Casting your eye over the media hype around the Shanghai Free Trade Zone (FTZ), officially launched on Sunday, it is fair to say that most of the ruckus is coming from Hong Kong.
Over past months, the scheme has been the hot topic in the city. The media there have had plenty to say about the 29-square-kilometer FTZ, which encompasses four existing bonded zones in Shanghai's eastern suburb.
One popular activity has been second-guessing the fine details of FTZ policy, while another trending pastime is drawing comparisons between Shanghai, the mainland financial hub, and Hong Kong, the historical business gateway to the mainland.
A few naysayers have gone as far as to sound the death knell for Hong Kong, albeit a little prematurely, warning that a Shanghai with an FTZ poses a serious threat to the island financial paradise.
It is somewhat trite perhaps to remind people that these same voices were singing the same song of Hong Kong's imminent demise more than a decade ago when China entered the World Trade Organization (WTO).
However, most analysts who talked to Xinhua, both on the mainland and in Hong Kong disagree. It is true that Shanghai and Hong Kong probably cannot avoid competing with each other in the offshore financial services marketplace, especially over yuan business, but such competition will mean a bigger business cake for all, not smaller crumbs.
The roles and functions of the two cities are very different in the country's overall financial layout. The Shanghai FTZ is essential from China's financial reform and trade perspectives. It is consistent with the long-term goal of strengthening the services sector.
Hong Kong's business community would be well advised to prepare to seize the business opportunities the Shanghai FTZ will bring.
Chen Bingcai, researcher at Beijing-based Chinese Academy of Governance, believes Shanghai and Hong Kong have different strategic orientations and may compete with each other for offshore business.
Shanghai will mainly serve domestic enterprises while Hong Kong is the well-established launch pad for international capital to enter the mainland. The aim of the Shanghai FTZ is not to compete with Hong Kong, but to reach international standards in terms of convenience of investment and trade, free currency exchange, efficient supervision and a sound legal environment, Chen told Xinhua.
Nationally, the FTZ is seen as a testing ground for new policies and reform. It will take the lead in driving growth in the Yangtze River Delta and even the entire nation, he added.
He Wen, a researcher with the Shanghai Institute of East Asia Studies, said the FTZ is a must for the mainland based on its developmental trajectory. Shanghai and Hong Kong complement each other. Shanghai is playing catch-up, lagging far behind Hong Kong in terms of development. The "One Country, Two Systems" principle is Hong Kong's biggest advantage.
You Anshan, head of research in Hong Kong and Macao affairs at the Shanghai Academy of Social Sciences, compared Shanghai to a newborn baby who has a lot to learn from Hong Kong, saying that under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), Hong Kong will embrace opportunities for common development in the FTZ.
Shen Minggao, Citibank's chief economist for China, said at a recent forum that the FTZ is a significant aspect of China's reforms, and sustainable development of the mainland economy is the biggest bonus for Hong Kong.
The competition between Shanghai and Hong Kong is inevitable but not necessarily a bad thing, unless Hong Kong is worried about its own competitive strength or lacks confidence in its innovation capacity, he said. There are divisions of financial functions between Shanghai and Hong Kong.
"London and Frankfurt are both global financial centers. If I am investing in Germany, I will base my company in Frankfurt and meanwhile try to avoid risks by hedging transactions in London. Likewise, if I have investment in the Shanghai FTZ and hold yuan assets, I will try to avoid foreign exchange risk with hedges in Hong Kong or Singapore. The FTZ will not replace Hong Kong but sharpen its competitive edge."
The FTZ is a feature of opening-up, while Hong Kong needs to become more integrated with the Pearl River Delta to benefit from domestic economic reform. In this sense, Hong Kong has plenty to do in the future, Shen added.
Joe Zhou Fang, a chief research officer with Hong Kong's One Country Two Systems Research Institute, maintains that there will be competition between Shanghai and Hong Kong, and it will be no bad thing.
"At present, Hong Kong is the (world's) principal offshore renminbi center. Since Shanghai will also offer offshore renminbi services, there will be competition in this regard. What is more important is to make the business cake larger, so that Hong Kong's finance industry will have a new growth point," Fang told Xinhua.
Hong Kong started to develop offshore renminbi business in early 2004, but due to limitations on renminbi internationalization -- especially the restriction on renminbi cross-border flow under the capital account -- Hong Kong's offshore renminbi market is not big enough and fails to provide enough variety of products, he said.
"If the Shanghai Free Trade Zone accelerates the pace of renminbi internationalization, it will be good for Hong Kong. Renminbi will be used more widely, so there will be positive effect on Hong Kong," said Fang.
In Fang's view, renminbi internationalization is the biggest opportunity for Hong Kong. "There is huge room for growth in Hong Kong's renminbi business. Hong Kong should work with Shanghai. If Shanghai rolls out new renminbi products, it will create more growth room for Hong Kong. If more renminbi circulate globally, Hong Kong will get more business," he added.
Tse Kwok-Leung, head of Economics and Strategic Planning Department in Bank of China (Hong Kong), told Xinhua that Hong Kong has been actively involved in each round of China's reform, and has not only contributed to the nation but also benefited.
China entered the WTO in late 2001 -- which Tse sees as the milestone of China's last round of reform and opening-up -- and this sped up the reform of financial institutions. Four years later, state-owned banks, such as China Construction Bank and Bank of China, began to list their shares in Hong Kong and expanded their businesses in and through Hong Kong, which contributed to Hong Kong's growth and prosperity, he said.
Tse said it is predictable that the new round of reforms, marked by the FTZ initiative, is set to offer Hong Kong just as big a development opportunity as before.
"Hong Kong has its part to play in the development of the Shanghai Free Trade Zone. The FTZ is expected to focus on finance and trade services, in which Hong Kong has the edge. In the service sector, no matter how it opens up, Hong Kong will have opportunities, especially for Hong Kong's own companies," he said.
Tse also expects the reforms to bring more finance and trade multinationals into China, and they are likely to put their regional headquarters in Hong Kong and contribute to the city's economy.