A great city - but what is it for?

`Hong Kong generates entrepreneurs in industrial quantities, but it's hard to see is as a great generator of intellectual capital'

WHAT MAKES great cities burst on to the world, have a blaze of glory... and then fade away? It is a question that the visitor to Hong Kong - now more than two years after the handover to China - keeps pondering. For during the last half century, perhaps more than any other place on earth Hong Kong has both dazzled and puzzled the rest of the world.

You do not need to be in Hong Kong for long to hear the expression "world city". It is a favourite concept of the chief executive, Tung Che-hwa, who proudly says that in the next century there will be three world cities - New York, London and Hong Kong. Readers may recall that two weeks ago I was writing in this space about another candidate for this accolade, Sydney in Australia. Globalisation is clearly creating a premier league of cities. Tung Che-hwa clearly is seeking to project Hong Kong as something more than just the gateway to southern China, the main role that has driven its present success.

Visually, of course, the city is spectacular, with its glittering skyscrapers surrounding its bustling harbour. But it is also remarkable in other ways. To take a simple measure, its population growth from half a million to nearly seven million in 50 years makes it the fastest-growing large city in the world. It has gone from having a typical Third World standard of living, to surpassing most developed countries in terms of GDP per head - including the UK.

It is also a puzzle, because all this growth took place under colonialism, a system of governance that has not, shall we say, received a great press over the last half century. You find yourself pondering the relationship between politics and economics. Could it be that taking away the politicians and sub-contracting governance to a not-very-interested country on the other side of the world clears the field so that people can focus all their attention on becoming rich? And can it go on under the new stewardship of mainland China? Put bluntly, will the Chinese muck it up? That is what many people fear, but the answer is more subtle than the question.

With the "one China, two systems" principle under which Hong Kong will be administered for the next 50 years, Hong Kong has acquired a new colonial master, and one who is remarkably "hands off". Anyone fearing that Peking was exercising a heavy hand in administering its newly acquired bit of territory should try to answer the question put to me: think of any other country in the world where the central government allows a small part of the country to operate an entirely different economic and legal system from the rest. I couldn't.

Nor is there any great free market/ government control issue. The former colonial rule created conditions where the free market could flourish, with, for example, income tax at 15 per cent. But that self-same government owned virtually all the land and built half the housing stock.

The two main areas of Hong Kong's governance where there is legitimate concern are the competence of the Executive Council, which runs the place, and the independence of the legal system. The executive has had some successes and some failures.

One dramatic success was the decision to intervene to support the stock market when it collapsed last year. At one stage, the government ended up owning nearly a third of the shares on the exchange. It was a terrifyingly dangerous venture, but it worked. The market recovered and the government showed a substantial profit on its operations.

One failure was the management of the opening of the new airport last year, which is wonderful now, but suffered serious teething problems because the government insisted on opening it to coincide with its first year under Chinese rule, even though the place was not ready.

There are other disturbing stories of cronyism over planning permission and so on, but there is a further and more general problem in government. During the run-up to the handover all the normal civil service reforms that might have taken place were put on ice. Think of the things that have happened in the last 20 years in the UK, including privatisation, the creation of government agencies, and curriculum reform and the introduction of testing in schools. None of that happened in Hong Kong, so now the place is faced with having to carry through a decade of reforms.

The other main concern about the new administration here is whether the separate legal system is being eroded by Peking. There was one particular issue on immigration that caused soul-searching. It was whether children of Hong Kong residents (including illegitimate ones) could come and live in Hong Kong. Oversimplifying slightly, the courts ruled that they could, but this was reversed by Peking. The trouble was, most people here didn't want the immigrants to be able to come. It was a bad legal precedent, but a popular judgment.

Obviously any change on the scale of the handover will take years to bed down, and Hong Kong is still in transition. But it is pretty clear that the one thing, above all, that Britain gave the place was a predictable system of justice. This is enormously important for enforcing commercial contracts, and gave Hong Kong a big advantage over the rest of the region, in particular over mainland China. The present niggling worries about judicial independence bode ill.

Beyond these concerns, which may inhibit Hong Kong in the future, there is another, much less publicised issue. Everyone worries about the handover, but hardly anyone focuses on the way in which the engines of economic growth in cities may be changing. You have to ask: what is a city for?

Hong Kong is a classic example of a city driven by trade. It generates entrepreneurs in industrial numbers. Its initial post-war renaissance as a manufacturing centre, particularly of textiles, switched to its becoming a services centre, providing trade and financial services to the mainland manufacturers.

That was a great success - at least until the general East Asian recession, which started two years ago and from which Hong Kong has only recently been recovering. But if you aspire to being a world city, serving a hinterland is not enough. You have to be able to generate the new industries in communications and technology; you need to provide a variety of cultural and social services. You need world-class universities nearby.

That seems to me to be the even greater challenge. The government of Hong Kong is very much aware of the pitch that Singapore is making to become the hi-tech capital of East Asia, and is now actively trying to fight back. The city has a technology park and is planning a "Cyberport", a development that is itself supposed to become a hi-tech centre.

But you create innovative hi-tech industries by generating creative people, not by mere building developments. You need to support those people with money, but also with the services that they will want, including cultural ones. Hong Kong is not, I am told, very strong on the cultural front. It is also expensive; the rent on a friend's nice but not special flat is pounds 80,000 a year. Hong Kong does not have a good record of technical innovation; it tends to take other people's ideas and imitate them. It is hard to see it as a great generator of intellectual capital. Entrepreneurship, yes; really new ideas, no.

Hong Kong has been, and still is, enormously attractive - partly because of its physical location, and because it is different. The location, of course, stays, but the differences may go. If it becomes just another Chinese city, then it becomes much less interesting - and stops being world class.