Hong Kong has been blazing the trail of investment into China for much of the country's opening door policy. Between 1979 and 1997, about US$120 billion, or 54 per cent of total foreign investments pumped into China during the period flowed from Hong Kong.

The SAR remains the leading source of FDI in China, with accumulative investments from the territory last year reaching US$187 billion, despite a worldwide drop in FDI of 50 per cent in 2001 -- the first fall in a decade and the worst in 30 years. The weak global economy helps explain why FDI from Hong Kong between 1998 and 2001 dipped slightly to account for 38.7 per cent of the US$67.1 billion total during the period. Interestingly, China defied the global trend and its FDI last year grew 15 per cent to reach US$46.8 billion. A total of 34 per cent, or US$16.7 billion, of that came from Hong Kong.

Wang Zhile, director, Research Center on Transnational Corporations, Chinese Academy of International Trade and Economic Cooperation, MOFTEC, believes the falling percentage of investment from Hong Kong is due, in part, to businesses investing directly in China, rather than taking the traditional Hong Kong route.

"Despite the general slowdown in FDI worldwide, investment in China has been increasing at an average annual rate of 22 per cent. So I think there is some reorganization and shuffling going on," he told the audience at the Chamber's China Business Conference.

Because more businesses are setting up shop in China as wholly owned foreign enterprises, they are investing more than they would as a joint venture, he said. This is further evidenced by the rise in organizations setting up research and development centers and regional headquarters there, he said.

"The significant change in type of investment and operation in China shows foreign businesses believe that the Mainland market is maturing and that they can move in by themselves, rather than having to find a partner," Mr Wang added.

China's entry into the World Trade Organization (WTO) is making regulations more transparent. As a result, investment procedures in China are coming closer to what Western firms are accustomed to and therefore feel they no longer need to find a China savvy Hong Kong middleman.

The pace of development of major cities in China is accelerating this trend, and because Hong Kong has changed little, Mr Wang reckons it is running the risk of being left behind the Mainland's star cities.

"In the past, if Shanghai was moving ahead and Hong Kong was keeping pace with the tempo, there was nothing to worry about, because the changes would create more chances for both cities," he said.

But now that foreign firms are starting to believe that they no longer need Hong Kong to hold their hand to bring them into China to invest their money, he believes Hong Kong needs to redefine its role.

To articulate his point, he drew on quotes from business legend Jack Welch:

"For an organization, if the pace of internal change is slower than that of external change, the end is near. The only question is when."

"View reform as an incentive, an opportunity, but not a threat or crisis."

He believes Hong Kong still has a pivotal role to play in China and encourages the government and businesses to think out of the box.

Although the Pearl River Delta has been growing at breakneck pace for the past decade, there is a dire lack of direction for the region. Mr Wang suggests the PRD can learn a lesson from the way member nations of the European Union have joined forces to increase their region's competitiveness and efficiency globally.

Instead of each city in the PRD racing to develop their own airport, sea port and logistics centre, they should join forces to take advantage of each other's benefits.