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SCMP Reporter

Hong Kong and Shanghai will engage more in complementary roles than as direct rivals in the coming decades, according to the Hong Kong Trade Development Council (TDC).

'The two are strategic partners serving as engines for growth in the Asia-Pacific region rather than head-on competitors,' the TDC said in report after canvassing seven key areas of the two economies.

The tone of the report fell in line with calls by Financial Secretary Donald Tsang Yam-kuen for closer links between the SAR and China earlier this month during a speech on the Budget.

The report noted Hong Kong is Shanghai's fourth-biggest trading partner and largest source of foreign capital, accounting for 42 per cent of foreign direct investment in 1999.

It went on to compare the two cities' strengths and weaknesses in seven areas.

Shanghai's financial industry expanded an average 16 per cent annually between 1990 and 1999. Its stock exchange is third in the region in terms of market capitalisation, behind Tokyo and Hong Kong.

A string of regulatory changes have either been passed or are in the works to rationalise the domestic financial markets. And Shanghai has hosted many of the experiments to further liberalise China's financial industry.

Recently, Reuters quoted domestic press as reporting that Shanghai plans to build a national market over the next five years to facilitate discounting of bank drafts and commercial bills.

Shanghai was also to expand its interbank, bonds, futures, foreign exchange, gold markets and the main board by 2005, said the Financial Times,  quoting vice-mayor Jiang Yiren.

Even with those improvements, 'the role of Shanghai's and Hong Kong's financial markets does not wholly overlap', said the TDC report. It said the latter would maintain a more regional focus while 'Shanghai's main role is mobilising domestic funds'.

Shanghai's aspirations would also be bound by China's legal, financial and business systems.

'It will take decades for Shanghai to replicate Hong Kong's free flow of information and international standards of practices.'

Likewise, TDC researchers expect Shanghai to emerge as the trading window for inland cities while the SAR retains its status as the trading hub for the Asia-Pacific region.

As the world's seventh-busiest container port, Shanghai cannot aspire to do more than pull in some feeder traffic from the SAR, the world's No 1.

Even after China's delayed entry to the World Trade Organisation, multinationals would continue to base their regional headquarters in Hong Kong, argued the report.

Shanghai would merely emerge as the favoured nerve centre of their China operations.

On the human-power front, the TDC said Shanghai's heavy engineering and science focus would have to be complemented by Hong Kong's business and managerial expertise.

Even in the new economy, 'information matters more than technology', TDC chief economist Edward Leung said.



Rivalry not a factor for Shanghai, SAR