This week's 10th anniversary of the Lehman shock feels especially raw in Hong Kong, where markets are taking hits from every direction.
The Hang Seng Index is down more than 20% from a January high as trade frictions, currency volatility, a tech stock rout and a whiff of emerging-market contagion converge on Asia's world city. The capital exodus thrusting Hong Kong into a bear market, though, is really a story of its main strength becoming a weakness.
As China's financial safe harbor, Hong Kong has reaped the lion's share of benefits from the mainland's economic rise since 2001, America's ground-zero year in Donald Trump's telling. While most connect the date to the Sept. 11 attacks on New York and Washington that year, the U.S. president's focus is on Beijing joining the World Trade Organization.
Hyperbole abounds, as with most things Trump. But Hong Kong has been at the center of the global economy's shift in China's direction. Expatriate bankers and executives have flocked to the city, creating an innovative energy surge previously experienced mainly in New York and London.
Hong Kong's tycoons loved it. Their monopolies in property, transport and telecommunications thrived from the city's gateway-to-China halo -- perhaps history's greatest example of a special enterprise zone. By offering transparency, the rule of law and first-world banking services within a decidedly opaque Chinese system, Hong Kong effectively enjoyed a AAA status that credit raters have yet to bestow (Standard & Poor's rates it AA+).
That status is now backfiring as Trump's escalating trade war does its worst to president Xi Jinping's economy. Hong Kong's shift to bear status has been especially swift because many of the Chinese companies at risk from US tariffs are listed there. The same goes for risks posed by China's political eccentricities. Stock in Tencent, the tech group that is one of the Hang Seng's biggest components, has lost 23% this year, collateral damage of Beijing's crackdowns on free speech and online gaming.
Hong Kong, in a sense, is a victim of its success. It came to dominate the broader emerging-market universe, particularly in equities. Hong Kong's deepening linkages with a booming China and a currency pegged to the dollar gave it a leg up on Singapore, Tokyo and other wannabe Asian financial centers.
Now, Hong Kong is a sellers' mecca, in part because of the regulatory efficiency and liquidity it once saw as a strength. Size matters, too. Asia's third-largest equities arena has lost nearly $1 trillion of market capitalization since January, roughly equivalent to the market cap all Latin America's bourses combined. Mainland investors are dumping shares as fast as anyone.
Hong Kong arguably is suffering a crisis of confidence in its ability to weather the coming greater China region storm. Last Friday, the official who steered China around the 2008 shock, Zhou Xiaochuan, warned of another collapse of market sentiment.
"We saw it when the Lehman Brothers event happened," Zhou, who headed the People's Bank of China for 15 years ending in March, told CNBC. "There was sudden panic and contagion so this kind of thing is not very easy to analyze."
Chinese gross domestic product growth of more than 6% annually and a more flexible yuan left China well-positioned to avoid shocks, he said. But Trump perhaps upping tariffs to cover $500 billion of mainland goods exports to the U.S. pushes capitalism into uncharted territory.
Hong Kong, too. At least on paper, Hong Kong is somewhat removed from the $50 billion of taxes on Chinese goods Washington has implemented. But as the key middleman to China's interaction with the world economy, it is the vanguard of collateral damage victims.
The tycoons towering over the city's 7.4 million people profited immensely from Hong Kong's role as re-export hub. Any disruption to Asian supply chains will dent GDP. Economic growth fell 0.2% quarter-on-quarter in the second quarter, the first drop since the first quarter of 2016. Trump's proposal to target another $200 billion of mainland goods - on top of steel and aluminum levies - would do even more damage, hitting everything from transport to fashion and food.
Another big worry: Hong Kong's pro-Beijing leaders do not seem up to the challenge. Carrie Lam's 14 months as chief executive have been mostly about morphing Hong Kong into a China-lite. The city's once free-wheeling media is feeling the chill. Economists at foreign investment banks, meantime, worry that telling the truth about the Chinafication of Hong Kong might cost their employers business.
Lam's government is slow-walking efforts to address a bubble in inequality. Sporadic cash handouts are no match for the widening gulf between surging real estate values and middle-class incomes. In fact, concerns about slowing Chinese growth are increasing the attractiveness of Hong Kong flats for nervous mainland buyers, as the values are effectively insured by government policies. Even though the U.S. Federal Reserve is raising interest rates -- forcing Hong Kong to tighten accordingly -- home prices are up 14% this year.
Nothing would put Lam's administration in hot water faster than Communist Party bigwigs facing losses on Hong Kong property holdings. Yet the real losers could be the city's middle class. There is a "Crazy Rich Asians" dynamic to news that Hong Kong just grabbed the crown as a home to the uber-wealthy. Research firm Wealth-X last week said Hong Kong is now home to about 10,00 people worth at least $30 million, versus roughly 9,000 in New York. The reason: China's boom.
Hong Kong's "Gini coefficient," a key barometer of income disparity, is 0.539, making it one of the globe's most unequal societies. Trump's trade war could make it worse - slowing the development of China's own middle class in ways that would reverberate in Hong Kong. Meanwhile efforts to pump up mainland growth in the short run will reinforce state controls and social constraints, putting off badly-needed reforms.
Any deepening of the state-led model would diminish China's longer-term prospects. Hong Kong's too.
It is high time Hong Kong's government redoubled efforts to bring more affordable housing on line, facilitate more jobs growth from the ground up, strengthen social safety nets and even raise taxes on the ultra-rich to narrow wealth gaps. Lam's team also should be safeguarding the openness that made Hong Kong great.
Yet it is more concerned with doing Beijing's bidding than preparing the economy for challenges heading its way. The costs of that neglect are showing up in the Hang Seng right now.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.