[HONG KONG] Twelve months ago, it seemed Beijing's retrograde politics would eventually sink Hong Kong's exalted international reputation. Now China's ailing economy seems likely to finish off the job sooner than anyone expected.
Hong Kong is dealing with a long list of problems, including tumbling tourist arrivals, a dollar peg that makes it the priciest place in Asia, a precarious property bubble and a leader not up to even mundane challenges never mind an existential crisis.
And that's before you even get to Hong Kong's biggest challenge: the fallout from China's loss of economic credibility around the globe.
How else to explain the 9 per cent drop in the Hang Seng Index since Beijing's Aug 10 devaluation? The selloff put the city's valuations at their lowest, relative to global equities, since 2003, and relegated Hong Kong to the same trading orbit as Pakistan, a place grappling with chronic power shortages.
Forbes magazine spoke for many last year when it asked: Is Hong Kong Still China's Golden Goose?
The concern then was that political turmoil would disrupt Hong Kong's status as China's financial green zone, where companies can enjoy the rule of law and politicians can investment ill-gotten millions in real estate and with Beijing-friendly billionaires.
Hong Kong seemed to be the perfect Chinese special- enterprise zone - except for the mounting discontent among the city's middle class, whose needs tended to be ignored in favour of the tycoons lording over the city. When hundreds of thousands of residents began protesting in favour of democracy in September 2014, the city's chief executive Leung Chun-ying, like the good Communist functionary he is, shut the demonstrations down.
Political discord no longer seems an immediate existential threat to the city's special status - but China's sputtering economy does.
Waning trust in the Chinese economy is driving investors away from Hong Kong, while China's devaluation is making the city less attractive for mainland tourists enticed by cheaper destinations like Japan. Economy Secretary So Kam-leung blamed the 8.4 per cent drop in visitors in July on the strong dollar. Retail sales in the city declined for a fourth straight month in June.
Hong Kong doesn't have many good options. For years economists urged Hong Kong to diversity its growth engines - more tech and science startups, fewer hedge funds and property developers riding mainland growth. Rather than deliver the changes Hong Kong needed, Mr Leung has squandered his three years as chief executive kowtowing to his Communist Party benefactors in Beijing.
An eventual Federal Reserve interest-rate hike is a huge worry for Hong Kong. But if global investors had more confidence in Chinese President Xi Jinping, they would be treating Hong Kong's downswing as an opportunity to go bargain-hunting.
Hang Seng shares are valued at 9.7 times reported earnings, a roughly 44 per cent discount to the MSCI All-Country World Index.
As Chinese growth slows to 5 per cent from the desired 7 per cent, Hong Kong could find itself in the same position as Macau. China's other "special administrative region" has been among the biggest losers from Mr Xi's anti-corruption drive, which led mainland high rollers to lower their profiles and avoid the city's casinos.
Hong Kong, for its part, is finding it more difficult to attract the tens of millions of shoppers it has become reliant on. Hong Kongers might consider this a be-careful-what-you-wish- for moment.
Last year residents lashed out at mainland tourists, as summed up by this Dec 31 South China Morning Post headline: Rude awakening: Chinese Tourists Have the Money, But Not the Manners. China's state-run media retorted with articles about ungrateful Hong Kongers.
As mainlanders now flock to traditionally less China-friendly places like Japan and Taiwan, Hong Kongers may be second-guessing their earlier ire.
An economy should never put all its proverbial eggs in one basket, as the leaders of Hong Kong arguably have done. But, for the moment, as China goes, so goes Hong Kong - and they're both heading in the wrong direction.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.