TOKYO -- Hong Kong is undergoing a dramatic economic boom, with prices for property, luxury items and stocks hitting new heights. But beneath the economic excitement is growing concern about the territory's future.
Only two years ago, Hong Kong was in a dire state, symbolized by a decrease in tourists from mainland China, the closure of luxury watch stores and falling real estate prices. But the autonomous territory is now possessed by bubble-like exuberance.
In January, for example, a bottle of limited edition Yamazaki whisky by Suntory fetched more than 30 million yen ($274,423) -- 1 million yen per glass -- at an auction in Hong Kong.
Hong Kong media company Most Kwai Chung made a record-breaking initial public offering in March, with investors seeking more than 6,000 times the number of shares in the IPO.
On April 21, local newspapers reported more symbolic developments in the Hong Kong economy, noting that property prices in Admiralty, a business district forested with high-priced office buildings, have surged to all-time highs, while prices of existing homes have also set new records.
Surplus liquidity, led by investment from mainland China, has kept asset prices rising in Hong Kong.
Stock connects allowing investors on the mainland to buy and sell shares listed in Hong Kong through the Shanghai and Shenzhen exchanges offer clues about changes at the Hong Kong bourse. According to available data, mainland investors have consistently been net buyers of Hong Kong-listed shares since August last year. As if to keep in step with purchases by mainland investors, Hong Kong shares have continued to outperform those listed in Shanghai.
Property prices show a similar trend. Based on statistics about taxes levied when nonresidents of Hong Kong buy homes in the former British colony, Citigroup of the U.S. estimated the ratio of those purchased by mainland residents, and found that the ratio and home prices have kept rising in step since the spring of 2017.
Money from the mainland has been flowing into stocks and real estate in Hong Kong, and this has boosted prices of the premium whisky.
Mainland China has become affluent thanks to the country's rapid economic growth. People there have begun transferring their money to Hong Kong for three reasons.
The first is the diversification of currencies they hold. People who want to avoid concentrating their assets exclusively in yuan first think of the U.S. dollar as a destination, and they naturally turn to assets in Hong Kong because it is geographically close to the mainland and has a currency pegged to the U.S. dollar.
The second reason is the flight of assets from the mainland, which is toughening control over them. In particular, people who accumulated wealth when corruption was rampant in China are eager to transfer their assets to Hong Kong, which has a more advanced legal system to protect them.
Closer attention should be paid to the third reason because it has a down-to-earth purpose, namely willingness to do business in Hong Kong. The number of companies that have entered Hong Kong from the mainland has increased sharply in recent years, trailing those of Japan and the U.S.
Hong Kong, of 180 countries and regions in the world, ranks first in the 2018 Index of Economic Freedom compiled by the Heritage Foundation of the U.S., based on an analysis of them in four categories -- rule of law, government size, regulatory efficiency and open markets.
In contrast, mainland China stands at 110th place and thus belongs to a group of economies designated as "mostly unfree."
Financial institutions and other companies in China are flocking to Hong Kong in pursuit of a freer business environment, and to do it, they are taking advantage of such mechanisms as cross-boundary investment channels linking stock exchanges in Hong Kong and the mainland.
There should be many people having a feeling of strangeness about the state of affairs in Hong Kong widely expected to be buried under the growth of entire China. In fact, Hong Kong was surpassed by its neighbor Shenzhen in terms of gross domestic product in 2017. But Hong Kong is a die-hard economy.
There are two theories that predict Hong Kong's downfall. One envisions Hong Kong losing its raison d'etre as a "special economic zone" because of advances in China's economic liberalization.
This has prompted Jim Rogers, a renowned American investor based in Singapore, to hold shares in financial institutions in China, on expectations that the liberalization of trading in yuan in 2016 will lead to the mainland replacing Hong Kong as a financial hub.
But the liberalization did not occur that year, contrary to Rogers' forecast, and the Chinese government has toughened its control over financial transactions since 2015, when financial markets were stunned by its sudden devaluation of the yuan.
Advocates of state capitalism pursued by China continue to believe the state can control markets. As they draw a line between state capitalism and free market, Hong Kong, rather than mainland China, attracts global money that balks at the lack of freedom.
To Hong Kong, therefore, the year 2047 is important, as the "one country, two systems" principle may end that year. The guarantee of British-style freedom that Hong Kong has enjoyed since before its return to China will expire in 2047, creating the second reason to expect Hong Kong to be drawn into China's state capitalism.
Recently, however, I was told by the owner of a conglomerate in Hong Kong and a Tokyo-based economist in specializing in China that the Chinese government will retain Hong Kong's economic system after 2047.
Indeed, one might assume that ending the globally competitive system would run counter to China's national interest.
The risk must be political, in light of growing sentiment against the mainland among people in Hong Kong. Chinese President Xi Jinping and other leaders have repeatedly lashed out at moves to seek Hong Kong's independence.
If the confrontation between the Chinese leadership and advocates of Hong Kong independence becomes critical, an incident like the Tiananmen Square massacre of 1989 could occur, which would deal a fatal blow to the Hong Kong economy. Beijing must want to avoid such a consequence. But if China forcibly cracks down on calls for Hong Kong's independence, it will attract strong criticism from the international community, as happened after Tiananmen.
Beijing and the Hong Kong government concluded an intriguing agreement last December, under which Hong Kong will play hub roles in raising funds and maritime and aerial transportation for China's "One Belt One Road" initiative to create a huge economic zone.
While Hong Kong is concerned about a possible decline in its economic power, the deal may be China's carrots-and-sticks strategy of suppressing political discontent there by pledging that Hong Kong can maintain its position as linking China with the rest of the world.
It is uncertain whether the accord will satisfy the increasing number of people in Hong Kong who identify themselves as "Hong Kongese." Nonetheless, investors from the mainland is betting that the Hong Kong economy will cast its own light.
The more companies from the mainland grow in Hong Kong and support China's prosperity, the more Beijing will be tempted to protect the freedom of Hong Kong's economy.