Can Shanghai Surpass Hong Kong?

Abstract

This article compares the economic development of Shanghai and Hong Kong over the last 150 years in a bid to uncover why Shanghai fell behind Hong Kong despite its head start as an international financial center in the 1920s. It then examines whether Shanghai might eventually catch up with Hong Kong in terms of standard of living, technological innovation, infrastructure, creativity and social cohesion. Both cities were faced with new opportunities after the global financial crisis, and both are aiming at present to extend their capital markets. Although, since the 1990s, economic reforms have given Shanghai a breath-taking makeover, Hong Kong’s fiscal architecture is still more business-friendly. Hong Kong also possesses a higher degree of global exposure, and more efficient and transparent equity markets. Notwithstanding Shanghai’s “open-door” policy and lower cost of living, Hong Kong has proven more attractive to global talent. But Shanghai and Hong Kong will cash in on China’s rise in different ways, and the gap between two cities is therefore likely to narrow. Local Policy-makers are best advised to design complimentary business environments rather than trying to out-perform the other city in its area of strength.