Clouded destiny: how Hong Kong is losing its edge.

• Author: Wu, Friedrich

With the recent rejection by the Hong Kong legislature of Beijing's proposed election reform plan for the Special Administrative Region, China's "one country, two systems" model for Hong Kong is now facing the greatest challenge ever. The legislative veto is bound to create a prolonged period of political stalemate, deepening the divide between democracy advocates and the pro-China camp, as well as ushering in an era of economic uncertainty for the territory. However, even without this latest political blowup, the "Umbrella Revolution," which erupted last October and spurred thousands of protestors to occupy public areas over a three-month period, was already a clear manifestation of the local people's long-standing discontent with what they perceive as an unresponsive and unrepresentative SAR government. They hold this government responsible for the development of several economic and social "fault lines" that have negatively affected their livelihoods.

Hong Kong's "fault lines" stem from chronic income stagnation and growing inequality, the soaring cost of living driven by ever-rising housing prices, and depressing employment prospects for the young, especially those without a university education. According to the Census and Statistics Department, the real wage index for non-professional and non-managerial employees has been on a secular downward trend for several years. Even university graduates in Hong Kong are facing increasingly bleak employment prospects due to oversupply by eight government-funded academies plus a myriad of privately funded post-secondary institutions, as well as a mismatch between salary expectations and skills. Meanwhile, the city's Gini coefficient has climbed to a record high, from 0.518 in 1996 to 0.537 in 2014. According to the Economist Intelligence Unit, Hong Kong's prices for general basic groceries are 31 percent higher than those in New York, making it the most expensive city for expatriates in Asia. Likewise, housing prices are severely unaffordable, with the city's median household income (US$34,834) being one-fifteenth of the city's median home price (US$518,653).

In a startling report in August 2014, two months before the widespread street protests, Trigger Trend, a research firm based in Guangzhou, contended that "Hong Kong is losing its edge as a global financial and commercial center, and the territory's economic clout will be overshadowed by China's major cities by 2022." Hong Kong's eroding competitiveness is a result of...