Hong Kong must leverage its international reach if it is to avoid being marginalised by the mainland's march towards full financial sector liberalisation and further integration into the global monetary system, according to a panel of experts assembled by the South China Morning Post.
"China's opening up means there is more, potentially, for everyone," said Anita Fung, the chief executive of HSBC in Hong Kong. "The real threat is to be complacent about it."
Speaking to about 150 senior executives drawn from across Hong Kong's economic spectrum, Fung was part of a high-level panel brought together by the Post to kick off a series of six seminars to engage the city's business leaders and top thinkers under the banner of "Redefining Hong Kong".
The first seminar focused on how Hong Kong could benefit from the evolution of Qianhai, the special economic zone in the west of Shenzhen that will lead the mainland's drive for a modern services sector - particularly in financial services and, significantly, in the liberalisation and internationalisation of the yuan.
Qianhai, which aims to raise US$7 billion of inward investment from 30 of the world's top 500 companies in its 2013-15 development phase, is regarded as a potential threat to Hong Kong's supremacy as the international financing centre for the world's second-biggest economy.
Video: See the highlights of the debate
Analysts reason that once the mainland's capital account is liberalised and the yuan fully convertible, Beijing's need for Hong Kong disappears.
Hong Kong settled about 80 per cent of all yuan-denominated trade in April - at an annual pace in excess of 350 billion yuan (HK$442 billion) - and is the location of choice for businesses and individuals to deposit offshore holdings of the currency, totalling about 700 billion yuan at the end of May.
With a stock market capitalisation of US$2.8 trillion at the end of last year that kept it ahead of Shanghai's US$2.5 trillion, Hong Kong has been the main route through which mainland corporates have accessed international capital markets for two decades.
Fung disagrees with the downbeat analysis and says the bigger risks are in ignoring that a more economically open China has already brought benefits to global trade and misunderstanding the role that Hong Kong, as the mainland's offshore financial centre, will play long term.
"We have to behave like an offshore centre," she said. "We need to be more adventurous."
That advice should be heeded beyond the financial services sector, says Nicholas Kwan, the Hong Kong Trade Development Council's director of research.
Kwan said the Qianhai zone was created to drive six sectors of the services industry - finance, tax, legal, human resources, education and telecommunications. Meanwhile, Beijing's policy of economic rebalancing away from manufacturing for export to driving growth through domestic consumption necessarily had the services industry at its core.
"The depth and breadth of what's needed should not be ignored," Kwan said.
Hong Kong is a net exporter of services. It sold US$127.7 billion worth of them last year, about 48 per cent of GDP, and recorded an overall services surplus of US$69.7 billion. Those figures make Hong Kong one of the most successful service economies - expertise that Beijing must tap into if it is to recalibrate the economic engine.
Services account for about 80 per cent of GDP in the United States, but only 40 per cent of China's GDP, according to data from the World Bank.
Rebalancing those numbers implies a massive opportunity nationally for firms in the services sector, particularly those with niche expertise that mainland companies lack.
Thomas Lee, the chairman of the Hong Kong Federation of Insurers, pointed to the potential for Qianhai to create a wave of "captive" insurance vehicles for major firms that can take advantage of lower taxes and easier cross-border capital movements.
Captives are entities owned and funded by corporations to self-insure risks, instead of buying traditional protection. They are typically based in low-tax environments. Qianhai's tax rate will be set at 15 per cent. The official mainland corporate tax rate is 25 per cent.
Sally Wong, the chief executive of the Hong Kong Investment Funds Association, said the city's global expertise would be vital to its future, regardless of the size of the potential mainland market. "The mainland dimension of course is crucial, but of equal importance is the international dimension of the city," she said.
Qianhai is a 15 square kilometre zone on Shenzhen's west coast designated for the development of modern services industries on the mainland in six main areas - financial, tax, legal, human resources, education and telecommunications. All infrastructure investment in the zone is due to be completed by 2015 and the total investment from the central government will be about 100 billion yuan (HK$126 billion) between this year and 2015. Following are the milestones in the special pilot zone's development.
August 2010: The State Council approves Qianhai as the pilot zone for a new collaboration between Hong Kong and Shenzhen as a test bed for the development of a range of service industries on the mainland.
June 2012: The State Council publishes 22 pilot policies for developing Qianhai, including experimentation in freer yuan usage, currency convertibility and cross-border yuan lending.
November: More than 180 financial enterprises register in Qianhai, accounting for 76 per cent of all companies registered, says Zhou Ziyou, the deputy head of the Qianhai Administration Bureau.
December: President Xi Jinping visits Qianhai as part of his first official tour after being appointed Communist Party chief, a symbolic trip seen by analysts as a restatement of the resolve of the country's new top leaders to push ahead with economic reform.
January 2013: Fifteen Hong Kong and international banks allowed to offer a combined 2 billion yuan of loans to companies in Qianhai. Two Shenzhen banks provide loans worth 620 million yuan to Hong Kong companies investing in the zone.
April: More than 500 companies' investment plans have been approved for Qianhai, 230 of which have already finalised contract details. About 75 per cent of projects are related to the financial services sector, according to the Hong Kong General Chamber of Commerce.
July: Qianhai announces rules to allow developers to bid for three commercial sites with a total gross floor area of 14 million sq ft at a combined reserve price of 14.92 billion yuan.
Standard Chartered Hong Kong and Shenzhen International, a Hong Kong-listed operator of logistics facilities and toll roads on the mainland, sign a one-year Qianhai cross-border bilateral loan agreement worth 100 million yuan.
Path to Yuan Liberalisation
February 2004: Personal yuan business in Hong Kong launched.
November 2005: Hong Kong residents allowed to exchange 20,000 yuan per day and remit 80,000 yuan per day.
July 2009: Mainland authorities launch pilot scheme for cross-border yuan trade settlement in five cities.
June 2010: Mainland authorities expand the scheme to cover 20 provinces and cities.
August: PBOC allows yuan clearing banks and other overseas eligible financial institutions to trade directly in mainland interbank market.
December: Authorities expand the list of eligible mainland enterprises that can participate in cross-border yuan trade settlement.
January 2011: PBOC announces pilot scheme for settlement of overseas direct investments in yuan.
March: Bank of China (HK) allows financial institutions to place funds directly with the PBOC's Shenzhen branch.
December: Launch of renminbi qualified foreign institutional investor scheme.
January 2012: HKMA allows banks to include yuan sovereign bonds and mainland interbank bond market holdings in their yuan risk management limit positions.
June: The National Development and Reform Commission identifies Qianhai as a testing ground for the introduction of freer convertibility of the yuan.
HKMA launches facility to provide yuan liquidity to banks engaged in yuan business in Hong Kong.
July: Hong Kong banks allowed to offer yuan services to non-residents.
January 2013: First cross-border yuan loans authorised with 15 banks in Hong Kong permitted to offer a combined 2 billion yuan in loans to companies in Qianhai.
April: HKMA removes the yuan net open position limit for Hong Kong banks and lifts the 25 per cent minimum liquidity ratio for yuan.
June: Hong Kong launches the world's first offshore yuan interbank rate fixing.