I contributed this to China File. The full conversation is here.

By David Schlesinger

“The dragon must have two eyes.” This was the inevitable, hopeful refrain whenever I interviewed Hong Kong businessmen in the 1980s, during the long and tortured handover negotiations. Their point was that while Shanghai might flourish, Hong Kong’s sophistication and internationalism would always give it a prime place in the firmament.

As we approach the halfway mark in the 50-year period of the high degree of autonomy Beijing promised the people of Hong Kong, is the dragon of China really two-eyed, or it is more like a monstrous cyclops, overwhelming and dominating the city?

During the 1997 handover, Hong Kong’s GDP was about 20 percent of China’s—quite a significant marker of the territory’s then vital role as middleman and translator between Western capitalism and socialism with Chinese characteristics. Today, it’s less than 3 percent, due to China’s stunning rise, Hong Kong’s own stagnation, and the inevitable disintermediation that accompanies maturation.

But GDP is only part of the story. As China builds up nearby Shenzhen, the once tiny village that now boasts 12.5 million people, and dreams of connecting a whole linked and futuristic conurbation in south China, Hong Kong’s own place in that economic and social world looks uncertain, even leaving aside the political fissures exposed and then magnified during the past months of protest and unrest.

Already Shenzhen, for all that it lacks in beauty and sophistication, seems far ahead of Hong Kong as a center for entrepreneurship and innovation.

What, then, are Hong Kong’s advantages, and can they be replicated elsewhere? The city remains a financial center, but that is a fragile and illusory title. It is relatively easy to open a bank account, and with that moving funds in and out takes a matter of seconds, compared to the achingly bureaucratic weeks remitting foreign exchange can sometimes take in China itself. However, the very ease of electronic funds transfers means that Singapore or Tokyo could easily substitute as the Asian money center for almost any business.

The Hong Kong markets have been major money-raising centers for Chinese businesses, both in equity and debt. For the bluest chip companies, though, the world is welcoming, sometimes with even more attractive terms. The ingenuity of bankers means that even as Hong Kong loses its appeal, other centers will be quick to build up their systems and connections to grab the China business.

Hong Kong’s ease of entry and relative simplicity of starting a business is a big advantage, but it is hardly unique. What was left as a crucial advantage was the one thing that this year of bad policies, missteps, and discontent has most threatened: a strong and independent rule of law and justice system sitting on the southern tip of China. The damage done to that by a poorly drafted and clumsily proposed extradition bill, uninvestigated police brutality, the seeming impunity of Triad gangsters joining in the fray, and the prosecution of dissident leaders is the greatest tragedy of many.