world’s most dynamic regions. Hong Kong continues to grow and attract business talent and continues to benefit from a global outlook. These are advantages that can be used to develop businesses in Guangdong and the rest of China, the rest of Asia, and in Belt and Road Initiative countries around the world. They can be used to promote outbound as well as inbound China business. The challenge is that many of the opportunities may be in businesses or locations where Hong Kong companies and people do not have much experience. That is one reason why Hong Kong, Hong Kong companies, and Hong Kong people should not wait for opportunities to drop into their laps, but should go out to the rest of the GBA, the rest of China, the rest of the BRI economies, and the rest of the world. It is also why Hong Kong needs to continue to be open and supportive to local companies and companies from the rest of the GBA, the rest of China, the rest of Asia, and the rest of the world. 

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