The rule of law is fundamental to Hong Kong's success. The latest steps taken to help Shanghai fulfil its ambition of becoming a global financial centre serve to reinforce the importance to our city's future of the rule of law. The State Council this month endorsed Shanghai's plan to open the mainland's first free-trade zone as a testing ground for reforms that would free up cross-border commodity and capital flows - until now one of Hong Kong's main contributions to the national economy. The government is expected soon to unveil policies covering areas from financial services to transport. Until now, Shanghai's ambition has led to more talk than action. However, the new leadership under President Xi Jinping is seen as being more reformist and supportive of Shanghai's growth as a global hub. After a meeting chaired by Premier Li Keqiang , the council said the Shanghai zone would be a snapshot of an "upgraded Chinese economy" - in other words a pioneer of reforms needed to sustain healthy economic growth.

Initially, officials said later, Shanghai would expand its existing bonded areas until they formed a large free-trade territory set for financial liberalisation. Li is also reported to have approved a plan to allow foreign banks to set up subsidiaries in the free trade zone, and to have signed off on a plan to allow foreign commodities exchanges to set up their own futures delivery warehouses there, which would save costs for domestic commodities buyers. This is good news for HKEx and its new subsidiary London Metal Exchange. Otherwise, the Shanghai zone poses a real, if not imminent threat to Hong Kong's position as a leading financial centre.

However, while there may be positives in the plan for a range of businesses, there is still something missing that is to Hong Kong's advantage - the rule of law and the certainty of contract enforcement. The mainland has no legal system comparable with ours. Hong Kong cannot, of course, sit back and rely on this advantage to retain its competitiveness. Its renowned capacity for innovation and adaptation, a can-do ethic and hard work will also be called upon. Shanghai officials are said to be taking a long view and have started drawing up a blueprint for the city's development between next year and 2049. This is a chance for Hong Kong to consider what other competitive strengths and advantages are worth consolidating in the next decade or two to help defend the city's position.