Hong Kong has been shanghaied

It happened on March 5, as Hong Kong's chief executive visited Beijing. There, local media confronted Tsang with a Bloomberg News article pointing out that Shanghai's economy exceeded the size of Hong Kong's for the first time in at least three decades.

Tsang's retort was predictable: Shanghai's rise is “not a threat.” Here is mine: Who are you kidding?

For years now, Hong Kong has argued the city's uniqueness enshrined its prosperity. Its rule of law, economic freedoms and role as the gateway to China have trumped concerns such as long-term relevance and bad air quality. Also, investors haven't made lots of money betting against Hong Kong.

Yet the day Hong Kong has long pooh-poohed is here. Shanghai is rapidly regaining its position as China's dominant financial center. And investors betting on Hong Kong's once- indisputable place in Asia should think again.

Financial Secretary John Tsang said last week that Hong Kong is at the early stage of a recovery. Its economy is growing at about 2.6 percent — not bad in a global context. The problem is the longer-term picture.

Here, Forbes magazine's latest billionaires list is worth considering. The headlines in Asia focused on “Superman.” That would be Li Ka-shing, whose fortune jumped 30 percent to US$21 billion over the last year. It was deemed good news; Li is often portrayed as personifying Hong Kong's ups and downs. The real story, though, was the wealth boom on the mainland. For the first time, mainland China has the most billionaires outside the U.S.

Perhaps that's as it should be, given China's 1.3-billion-person population. A similar argument can be made about gross domestic product. Shanghai has about 19 million people to Hong Kong's 7 million. According to 2008 figures, Hong Kong's per- capita GDP is US$30,977; Shanghai's is US$10,713.

Yet the trajectory is clear. Even if China grows more slowly in the next few years, its need for a middleman economy like Hong Kong's is dwindling. Shanghai is now China's biggest port and stock-market operator.

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