Hong Kong today seems perpetually on the fast track. This was not always so. Hong Kong before
World War II was a distant if convivial outpost of the British Empire, overshadowed by the
metropolitan glamour of Shanghai and the bustle of Guangzhou. The postwar period saw Hong
Kong emerge as a low-wage manufacturing center, energized by the tens of millions of refugees
who poured across the border after the establishment of the People’s Republic in 1949.

In the late 1970s, at a time when China was nearly as shuttered as North Korea is now, a series of
events led to a paradigmatic shift so dramatic that few would recognize the Hong Kong of thirty
years ago in the Hong Kong of today. High-rise industrial tenements remain, but the teeming
factories within, making textiles, molded plastic wares, shoes, and all manner of light consumer
products, have long since migrated across the border.

The developments that triggered this exodus were half-hidden – a new joint venture law in China
that created so many hurdles that foreign investors and Chinese state enterprises alike were baffled
by the complexities; rising costs in Hong Kong; the beginnings of financial liberalization in the
United States that would ultimately supply a new core industry for Hong Kong, once the factories
had become empty shells. In Beijing, Vice Premier Deng Xiaoping, his star in the ascendant, gave
the go-ahead for economic reforms that would set the pattern for the next few decades, in which
patchwork change was the central motif.

“Feeling the stones as you cross the river,” and “it makes no difference if a cat is black or white, as
long as it catches mice” were the slogans behind an eclectic, cautiously experimental approach to
industrial restructuring, in which reforms were tested first in carefully isolated economic zones
before being introduced to the broader economy. Three of the first four economic zones that were
set up in 1979-80 were in Guangdong Province, the fourth in Fujian Province. Among the first of the
economic experiments was to encourage a type of foreign investment that, importantly, would not
face the restrictions involved with foreign investment. This was called export processing.

Theoretically, goods were simply processed in China for export. In practice, export processing
required massive transfer of equipment and know-how. The first entrepreneurs to grasp the
significance of the loophole were in nearby Hong Kong. And within a few short years, the factories
had emptied out and the industrial transformation of the region of Guangdong closest to Hong Kong
– the “Pearl River Delta” – had begun.

The speed and depth of these changes was unexpected, and it was many years before commentators
began to write about the Pearl River Delta as one of the world’s great engines of economic growth,
based on a winning combination of cheap land and labor and a durable economic partnership
between Hong Kong and Guangdong entrepreneurs. If the full scope of change had been
anticipated, it might have led to a frenzy of hand wringing and anxiety about Hong Kong’s future.

But the changes, though rapid, were invisible enough, and the emerging paradigm so exciting, that
Hong Kong barely stopped to ask questions.
Hong Kong and Guangdong are entering a new period of change that, like the late 1970s, is
overtaking the region in ways that mindsets have not had the time to catch up. Guangdong, again, is
driving change.

A ring of cities is emerging in the Pearl River Delta that challenge Hong Kong’s
supremacy in core service industries and is beginning to confront Hong Kong’s leadership in the
soft, “creative” attributes that lend a city verve and identity – the attractions of a vibrant civic
society, arts, and entertainment. Hong Kong’s nearest post-colonial counterpart, once-sleepy
Macau, has emerged suddenly as the gambling capital of the region and perhaps the world, by
virtue of the breakup of its gambling monopoly in 2003. Hong Kong, for its part, has jumped into