HONG KONG—The city’s government cut the Covid-19 quarantine period for inbound travelers to three days, laying out further measures to streamline stringent border controls but falling short of what businesses say is needed to restore the connectivity vital to its role as Asia’s leading global financial center.

From Friday, travelers arriving in Hong Kong will be allowed to leave their quarantine hotels after three days, instead of seven now, officials said at a briefing Monday. During the four days after the mandatory hotel quarantine, they will not be allowed into places now requiring a vaccine pass, such as gyms, bars and restaurants, they said.

The city has been caught between sticking to stringent antivirus controls in line with Beijing’s “zero-Covid” policy and trying to retain its appeal as an open and globally connected base for business. As most of the world returns to normal, Hong Kong’s border controls and the perceived risk it may resort to mainland-style lockdowns and other measures have led to public frustration and prompted many skilled workers to leave.

While any cut to quarantine time may be better than none, the continuing restrictions are eating into Hong Kong’s competitive edge as a global financial center and regional base for multinational companies, business groups have said.

The ability to travel unfettered internationally is a basic prerequisite of a global financial center, Sally Wong, chief executive of the Hong Kong Investment Funds Association, said before the announcement. “Only by jettisoning the word ‘quarantine’ altogether can we really rebuild HK Inc.’s brand.”

The shortened quarantine offers welcome relief to residents but is unlikely to benefit business travel or tourism, which require a full lifting of controls, said David Graham, executive director of the British Chamber of Commerce in Hong Kong, a business lobby.

“This will be critical for Hong Kong’s economic and business outlook,” he said.

Hong Kong’s recently appointed leader John Lee said the decision to shorten quarantine was based on an assessment of the risk to public health, as well as lifestyle and economic considerations.

“It’s a balance of factors,” Mr. Lee said. “While we can control the threat to public health, we also want to ensure society can have the maximum degree of economic and social activities so people can go about as normally as possible, and the competitiveness of Hong Kong can be maintained.”

The changes reflect the government’s reading of data showing that after three days, people leaving quarantine pose no greater transmission threat than do others in the community, officials said. In contrast to the mainland’s “no tolerance” policy on Covid cases, daily life has largely returned to normal in Hong Kong, with gyms and bars open—albeit with some restrictions, such as size of gatherings—even with thousands of new daily Covid cases.

While stringent isolation requirements—at one point last year, arrivals had to spend 21 days in hotel quarantine—were more understandable when the city had zero or very few cases, recent waves that resulted in tens of thousands of new infections every day made quarantine even more exasperating to people wanting to travel in and out of the city.

Mr. Lee and his team didn’t spell out a pathway to further reducing quarantine in the coming months. A crucial milestone comes in November, when Hong Kong plans to host a major financial forum and its first seven-aside rugby tournament in more than three years—a three-day event that drew thousands of visitors each spring in past years and coincided with major conferences and other networking events. Even a truncated quarantine would likely be too much for these types of whirlwind trips to a city once famed for the ease and efficiency of its connections to the rest of the world.

More residents have flown out of Hong Kong’s airport than have arrived every month for the past year to July, with net departures of almost 120,000 in the first quarter of 2022, according to government data compiled by

David Webb, an independent governance expert.

In a July 1 speech in Hong Kong to mark Mr. Lee’s appointment, Chinese President Xi Jinping said that the city must retain its status as an international hub for the country. “The central government fully supports Hong Kong in its effort to maintain its distinctive status and edge, to improve its presence as an international financial, shipping, and trading center, to keep its business environment free, open, and regulated, and to maintain the common law, so as to expand and facilitate its exchanges with the world,” he said.

Pro-Beijing figures and government officials have since invoked Mr. Xi when pushing plans to open up to the rest of the world, ahead of any relaxation of border controls with the mainland—a goal of the previous administration. Mr. Lee said Monday that his team was still working to resume travel with the mainland.

After Omicron began to spread globally late last year, Singapore—Hong Kong’s perennial rival as the leading global financial center in Asia—laid out a clear road map from the Covid crisis and gradually removed all travel restrictions.

Singapore has been one of the biggest beneficiaries of Hong Kong’s isolation, with more and more executives and their families relocating to the city, along with some of the marquee events that were another pillar of Hong Kong’s appeal. While many of those moves may have been temporary, the question facing Hong Kong’s leaders now is how to lure them back before the shift becomes permanent. While many of the moves may have been meant as only temporary, the question facing Hong Kong’s leaders now is how to prevent those shifts from becoming permanent.

The shortened quarantine follows earlier easing measures, including the scrapping of a policy to suspend airline routes if a flight carried a certain number of Covid-positive passengers to the city—even if unwittingly. Visitors and returning residents must still provide proof of a negative Polymerase Chain Reaction test result 48 hours before they board, along with vaccination proof.

Unpredictable availability of quarantine hotels, as well as a rule barring anyone who is confirmed as a Covid-19 case within two weeks of their flight, have added complexity and chaos to travel plans.

“It is of paramount importance to provide the exit strategy and road map with respect to Covid as soon as possible,” the Investment Funds Association said last week.

Write to Natasha Khan at natasha.khan@wsj.com