HONG KONG - Hong Kong's survival as a major financial hub lies in capitalising on its links with the booming Chinese mainland and diversifying its own economy, the city's chief executive said Wednesday.

In particular, the city can play a key role in Beijing's plans to promote the yuan as an international currency, Donald Tsang said in his annual policy address.

He downplayed concerns that China's promotion of Shanghai as a global trade centre threatened Hong Kong's traditional role as an international gateway to the Chinese economy, saying the two would work together.

"As the (yuan) moves towards internationalisation, the mainland needs a highly open global financial centre that is fully aligned with the world financial markets to serve as its platform for foreign financial activities," Tsang said.

"Hong Kong can fit this role by making the best of our advantages."

China has recently raised the issue of the US dollar's status as the global reserve currency, taking advantage of the recent financial crisis to promote international use of its own unit.

Tsang's speech outlined an array of initiatives aimed at adjusting to the competition and opportunities presented by China's growing global importance.

His plans to promote the city as a "bridgehead for mainland enterprises to go international" included strengthening services in areas such as stock market listing, bond issuance and financial hedging.

Addressing concerns Hong Kong would lag Shanghai in financial development, Tsang said the two cities should work together.

"I believe that Hong Kong can work in collaboration with Shanghai and leverage our respective strengths to contribute to the development of financial services in the mainland," he said.

Shanghai's plans to promote itself as a major hub for the two areas that Hong Kong has typically dominated -- finance and shipping -- have put pressure on Hong Kong to develop other businesses such as education, medicine and the creative and environmental industries.

China has said it will allow foreign companies to sell shares on Shanghai's stock exchange for the first time as part of a target to become a financial hub by 2020. Shanghai is also aiming to become a full-service world-class shipping centre by the same year.

Economists said Tsang was right to focus on an advantage Hong Kong has over Shanghai -- its proximity to the Pearl River Delta, a major regional economy and manufacturing base for China.

"Traditionally Hong Kong has been used for regional financial flows but this middle-man role will be eroded when Shanghai becomes fully open," said Kelvin Lau, regional economist at Standard Chartered Bank.

"It needs to change from facilitating to serving a much larger domestic market in the wider Pearl River Delta region."

Tsang also pledged to "foster economic cooperation with Taiwan" as Hong Kong adapts to warmer cross-strait ties, which could hurt the southern city's position as an intermediary between the two.

Tsang also said the government might consider boosting land supply to avoid a property bubble, after record prices were recently posted for some luxury properties.

"When necessary, we will fine-tune the land supply arrangements...with a view to quickening the pace of bringing readily available residential sites to the market.

But Tsang said they would closely monitor data on property transactions, negative equities, and mortgage loans, to ensure that there was no sudden steep fall.

But critics were disappointed that Tsang's fifth policy address placed less emphasis than last year's speech on helping the city's poorest.

More than 10 political and welfare groups protested outside the Legislative Council before Tsang arrived to deliver his address, calling for universal suffrage, a minimum wage and subsidies for the poor and elderly.

Tsang's speech was briefly interrupted by lawmaker "Long Hair" Leung Kwok-hung and two other members of the League of Social Democrats waving placards and questioning whether the address had anything new to offer.

- AFP/ir