No doubt news that mainland regulators are to forbid simultaneous mainland and Hong Kong stock offerings will trigger another bout of hand-wringing among Hong Kong's financial officials. Worried about the city's declining status as a financial centre, they will go scurrying to Beijing to beg for favours, like greater links between mainland and Hong Kong stock exchanges. That would be exactly the wrong response. Hong Kong's merit as a financial centre lies not in the closeness of its ties to mainland markets but in what differentiates it from them. This is the strength Hong Kong's government should play to. The prohibition of simultaneous A and H-share listings should come as no surprise. It has been an open secret for months that mainland regulators have been discouraging offerings in Hong Kong in order to bump up the supply of stock in Shanghai and Shenzhen, where demand is massive. Even without arm-twisting from the regulators many mainland companies would still opt to list on the mainland in preference to Hong Kong. With mainland price-to-earnings ratios at 50 in contrast to just 25 in Hong Kong, companies can sell their shares at much higher prices in Shanghai or Shenzhen. In other words, the cost of capital is cheaper on the mainland, which is a powerful inducement to list there. That, not regulatory interference, is the main reason why over the first nine months of the year 10 times as much equity capital was raised on the mainland as in Hong Kong. The Hong Kong government's answer is to set up an arbitrage channel between Hong Kong and mainland markets. Such a mechanism could narrow the valuation gap, possibly encouraging more mainland companies to list here. But in calling for an arbitrage scheme, Hong Kong officials are missing a vital point. There is a heavy reputation risk involved in linking Hong Kong to markets frequently derided as casinos. Tying Hong Kong to the mainland's markets might just attract mainland companies to list here but it is equally likely to scare away international investors. In any case, hitching Hong Kong to the mainland is a strategy with a sell-by date. As the mainland progressively loosens its capital controls, there would be less and less to differentiate Hong Kong from Shanghai or Shenzhen. Ultimately, with little to choose between them, investors would have no incentive to stop here. They would head straight for the mainland. Hong Kong would be truly sidelined. Instead of hooking up with the mainland's markets, Hong Kong should be keeping them at arm's length and emphasising what makes it different. That means playing up strengths such as market transparency, the rule of law, a sound legal system and the best corporate governance standards in Asia. Instead of linking to cowboy markets, Hong Kong should be working to ensure that its financial centre meets the best standards of international practice. Maintaining clear blue water between Hong Kong and the mainland on regulatory and governance standards will ensure that Hong Kong remains the market of choice for international institutions looking for exposure to mainland stocks. It will also pay dividends by attracting listings. There is little Hong Kong can do to entice opportunistic companies that would rather sell their stock at twice the price on the mainland. But price is not the only factor in determining where companies list. Mainland companies with global ambitions will happily pay a higher cost of capital in order to burnish their reputations by listing in an internationally reputable market with world-class standards. They would benefit both from pricing and analysis against their global sectors, while the implied vote of confidence in their disclosure and governance would comfort not only investors but also their business counterparties. In the long run, Hong Kong's competitive advantage as a financial centre lies in differentiation from the mainland's markets rather than connection with them. Instead of fretting about the mainland ban on simultaneous listings, Hong Kong should be doing everything possible to ensure its own market meets the best practicable international standards. Then officials will not need to go begging for favours in Beijing.