Debates on whether or not cities north of Hong Kong will take over the territory and leave it to fade into an empty shell have been raging for decades, Goldman Sachs's head of Greater China research Fred Hu Zuliu, told the audience during the final session of the conference.

Speaking on "The Role of the PRD in China," Dr Hu said such fears have been talked about for so long that it was getting ridiculous, and likened the "perceived" Hong Kong border to the North and South Korea divide.

The exuberant confidence and optimism exhibited by people on the Mainland, not least cities in the PRD, add to Hong Kong's fears that the cities are potent threats to the SAR economy. But Dr Hu described them as pupils of Hong Kong's free-wheeling economy, many of whom have graduated and become tutors to other cities on the Mainland.

He said concerns that China's WTO entry last year might diminish Hong Kong's role as an entry port and its share of China's trade and investment were overly pessimistic. "The absolute volume is bound to increase rapidly on the back of expansion of China's total foreign trade and capital flows," he said.

Similarly, Tung Chee-chen, chairman and CEO, Orient Overseas (International) Ltd, said during his address that he found comparisons between Hong Kong and Shanghai equally amusing.

While both cities are economic power-houses, they both serve different regions. "Hong Kong continues to be the most important gateway to Mainland China as well as a commercial and financial centre for the Asia-Pacific Region, while Shanghai is one of the most important gateways to central China and the premiere domestic capital market to the Mainland," he said.

Shanghai will continue to attract multinationals looking to capture business on the Mainland, but Hong Kong remains the preferred location for regional headquarters with wider responsibilities and activities including finance and logistics.

The notion that Hong Kong and Shanghai are competing for cargo shipments is also just not true, because each area serves different cargo catchment areas.

"In terms of competition, Hong Kong's main rivals are those container terminals in neighbouring Guangdong Province across the border, while Shanghai competes with its own regional rivals such as Ningbo," Mr Tung said.

Shanghai's heavy investments to become a trade, finance, and logistics hub, at first glance, imply direct competition with Hong Kong. But Mr Tung said he challenges such conclusions, and advances "that Hong Kong and Shanghai do not and will not directly compete with each other."

One of the main reasons for this is because each city has its own hinterland, and the differences between the customer bases of the two cities discourage direct competition. Secondly, he thinks given the Shanghai government's recent announcement of its six pillar industries, it is unlikely that Shanghai will abandon its entire industrial base in favour of becoming a service economy like Hong Kong. And thirdly, the fact that Hong Kong and Shanghai today possess different skill sets and areas of expertise, the two cities possess a potentially powerful partnership that will be of mutual benefit.

"The Hong Kong businessman is bringing valuable international business experience to the manufacturing and consumer sector in Shanghai, while Shanghai-based companies continue to come to Hong Kong for more sophisticated financial structuring and capital raising exercises," he said.

Moreover, the development of Shanghai is being partly fuelled by investments from Hong Kong. "Hong Kong not only serves as Shanghai's largest investor accounting for some 30 per cent of FDI into China, but also supplies Shanghai with its management expertise and business experience," Mr Tung said.

Commenting on competition within the PRD, Mr Tung said he believes competition ultimately leads to increased efficiency. One of the key areas where efficiency can be achieved is if Hong Kong and other businesses in the Pearl River Delta can better integrate themselves to create a seamless logistic supply chain originating from the manufacturing facilities and ending on the shelves of the customer in the U.S., Europe or Asia.

"It is critical for Hong Kong government, working under the "one country two systems" concept, to further integrate Hong Kong into the Pearl River Delta system, and ensure even more efficient flow of people, goods and services between the border," he said.

But to achieve that, all parties need to work together with a higher degree of cohesiveness and ensure greater cooperation across the border.

Stanley Ko, chairman of Hong Kong Coalition of Service Industries and Jardine Matheson (China), said the implementation of the Closer Economic Partnership Arrangement (CEPA) would help realise economic integration between Hong Kong and China. "More liberal trade and investment between Hong Kong and the Mainland will facilitate integration between the two," he said.

But he stressed that CEPA is not just Mainland China giving Hong Kong benefits; China itself will benefit, for example, by making it easier to attract Hong Kong and foreign investment into China.

Mr Ko expressed the business sector's wish that talks on phase one of CEPA, which focuses on easier issues, can be finished by the end of 2002, while the more difficult subjects in the services sector like finance and telecom, can be left to phase two.

Zero tariff free trade area is the main target for liberalisation on trade in goods between Hong Kong and the Mainland. That means no more duty on goods exported from Hong Kong to the Mainland and vice versa. Only goods manufactured in Hong Kong can benefit from zero tariffs. This means that the rules of origin become important, he said.

"On services, we seek early application of the (WTO) commitments that China has already made," Mr Ko said. "For example, China will liberalise product coverage of retail sectors in five years. If through CEPA Hong Kong can get this treatment earlier, Hong Kong should have a time advantage of four years -- assuming that we can agree by the end of 2002."

Although CEPA would cover the whole of China, because Hong Kong is part of the PRD, the immediate effect of CEPA will be closer integration of the PRD before the integration spreads to other regions.