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1997-the dragon has two eyes

Graham Earnshaw

SHANGHAI, June 28, Reuter – THE Hong Kong official paused to consider the question: will the city of Shanghai overtake the territory after it reverts to China in mid-1997?

“The dragon,” he replied, “has two eyes.”

He was expressing the hope that while competition between the twin cities of Shanghai and Hong Kong is growing, there will be plenty of room in the ballooning Chinese economy for both cities to prosper.

Shanghai currently is China’s main financial centre, its biggest port and its most cosmopolitan city.

But all that ends in a year’s time, on July 1, 1997, when Britain hands Hong Kong and its international, sophisticated economy back to China.

In the longer term, Shanghai has a good chance to become China’s premier trade and finance centre, analysts say, given its size and location and solid industrial base.

But Hong Kong to the south will have for some years huge advantages -a free market economy, a convertible currency and stable laws and regulations.

It also has a promise from Beijing that under the “one country two systems” model, China will not interfere with its basic structure.

“if China practices ‘one country two Systems’, al-though I think they may not be able to do it, then Hong Kong Will continue to grow, helping China and helping other people,” said a senior accountant based in Hong Kong.

“But if China cannot fulfil its promise, then Hong Kong will disappear. They have the will, but as to whether they have the knowledge and ability to let it go on as it is, I cannot answer.”

China’s top official on Hong Kong, Mr Lu Ping, in a speech in mid-June, addressed anxieties that Hong Kong would lose its position as a financial centre to Shanghai.

“Shanghai is an economic centre within the socialist framework of China,” he said. “It does not have the ability to replace Hong Kong, and there is neither such a necessity.”

Political uncertainties aside, Hong Kong appears to have a huge lead over Shanghai in financial and infrastructure factors.

“Hong Kong is way oat in front and Shanghai is trying to catch up,” said Mr John Crossman, Shanghai manager for investment firm Jardine Fleming.

“For a lot of reasons, Hong Kong will be very strong competition. That’s where the investors are, that’s where the containers are shipped from. And as a banking centre, Shanghai is not even in the race,” he said.

Maybe the two cities can co-exist happily. After all, they have a lot in common. They are both children of British imperialism, both are major seaports, and both have a long history of contacts with the outside world.

“The Chinese leadership probably want to see Shanghai on top,” said a China business consultant in Hong Kong. “But that doesn’t mean Hong Kong will just disappear. Look at other countries – New York and Los Angeles get along okay.”

Shanghai-born stock broker Edmond Huang re-cently visited Hong Kong for the first time and found it superficially much like his home city, except that the flashy skyscrapers were more numerous.

“But I believe Hong Kong will remain one of the world’s top financial centres,” he added. “Shanghai is picking up quickly, but in the short term it can’t replace the strategic importance of Hong Kong. It will take at least 20 or 40 years.”

“There has been a lot of discussion about whether Shanghai will overtake Hong Kong, especially given the importance the central government attaches to Shanghai’s status as a future international finance centre,” said Hong Kong-born financial analyst Fan Cheuk Wan.

“But there is a complementary relationship between Hong Kong and Shanghai, and the key fund-raising role of Hong Kong is really important,” she added.

Chinese firms are increasingly looking to the Hong Kong capital markets as a source of funds and to the Hong Kong stock exchange as a place to list shares.

Some however feel it is only a matter of time before Shanghai over-shadows Hong Kong as an economic powerhouse.

“If China has an inter-national city, it will be in Shanghai, not Hong Kong and not Beijing either,” said Mr Hugh Peyman, managing director of Kleinwort Benson re-search, based in Singapore.

“Hong Kong will remain the interface between China and the outside world for 10 years or more. But it is a function that will move to Shanghai when Shanghai is ready,” he added.

Shanghai’s main advantage is its location – it sits at the mouth of the Yangtze River, the economic lifeline of central China, and it is the main port for the east China region with its huge population and economic growth rates in excess of 10 per cent a year.

Its big problem is transport infrastructure.

Hong Kong’s main container terminal at Kwai Chung shifts around 12 million containers a year, more than any other port in the world. Shanghai’s congested, silt-filled port can currently only handle around 1.5 million containers a year.

“Kwai Chung is the only reason Hong Kong has a long-term hope,” said a foreign broker in Shanghai. “It supports indirectly or directly the whole financial industry there. The problem with Shanghai is: where is the container port, where is its Kwai Chung?” REUTER

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