Introduction: integration, competition and erosion

Hong Kong’s ambition to maintain its position as an international financial centre – or even to become a more significant one, depends overwhelmingly on the market of mainland China (hereinafter the mainland, China or the PRC). China, however, provides a mixed blessing for Hong Kong in this regard, arising out of the inevitable co-existence of integration and competition between the two regions under Chinese sovereignty.

As the hub of China trade and investment for more than a century, Hong Kong has played a significant historical and current role in the development of the Chinese economy. Hong Kong’s importance for China, at least from an economic perspective, is beyond doubt. As noted by historian Steve Tsang, by 1997, the year Hong Kong was returned to China by the United Kingdom, ‘Hong Kong had become the largest source of investments in a very wide spectrum of economic activities and the most important capital market for the PRC … It was the PRC’s key trading partner, middleman, financier and facilitator that underpinned the economic reform of Deng Xiaoping.’ In short, ‘Hong Kong’s economy did not merge into that of the PRC in 1997 but the two economies had by then become so intricately linked that the wellbeing of one had become crucial for the other’.