Quotes of the Day

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 predicted to grow by an impressive 6.5% this year. But concern is mounting that the city's pollution woes are ruining its attraction as a place to live and work. One fear is that multinational firms that have made Hong Kong their Asian base will increasingly decamp for cleaner locales—particularly Singapore, dubbed the best city for Asian expatriates in a recent quality-of-life survey by human-resources consultant ECA International. Hong Kong dropped from 20th to 32nd in the study, largely due to pollution.

The Council for Sustainable Development, a government advisory panel, recently proposed a thorough review of Hong Kong's clean-air standards, as well as cleanup measures costing up to $3.5 billion. But there's relatively little the city can do about its greatest environmental scourge: an estimated 80% of its air pollution drifts in from mainland China's Guangdong province. "You can clean up your own backyard," White says, "but there's still this enormous problem across the river."

Still, Hong Kong's skies at least remain brighter than those of some Chinese cities. Last week, Beijing was forced to close highways and delay flights in and out of its airports due to a choking, opaque haze, while its air-pollution index reached 414 out of a possible 500—a level even Chinese authorities described as "hazardous." By comparison, Hong Kong's troubles seemed almost enviable.

• Peter Ritter
• Hong Kong's worsening air quality is driving down analyst estimates for real estate companies—and could start driving residents away