HONG KONG -- Hong Kong has been overtaken by neighbor Shenzhen in economic size for the first time, as the Asia financial hub's growth failed to catch up with the pace in the technology-charged city.
Last year, Hong Kong's gross domestic product grew 3.8% to 2.66 billion Hong Kong dollars ($340 billion), according to official data released on Wednesday. Although the growth was the city's fastest since 2011, its total GDP still fell behind Shenzhen, whose economy expanded by 8.8% to 2.24 billion yuan ($355 billion) in 2017.
The shift in rankings highlights the unprecedented wealth accumulation in Shenzhen during the past four decades. As the first special economic zone created by late strongman Deng Xiaoping, it has transformed itself from a small fishing village to a global innovation hub, now known as China's Silicon Valley. It is also home to household tech names including internet giant Tencent Holdings, smartphone maker Huawei Technologies and drone manufacturer Da-Jiang Innovations.
Invigorated by its vibrant innovation scene, Shenzhen has now become the third-largest economy in the country, after Beijing and Shanghai.
By contrast, Hong Kong -- once a proud member of the "Four Asian Dragons" along with Singapore, South Korea and Taiwan -- has found itself less important to China over the past two decades. Back in 1997, the special administrative region's economic size was equivalent to one-fifth of mainland China's total, but now the ratio is less than 3%.
However, in terms of personal wealth, Hong Kong is still way ahead of Shenzhen. The former British colony, home to 7.4 million people, reported per-capita GDP of $46,000 in 2017, among the highest in the world. Shenzhen, with a population of 10.8 million in 2016, last year recorded per-capita GDP of $27,100.
Hong Kong's financial chief Paul Chan Mo-po shrugged off the rising challenges from the mainland cities, saying he was "not surprised" that Shenzhen claimed its crown.
"Some cities are bigger than us, and they have more people," Chan said. "The more important thing is we have a stable and high-quality growth."
The semi-autonomous city, governed under the "one country, two systems" principle, has relied heavily on the financial industry, property development and international trade for economic growth. However, Hong Kong's government has long been criticized for not allocating enough resources to technology and innovation.
Hong Kong spent only 0.73% of its annual GDP on research and development, according to the latest World Bank data. By contrast, Shenzhen invested almost 4.7% of its total GDP in R&D.
"Hong Kong needs to invest in new industries for long-term growth," said Billy Mak Sui-choi, associate professor at Hong Kong Baptist University. He said that only by nurturing more growth engines will the younger generation be able to improve their earnings, which will lend support to faster GDP growth in the future.
Hong Kong's new government administration seems to have received the message, as the city's financial secretary is finally planning to use its ample fiscal surplus for technology development.
With a philosophy of "investing for the future" and "diversifying economy", Chan rolled out an aggressive expenditure plan for fiscal year 2018-2019 on Wednesday, with heavy investments in technology and education.
Hong Kong plans to raise government expenditures by 13.5% from a year ago to HK$557.9 billion, with more than HK$50 billion set aside for innovation and technology -- five times bigger than in the previous budget. The fresh funds will be used for developing the first phase of a technology and innovation park near the border between Hong Kong and Shenzhen, upgrading facilities at the city's two science-focused developments, and financing relevant technology funds.
Chan's budget closely follows the bold target set by his boss, Chief Executive Carrie Lam Cheng Yuet-ngor, in her maiden policy address last October, which aimed to double the city's R&D spending to 1.5% of GDP in the next five years.
The more proactive approach of the new government administration marks a departure from the "prudent" fiscal policy under John Tsang Chun-wah. The former financial chief -- and Lam's key rival for the city's top job last year -- had been reluctant in shelling out taxpayers' money over the past decade, accumulating a fiscal reserve now surpassing HK$1 trillion.
Last year, the city recorded an estimated surplus of HK$138 billion, as the property boom pushed up revenue for land sales and stamp duties. Chan said he will allocate 40% of the surplus for one-off relief measures, including salary and profit-tax rebates, and cash subsidies for needy groups. Chan expects the measures in his budget will stimulate economic growth by 2% this year.