Hong Kong on the slide | FT
If anyone still has any doubts that Hong Kong is in trouble, they need only listen to Tung Chee-hwa, the territory's chief executive.
"Our economy is facing difficulties unprecedented since World War II," the city's grandfatherly leader said in his annual policy speech on Wednesday. The economy was in the throes of restructuring that would take a long time, he said, before adding weakly: "But that does not mean we should be pessimistic."
Against the backdrop of an ascendant Shanghai and Beijing, this widely held image, both at home and overseas, of Hong Kong in disarray risks tipping it into terminal decline. Some observers are already drawing parallels between Hong Kong and Venice, another oligarchy that declined after it lost its monopoly on trade with Asia - at the end of the 15th century.
Singapore, another rival base for multinationals, suffered after the Asian financial crisis but has managed to put a braver face on its troubles. The rapid rise of Shanghai, despite the fact that it still lags well behind Hong Kong on such fundamental issues as the rule of law, has further exacerbated Hong Kong's sense of insecurity. "With a couple of economic shocks in a row, people in Hong Kong are almost looking for problems. The rivalry with Shanghai is one of them," says Greg Dorey, head of political and economic affairs at the British Consulate General in Hong Kong.
But Hong Kong's problems are not purely economic. They are the result of a combination of political missteps, faltering public confidence and inadequate institutions. The debate over a new law mandated by Beijing has brought the relationship with China into focus. Last month, the government ended a consultation on proposed anti-sedition laws. The exercise raised anxiety about Hong Kong's political future to levels not seen since the handover. Commentators warned that the proposal indicated that the city's defences against mainland-style repression were rapidly eroding.
Nevertheless, Mr Tung's government has been more interventionist than its colonial predecessors. In 2001, Mr Leung quixotically mused about the high costs the Hong Kong dollar peg imposed upon the economy, prompting persistent whispering about the government's commitment to it even though he has since firmly backed the peg.
Business people argue that one of the peg's best features is that it cannot be changed easily, which they say is a virtue with a government that changes its mind so often. "I'm a great supporter of the peg because it makes the external value of the Hong Kong dollar apolitical," says Stephen Brown, head of research at Kim Eng Securities.
