Historically, Hong Kong’s legal system and economy have operated outside the direct influence of the mainland. Due to this institutional setting, Hong Kong has been a semi-independent window for mainland China since before the 1997 handover.

China lagged behind advanced societies in science, technology and economic openness. Even before its modernisation, Chinese authorities took a closed-border approach to foreign influence, and so international exchange in information and culture was limited.

In the Qing era, Guangdong operated China’s only ports to receive foreign goods. It had no institutionalised customs system in place until 1685, when emperor Kangxi lifted the ban on maritime trade and opened the ports to foreign traders.

As an outpost for China, Hong Kong has gone through a tumultuous transformation. In the 1800s, the British saw the potential of Victoria Harbour even though Hong Kong at the time had only a few thousand residents and was largely wilderness.

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In 1842, the Qing government ceded Hong Kong Island to the British crown under the Nanjing treaty, and that ushered in the rise of Hong Kong’s economic and political status. Hong Kong became an important trading post with a high volume of inbound and outbound cargo.

Even the Japanese occupation during World War II did not fundamentally alter Hong Kong’s position. During the Sino-Japanese war, from 1937 to 1945, both the nationalist and communist parties used Hong Kong’s special political and geographical position to conduct foreign affairs and facilitate travel.

With its relatively extensive political freedom and openness to the movement of goods and people, Hong Kong emerged as an international financial centre with some of the highest standards of living in the world.

Today, as the Chinese mainland deepens its reforms and continues to open up, it is bound to put forward a new development strategy. It plans to create a dynamic world-class region comprising a cluster of innovative cities by 2022 in the Greater Bay Area. By 2035, the plan is that the region will have developed a world-class system to support a knowledge-driven economy.

By the 100th anniversary of the People's Republic of China in 2049, the goal is for the country to be a world leader in higher education, research, advanced manufacturing and service production. Of critical importance for this development is a legal system conducive to trade, investment and doing business. A vital component is, of course, a diversified and competitive financial sector, which in turn relies on a convertible currency and minimal currency restrictions.

The list of necessary reforms is long. One main question, however, is whether the central government is likely to go ahead with this tremendously important development while being dependent on a Hong Kong that may be paralysed by violent demonstrations and protests. The answer is, probably not.

For the central government and China’s long-term strategy, it is extremely risky to bet too much on Hong Kong. This is obvious in view of the recent developments in the area. Rebalancing the economic and financial power among the different regions within the Greater Bay Area is the most natural path to take.

For Hong Kong, it is time to think about its position in a dynamic and swiftly changing environment. Traditional factors supporting its growth and prosperity are under threat, with its role as a window for mainland and foreign exchange fading in importance. Meanwhile, social instability is wreaking havoc from the inside.

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Soon, the conditions for trade, investment and running businesses will converge in the Greater Bay Area, which is also in line with Beijing’s intention to bridge the gap of development among regions. The changes will be fast and significant.

Hong Kong’s immediate concern will be to ensure a well-balanced adaptation to these new circumstances. What are the comparative and competitive advantages, if any? How should Hong Kong begin the process of enhancing its current major industries to match the onslaught of new competition?

The consequences for a Hong Kong that does not respond to the pressure for change will be devastating. It will find itself in an untenable position just a few years from now. The need for leadership is dire.

Christer Ljungwall is an economist with long-standing research experience of China. Siyang (Samuel) Li is a PhD candidate with Peking University HSBC Business School majoring in economics. Mikael Román, a political scientist with long-standing research experience of Brazil, also contributed to this article