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 its reputation as Asia’s leading global financial center.

From Friday, travelers arriving in Hong Kong will be allowed to leave their designated quarantine hotels after three days, instead of seven now, officials announced in a briefing Monday morning. During that period they will not be allowed into places that now require a vaccine pass, such as gyms, bars and restaurants, they said.

The city’s reputation has taken a hit in recent months, 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, Hong Kong’s competitive edge as a regional base for businesses and an international financial center, or IFC, is being eroded the longer restrictions remain in place, business groups have said.

“The ability to travel unfettered internationally is a basic prerequisite of an IFC,” 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.”

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