The Price of Pollution

Hong Kong residents are accustomed to seeing their city's famous skyline shrouded by smog. Now the haze could be casting a pall on the city's business climate as well. Last week, investment bank Merrill Lynch downgraded three of the city's biggest property companies, warning in a separate report that pollution could dampen demand for real estate and blunt the city's economic edge. "If we get to the point where it's so noxious you can't live here, people will start walking out the door," says Merrill Lynch strategist Spencer White.

For now, Hong Kong's economy is thriving, with GDP...