Correction to This Article
Earlier online versions of this article misnamed the river closest to Shanghai.

Shanghai poised to take on Hong Kong as China's financial hub

By Keith B. Richburg
Washington Post Foreign Service
Saturday, September 25, 2010; 8:47 PM

SHANGHAI - Chinese leaders have announced an ambitious new plan to turn this sprawling city on the Yangtze River into an international finance and business center, on a par with New York and London, by the year 2020.

The move raises intriguing questions about Hong Kong, which already plays a similar role. Is there room for both? Can Hong Kong keep its edge? Or does Shanghai's outsize ambition threaten to supplant the former British colony down south?

The questions extend beyond the financial sphere, as Shanghai's rise seems to challenge Hong Kong's long standing as China's most cosmopolitan, diverse, worldly and exciting place to live, work and do business. In everything from research and development to Disney theme parks, Shanghai and Hong Kong often seem locked in a game of urban one-upsmanship, a rivalry worthy of New York vs. Washington, or London vs. Paris.

There's a fair amount of hometown chauvinism - and look-down-your-nose snobbery - on each side. Shanghainese are particularly proud of their city, and see it returning to its past glory as Asia's most international center. But many Hong Kongers see Shanghai as part of the still-wild, disorderly and uncouth mainland.

"The problem with Hong Kong is they need to change their infrastructure, especially their soft infrastructure," said economist Xu Mingqi, with the Shanghai Academy of Social Sciences. "They need to attract talent, to develop science and technology."

But a Hong Kong Chinese businessman who travels regularly to Shanghai said the difference is cultural. "Shanghai seems quite 'mainland,' and that's code-speak for not quite civilized," he said.

Like others, the businessman - who asked not to be quoted by name criticizing China because he does business there - voiced the suspicion that as Hong Kong's people clamor for more democracy, Beijing may be hedging its bets. "If Beijing trusted Hong Kong 100 percent, they wouldn't need Shanghai," he said.

At first glance, Hong Kong appears to have a lopsided edge in the competition. It had about a 30-year head start, since China - and Shanghai - were largely isolated from the time of the Communist takeover until the launch of Deng Xiaoping's economic reforms and opening in 1979. During that time, Hong Kong established itself as the main entrepot to the closed-off Chinese mainland.

English-speaking Hong Kong routinely ranks in surveys as one of the best places in the world to do business. Its thriving stock market has 1,273 listed companies. Its civil service is internationally recognized. Its flat tax rate is a low 15 percent, making it an attractive place for expats and their families. And, perhaps most important, its British-inherited legal system is considered one of the fairest in the world.

"People are confident in Hong Kong courts," said Patrick Chovanec, who lived in Hong Kong and now teaches at Tsinghua University's school of economics and management in Beijing. In Shanghai, by contrast, he said, "the idea of an independent judiciary doesn't exist."

But Shanghai is racing fast to catch up.

A far larger city - 19 million people to Hong Kong's 7 million - its stock market, now 20 years old, is growing quickly; it lists 870 companies with a market capitalization of $2.6 billion, and thousands more mainland firms are waiting to be listed.

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