The argument is a familiar one. Hong Kong, Asia's self-proclaimed 'world city', is losing its international appeal and competitive edge as a major hub for commerce and finance. Escalating property prices and rents are eating into business opportunities. Worsening air pollution is eroding the quality of life and driving away talent. At the same time, the rapid ascent of Beijing, Shanghai and Shenzhen as economic powerhouses, and constant pressure from regional rival Singapore, continue to fuel doubts about Hong Kong's competitiveness. Government records show the number of Americans, Canadians, Australians and Britons in Hong Kong at the end of last year stood at 79,190, having dropped steadily from 113,600 at the end of 1998. Figures provided by the Financial Secretary's Office, however, show the number of expatriates under the general employment policy has increased from 15,800 in 2003 to 21,000 last year. Hong Kong also continued to trail Singapore as an attractive city for expatriates, according to the annual ECA International survey on expatriate living conditions. Last year, out of 257 locations, Hong Kong ranked at 66 compared with 58 for Singapore, in attractiveness to west Europeans. Singapore also topped the list of best places for Asians to live, while Hong Kong slipped on pollution and public health concerns, the international organisation of human resources professionals reported. Hong Kong did not fare much better in the World Economic Forum's Global Competitiveness Report 2005-06. The city plunged seven places to No28 out of 117 economies last year from a year earlier. This ranked it behind neighbouring competitors Malaysia, South Korea, New Zealand, Japan, Australia, Singapore and Taiwan. Hong Kong's ranking for tertiary enrolment was also surprisingly on the low side, at 58 out of 117, said Margareta Drzeniek, a senior economist with the Geneva-based forum. In an executive opinion survey conducted by the forum, almost 20 per cent of respondents highlighted an 'inadequately educated workforce' as the most problematic factor for doing business in Hong Kong. This was closely followed by 'policy instability' and 'inefficient government bureaucracy'. Nearly 11,000 business leaders were polled. However, the city's top business leaders are unfazed. As an international financial centre, Hong Kong boasts the second-largest stock market in the region and the eighth-largest in the world, with a market capitalisation of more than $9.5 trillion as of March. On May 3, market capitalisation hit a record high of $10.009 trillion. The more than 340 mainland enterprises listed in Hong Kong have also raised $1.1 trillion. 'Hong Kong has benefited from the robust growth on the mainland and would be foolish if it did not take advantage of the opportunities presented by that growth,' Hong Kong Exchanges and Clearing chairman Ronald Arculli said. Chief Executive Donald Tsang Yam-kuen has regularly pointed to the city's proximity and unique relationship with the mainland as being instrumental in boosting the competitiveness of Hong Kong's financial services industry and capital markets. However, with the mainland rapidly learning to stand on its own two feet and developing its domestic hubs, there is growing debate that Hong Kong is in danger of being marginalised. 'I can see there being concerns about marginalisation because, clearly, there are some industries where the skill levels are growing in [mainland] China, where reputations are being built up there,' Hong Kong General Chamber of Commerce chairman David Eldon said. 'But how much do you hear today about Shanghai being a real threat to Hong Kong? It seems to have gone off people's radar screens. Why? I suspect partly because they are doing so much in [mainland] China themselves that they haven't had a huge amount of time to think about what they're going to do internationally. They're building up skills that they hitherto haven't had.' But the learning curve is steep. Despite the mainland's market reforms and rapid pace of development, the international skills and knowledge base that is readily available in Hong Kong cannot be easily replicated across the border, Mr Eldon argued. Until this happens, foreign investors will likely continue to use Hong Kong as a base from which to enter the mainland rather than step directly into the unknown. A prime example is the mainland banking sector, which is required by the World Trade Organisation to fully open up to foreign players by December 11. 'Look at the process that is being undertaken in China today. If somebody applies to go into discussions with a domestic bank, see how long it takes,' Mr Eldon said. 'That's going to take quite some time to sort itself out. I don't see the opening up of the market in China for financial services making a huge difference.' Business and Professionals Federation of Hong Kong chairman Peter Wong Hong-yuen put it more succinctly. 'China will never catch up because it is just too big,' Mr Wong said. 'China has got too many regional problems ... It's far too fragmented to resolve them.' The question is, is Hong Kong moving fast enough to cope with change or simply letting change trip up the competition. Mr Wong, who also serves as a consultant with financial consulting firm Deloitte Touche Tohmatsu, worries that the city's 'monolithic' civil service is stifling Hong Kong's can-do spirit, despite the administration's 'big market, small government' mantra. 'Air pollution, if you have the will to do it, can be fixed in three years. Water pollution, which is even more serious, can be fixed in 10 years,' he said. 'The worst thing is the attitude that, if it ain't broke, don't fix it. If it is not being broken, then how do we keep our advantage?' Today is World Environment Day, when the UN promotes awareness of environmental issues. Mr Eldon stressed that the government was genuinely concerned about Hong Kong's pollution problems and keen to take action. 'But it just seems that, maybe, there's a little bit more they can do. It might upset some people if they do it but I'm afraid that's the price that is going to have to be paid if we're going to make a real difference to the environment.' Caution, however, needs to be exercised in implementing sweeping legislation to combat anti-competitive business practices and racial discrimination, Mr Eldon added. 'Anti-discrimination needs to be dealt with but getting involved with the human resources business of individual companies needs to be left to the individual companies,' the former banker said. 'We need to be very careful against legislating as to who and what companies can bring in ... It suggests that government wants to get involved in more than it should be getting involved in.' Federation of Hong Kong Industries deputy chairman Cliff Sun Kai-lit also warned that the city was being bogged down in political debate and losing sight of opportunities to grow faster. 'Within China, Shanghai is more central. But, in Asia, Hong Kong is more central,' he said.