10 years ago, the naysayers speculated the economic demise of Hong Kong following it's handover from British rule to the Chinese Communists on July 1^st 1997. They applauded their foresight when exactly 24 hours later, the East Asian Financial Crisis hit Thailand and the financial contagion eventually dragged down the Hong Kong economy. The Hong Kong stock market crashed, the currency dropped and the property market collapsed to the point that any gearing in excess of 70%, found the mortgagee in negative equity where they would largely remain for the next 8 years.

"10 years after the handover however, Hong Kong has confounded these same skeptics by not only maintaining its relevance as Asia's leading financial center next to Japan, but has actually increased its global profile as the key interface with the Chinese economic upsurge. Not only is it the gateway into China but its Stock Exchange has also become the market of choice for Chinese companies seeking international profiles. Arguably it has overtaken Tokyo in absolute terms and certainly has done so in an international context" says Irishman Keith MacDonald, Partner at London and Hong Kong based Manresa Partners.

This confounding of critics has been achieved for a number of reasons and by some specific measures. Firstly, the Asian Monetary Crisis is what caused Hong Kong to suffer in 1997 and this had nothing whatever to do with the coincidental timing of the handover. In fact, the Chinese Government, far from imposing Communism on Hong Kong, instead elected to leave things almost exactly as they had been with the only visible sign being a changing of flags. This maintenance of the Hong Kong status quo was ensconced in a political apparatus known as 'One Country - Two Systems'. Under this nomenclature, the Chinese Government has established what it calls Special Administrative Regions (SAR) where capitalism reigns, if not democracy. Each SAR has it's own gubernatorial Chief Executive and is independent from the People's Republic of China (PRC) in most things except Foreign Policy and Military Defense.

Hong Kong is the largest of the two SARs (not to be confused with Special Economic Zones or SEZ) with nearby Macau as its smaller but equally booming sibling. Another feature of Hong Kong SAR (as is now it's official title) is that it preserves the basis of the British Legal and Judicial system and the right for individuals and companies to own land - still technically impossible in China. Hong Kong also imposes the strictest of corporate governance over it stock markets which makes them one of the best run in the world.

In 2006, Hong Kong was majority host to the world's largest ever listing, that of a 17% stake in the Industrial and Commercial Bank of China (ICBC). It raised a total of USD22bn (then €17bn) after selling additional shares through an over-allotment option.

One Country Two Systems has been implemented using 'Hong Kong Basic Law' which is a sort of mini constitution and is in keeping with the earlier requirements of the 'Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People's Republic of China on the Question of Hong Kong' dated 19/12/84.

In these ways Hong Kong has, and continues to reinvent itself to attract new companies and investment to the SAR and importantly, has also won the approval of the PRC government in Beijing. Jacques Kemp, Regional CEO of the ING Group agrees "Hong Kong has succeeded in capturing the large pool of people and skills available with 'foreign' Chinese, those who have had international exposure and contacts, while still speaking the Chinese language. This allows Hong Kong to act as a very effective bridge between many key players in China who have not yet gained the international profile needed to open-up to foreign markets."

Primary local competition for Hong Kong comes from Shanghai and Singapore, but Hong Kong remains the major economic exchange as it has captured both the Chinese inbound and outbound markets. Shanghai is important for inbound capital investing only, and Singapore does not have the same proximity, nor is it part of China.

The question of sustainability for Hong Kong was put to Frank Marriot of Savills who says "The huge growth driver is of course China and even if the Chinese GDP drops a few points this year(which China would probably like) this won't affect Hong Kong because Hong Kong is just the financial facilitation center for China - much like Long Island is to New York or the City of London is to Great Britain. Hong Kong will continue to boom because all the wealth in China wants to list on a familiar international exchange, and that's Hong Kong."

Jacques Kemp concurs adding "The key to Hong Kong's ongoing sustainability is the very impressive way it continued to adapt as trends and markets evolved and moved on... from an industrial phase with low cost production (you remember the plastics toys "Made in Hong Kong" in the 70-80's?) to now having become the financial center of the region with the highest market issuance in 2007. To put it simply, Hong Kong moved from 'Made in Hong Kong' to 'Owned by Hong Kong'".

"It is bizarre that the rest of the world is suffering and Hong Kong is booming." Says Frank Marriott. "Fundamentally, property pricing is being driven by a huge shortage of supply. Office rents are soaring because of the investment banking business. 2008 will see $46Bn worth of IPO work move into Hong Kong. The best commercial office buildings in Hong Kong are now up to 25 USD per square foot, per month. This is probably the highest in the world."

There are also some fundamental parallels between what happened in 1990 with the Mortgage and Loan crisis and the booming economy of today. Samson Law, Chairman & CEO of Landscope and hongkonghomes.com explains that "In the early 90's, the US experienced a severe recession with real estate price tumbling, large scale default on mortgages and foreclosure of properties. Interest rates stayed very low to stimulate consumer spending. The economy of Hong Kong on the other hand was excellent. The demand for goods and labour gave rise to stiff price and wage inflation. However, interest rates and mortgage rates were artificially low thanks to the US dollar peg. In real terms (after adjustment for inflation), house buyers were enjoying negative mortgage rates. This among other factors pushed real estate prices up. I venture to predict the property market will follow the pattern of the early 90's and move up drastically in 2008. Depending on the sector, prices are likely to go up by 20% to 30% for the year."

As to the medium term future of Hong Kong versus the US and Europe, KK Fung, Managing Director of Jones Lang LaSalle believes "the economic slowdown in the US and Europe will make Asia relatively attractive and Hong Kong is still considered one of the most attractive asset markets within the region given its sophisticated market structure, sound legal platform, high market liquidity, attractive tax system and more importantly, its close proximity to China.

In conclusion, Hong Kong is booming and it looks like the sky's the limit. But therein lies the rub - the sky. An ugly cloud of pollution continues to regularly darken the horizon. That concern noted, if you are one of the 1.1 Billion Chinese on the mainland, and you strike gold, you want to have a home in 'Manhattan' - and the 'Manhattan' of China is, and for the foreseeable future will remain Hong Kong.

Kenneth Joyce is Chairman & CEO of Morgan Holdings P/L and UlyssesInvestments.com