In China, Guangdong has led the way in moving up the manufacturing value chain from light industry to high-end manufacturing. Ranked in terms of the value-added, its key industries include information and communication technology (22%), electrical machinery & equipment (9%), raw chemical materials and chemical products (5%) and automobiles (5%).

In light of these facts, the idea that Guangdong's industrial base is today based on "low technology plastic mouldings and cheap toys" is just a Rip Van Winkle fantasy.

Financial and innovation risks are immediate

In the past, Hong Kong has thrived thanks to vibrant tourism, dynamic trade and rising property prices. Today, tourism is falling, trade is lingering and property prices are facing a mean correction. What's worse, some of these trends are no longer just cyclical, but secular.

Moreover, disintermediation of Hong Kong as China's privileged financial channel is reflected by the new free trade zones in the mainland, the proliferation of offshore RMB centers and the evolving Shanghai-London Stock Connect. Shanghai is China's new financial center, supported by a set of rising financial niche cities.

Finally, the notion of Hong Kong's innovation edge is a myth. Let's be clear: As long as the city's R&D per GDP is around 0.7%, it trails behind India and Ukraine, and barely holds its own against Pakistan or South Africa.

These cold facts led to my conclusion that economic integration with Guangdong could alleviate the erosion of Hong Kong's maturing economy and aging population, while boosting entrepreneurship, venture capital and innovation across the region.

The hard reality is Hong Kong's growth has eclipsed. Without an aggressive growth strategy and China's innovation, the city's living standards will deflate over time. Those who care about the city should fight for its future, not lament over its fading glory.

Dan Steinbock is research director of international business at the India China and America Institute (US) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). See http://www.differencegroup.net

Originally published by Roubini EconoMonitor with Ash Bennington, October 23, 2015