Hong Kong is grappling with significant economic challenges as it competes with Shenzhen, a city that has experienced remarkable growth over the past three decades. In 1993, Hong Kong's GDP was over 20 times that of Shenzhen; however, by 2022, Shenzhen's GDP had surged nearly 86 times, surpassing Hong Kong's GDP, which only increased by 2.3 times during the same period. This dramatic shift can be attributed to Shenzhen's designation as a special economic zone in 1980, allowing it to adopt business-friendly policies that spurred rapid economic development [9b9a2502].
Recently, former Hong Kong leader CY Leung emphasized the need for Hong Kong to adopt Shenzhen's reform strategies to enhance its competitiveness. He highlighted the importance of transitioning from low-end industries to high-end industrial development, citing Shenzhen's 'emptying the cage and changing the bird' practice as a model for transformation. Leung underscored the growing demand for professional services on the mainland and called for a determination to reform and develop specific industries that align with national needs [59b22bf3].
A critical factor contributing to Hong Kong's economic stagnation is its currency system, which is tightly linked to the US dollar. This connection limits Hong Kong's monetary policy independence, making it difficult for the city to respond effectively to changing economic conditions. In contrast, Shenzhen benefits from a more flexible economic environment, including a slightly lower corporate income tax rate of about 15%, compared to Hong Kong's 16.5% [9b9a2502].
To enhance its competitiveness, there are suggestions for Hong Kong to allow its banks to offer onshore renminbi services. This move could potentially attract more business and investment to the city. Recently, the Hong Kong Monetary Authority (HKMA) and China's central bank initiated a pilot program for the digital renminbi (e-CNY) in May 2024, which could further integrate Hong Kong into the mainland financial system and provide new opportunities for growth [9b9a2502].
As Guangzhou and Shenzhen continue to evolve economically, the competition between these cities and Hong Kong will likely intensify. While Shenzhen's rapid growth presents a formidable challenge, Hong Kong's strategic use of the yuan and its financial innovations, combined with bold reforms inspired by Shenzhen, could play a crucial role in reclaiming its competitive edge in the region [9b9a2502][59b22bf3].