The principles of free trade, a low tax regime and an open and transparent market are Hong Kong's institutional strengths, while its practice of common law provides the foundation for the rule of law and financial market development.

The era of the nation's reforms and opening-up created positive spillover effects for the city's economy, with the Chinese mainland offering manufacturing bases and market entry for enterprises and professionals from the special administrative region. As the national economy continues to develop, the mainland has become a major purchasing power for the SAR's high value-added services in financial products, tertiary education, legal services, trade and logistics, as well as tourism experience, to help Hong Kong transform into a services-oriented economy.

But the city's development path is at a crossroads. Hong Kong must review its roles constantly as the mainland's economic development is changing rapidly.

Richard Wong Yue-chim, provost and deputy vice-chancellor of the University of Hong Kong, says Hong Kong's institutional strengths worked well from 1960 to 1990, when the local economy was a manufacturing powerhouse and a trade hub. But when the economy transformed itself into a services economy from the 1990s, market regulations set in, leading to diminished market competitiveness and openness. And after years of reforms and opening-up, the mainland has emerged to compete with Hong Kong in various fields.

Since Hong Kong returned to the motherland in 1997, Hong Kong's economy has gone through several troughs, including the 1998 Asian financial crises, the 2003 SARS (severe acute respiratory syndrome) outbreak and the global financial crisis in 2008, followed by social unrest in 2019. Stringent anti-COVID-19 measures taken from 2020 to 2022 seriously dented the city's competitiveness.

Strategic moves

The SAR is struggling to make a comeback on the world stage, with some companies quick to explore the city's potential.

Established in 2012, mainland-based UBTech Robotics Corp set up an office in Hong Kong before going public on the Hong Kong Stock Exchange last year. It now serves 900 corporate clients from more than 50 countries, focusing on artificial intelligence education, smart logistics, gerontechnology and commercial services.

The robotics manufacturer picked Hong Kong for its operations, confident the city can help it link up with the world in areas like technology, talent and finance.

"We want to leverage Hong Kong's advantage in university research and internationalization to drive our technology solution commercialization, and continue to develop Southeast Asia, the Belt and Road countries and regions, as well as other overseas markets," says UBTech Robotics Chief Brand Officer Michael Tam.

Hong Kong is a global talent hub that can attract expertise in robotics and artificial intelligence science to the city, backed by an established supply chain in Shenzhen, Guangdong province, and the Pearl River Delta area. As a traditional, innovative financial hub, the city can help technology startups reach overseas markets.

In the next three to five years, UBTech Robotics will get its research center going at Hong Kong Science Park when the Guangdong-Hong Kong-Macao Greater Bay Area market, is poised to lead the world in terms of market size, technology prowess, talent convergence and industry chain comprehensiveness, says Tam.

With more than 5,000 logistics vendors and over 50,000 registered payers, US-based logistics payment fintech service provider PayCargo has also chosen Hong Kong as its first Asian market.

"We decided to make Hong Kong as our first base in Asia, primarily driven by the fact that the city is the world's largest air-cargo hub. Hong Kong is also a financial hub that helps us to locate the right partners and provide the necessary payment services for our logistics customers. Hong Kong has a very reliable judiciary system, and this is also part of our decision," says Morgan Law, PayCargo's Asia commercial director. "Hong Kong's value is not merely the size of its market alone. Its role in Asia can help us build and lift our business in the region."

Navigating economic shifts

PayCargo believes Hong Kong must maintain its position as the world's busiest cargo hub, an open business environment and its low tax regime in the future. When mainland and overseas enterprises see that potential, Hong Kong's business leaders are convinced that new growth engines must be found.

Kwok Kwok-chuen, former chief executive officer of the Hong Kong Academy of Finance, says the SAR's four key economic pillars have come under strain in recent years. "Hong Kong's transshipment trade has been hit as the mainland conducts direct trade with overseas countries, along with the rise of 'China-Plus-One' strategy. Enterprises avoid investing only in China and diversify their supply chains and manufacturing activities to other developing economies. The rise of technology also undermines Hong Kong's middleman role."

Kwok says although the traditional trade and logistics sector is going through a hard time, Hong Kong can find other sources of high value-added businesses, such as aircraft leasing, green logistics and maritime services comprising ship management, ship broking, ship finance, maritime insurance and law.

As more mainland corporations build up economic and trade links with the Middle East, the Global South and Association of Southeast Asian Nations (ASEAN) countries, Andrew Fung Hau-chung, executive director and chief financial officer of Hong Kong-listed Henderson Land Development Co Ltd, says Hong Kong should reposition itself as the non-US dollar financial center, apart from the traditional stock and bond markets, and the initial public offering business.

This is because business opportunities arise from the growing number and size of the financial transactions between these parties, conducted in their local currencies or in renminbi.

Fung sees Hong Kong developing the non-US dollar payment business, and luring international banks to maintain or expand their foreign exchange businesses in the city amid the country's renminbi internationalization push.

As Hong Kong still has a niche in cross-border trade settlement, Fung notes, the central government can consider allowing more mainland corporations to set up global treasury management centers in the city when they increase their overseas direct investment and do commodities trading with the Middle East, Global South and ASEAN.

Hong Kong can further diversify its status as a global finance center with initiatives to transform the city into the world's physical gold trading center besides London. "This can entice some Middle East and Global South countries to use Hong Kong's gold trading market for financial risk diversification," says Fung.

As Hong Kong steps up economic cooperation with the Middle East and ASEAN, lawmaker Tan Yueheng, who represents the Election Committee in the Legislative Council, says it is vital to act as an integration platform to better connect Middle East funds with ASEAN's financing needs and provide more business opportunities for Hong Kong.

Tan, who also chairs BOCOM International Holdings Co Ltd, argues that Hong Kong must accurately locate its unique advantage in large-scale project financing, consider attracting infrastructure projects under the Belt and Road Initiative to choose Hong Kong's fund-raising platform, and maintain political stability, a sound legal system, transparency and a high degree of internationalization to draw ASEAN and Middle East capital for investment diversification.

Frederick Ma Si-hang, who was the SAR's commerce chief from mid-2007 to mid-2008, and head of financial services between July 2002 and mid-2007, paints a bright picture of Hong Kong's future. "Hong Kong's seven unique characteristics are a stable financial market, its global financial hub status, an independent judiciary, the free flow of capital and talent, internet freedom, quality education, and its efforts to attract global professionals," says Ma, who is now chairman of FWD Group.

"If we can keep and strengthen these characteristics, and I am confident the motherland will preserve them under 'one country, two systems', Hong Kong will and can scale new heights."