Economy of Hong Kong
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The Economy of Hong Kong is said to be the most economically free in the world. It has often been cited by economists such as Milton Friedman and the Cato Institute as an example of the benefits of laissez-faire capitalism. While the government, both under British and Chinese rule, has occasionally intervened in the economy, the free market policy of positive non-interventionism espoused by former financial secretary John James Cowperthwaite still largely drives economic policy today. It has ranked as the world's freest economy in the Index of Economic Freedom for 14 consecutive years, since the inception of the index in 1995[1][2]. It also places first in the Economic Freedom of the World Report.
Even though Hong Kong is often cited as the most free economy in the world, there are still many ways in which the government is involved in the economy. The government has intervened to create economic institutions such as the Hong Kong Stock Market and has been involved in public works projects and social welfare spending. All land in Hong Kong is owned by the government and leased to private users. By restricting the sale of land leases, the Hong Kong government keeps the price of land at what some would say are artificially high prices and this allows the government to support public spending with a low tax rate.[3]
A survey by Industrial Systems Research[4] found Hong Kong to have had various positive political, geographical, and cultural factors in its favor, in addition to the general positive factors of the economy of East Asia.
To begin with, it has had a more stable and liberal political-legal environment than most other countries. In the mid-20th century, while statist-collectivism was commonplace elsewhere in the world, the dominant political-economic philosophy of Hong Kong was free enterprise: economic non-intervention (laissez-faire) was a positive, deliberately adopted government policy.
Traditionally, the Hong Kong government has raised revenue from taxation and the sale of land but not engaged in industry and commerce for profit. From its revenues, the government has built roads, schools, hospitals, and other public infrastructure facilities and services. It has also operated a welfare insurance scheme. However, the authorities have generally avoided owning and running business enterprises, engaging in trade protectionism, or imposing regulatory controls of the kind that have so distorted industrial-commercial activity and generated high costs and inefficiency elsewhere. There has been relatively little popular pressure for higher government spending. Over the decades, successive political administrations have managed to avoid running up large budget deficits; and by restraining public borrowing, credit expansion and inflation have been held in check.
By the late 20th century, many other countries in Asia and elsewhere had effectively made the transition from statist-collectivism to modern market capitalism. However, Hong Kong still stood out in terms of its high levels of business-economic freedom, growth, and prosperity. Not just foreign direct investors but indigenous firms have been greatly aided by Hong Kong's international openness and dependence on trade.
Hong Kong seems likely to remain a highly free market-enterprise society. Such things as political production planning and price and import controls are fundamentally incompatible with the kind of globally open, competitive economic environment in which Hong Kong firms and industries operate.
Politics aside, Hong Kong's highly favorable geographical position and entrepot trading opportunities have also been great wealth-generating assets.
It has a superb sheltered natural harbor. For centuries, this had made Hong Kong a major haven for pirates before it became a British colony in 1841. Under British administration, it soon developed into a thriving legitimate international port.
By the late 20th century, Hong Kong was the seventh largest port in the world and second only to New York and Rotterdam in terms of container throughput. The Kwai Chung container complex was the largest in Asia; while Hong Kong shipping owners were second only to those of Greece in terms of total tonnage holdings.
In addition to geographical position, another major natural industrial-commercial asset of Hong Kong has been human resources.
The population of the territory was less than six millions in the late 20th century. However, there was an abundance of labor close by in the region that could be readily tapped through direct external investment and outsourcing. In Hong Kong itself, a skilled, adaptable, and hard-working labor force coupled with the adoption of modern British/ Western business methods and technology ensured that opportunities for external trade, investment, and recruitment were maximized.
Most Hong Kong residents were also first- or second-generation immigrants (and often refugees). Like the United States of a century or so earlier, the society was essentially a new one. In such societies, political cultural etc. orientations tend to be towards libertarianism/individualism – thus reinforcing the generally favorable environment for enterprise and economic growth.[5]
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[edit] Macro-economic trend
No official GDP was measured by the government until 1971. Any GDP formed prior to this period was based on international trade statistics that came after 1971[6]. This is a chart of trend of real gross domestic product of Hong Kong at constant market prices [1] by the International Monetary Fund with figures in millions of Hong Kong Dollars. In 2006, Hong Kong's Gross Domestic Product (GDP) on a Purchasing power parity (PPP) basis ranked as the 38th highest in the world at US$263.1 billion. Its (PPP) GDP per capita ranked as the 6th highest at US$38,127.[7]
Year | Real GDP | Average Annual Growth Rate within 5 previous years |
---|---|---|
1980 | 437,580 | |
1985 | 574,710 | 5.60% |
1990 | 845,515 | 8.03% |
1995 | 1,110,086 | 5.60% |
2000 | 1,314,789 | 3.44% |
2005 | 1,623,479 | 4.31% |
[edit] History
The very center of Hong Kong's economic freedom comes from the government's hands-off policy. This model was developed in Hong Kong and Taiwan as a response to analyzing the cultural revolution effect in China. The Maoist era tried to forecast the production of steel, and the inability to meet this prediction led to the immediate collapse of the economy[8]. Hong Kong's model allowed for the flexibility and renovation of any given industry in a very short time. Because of this, a 1994 World Bank report stated that Hong Kong's GDP per capita grew in real terms at an annual rate of 6.5% from 1965 to 1989. This consistent growth percentage over a span of almost 25 years is remarkable for any economic analysis[9]. By 1990 Hong Kong's per capita income officially surpassed that of the ruling United Kingdom[10].
After a slump caused by the regionwide Asian financial crisis that began in 1997, Hong Kong's economy had been on the rebound. Real GDP growth was 4% in 1999 and reached double digits in the first half of 2000. However, the dot-com bubble in the second half of 2000, the 9/11 terrorist attacks upon the United States in 2001 and the SARS outbreak in 2003 had severely damaged the economy of Hong Kong. In 2004 and 2005, real GDP grew by 8.5% and 7.1% respectively.
The unemployment rate increased from 2.2% to 6.3% due to the Asian financial crisis. After peaking at 7.9% in 2003, the unemployment rate eased back to 4.8% in 2006. In August 1998, the government intervened in the stock, futures, and currency markets to fend off "manipulators." The banking sector remains solid, and the government is committed to the US-Hong Kong linked exchange rate.
[edit] Resources
Hong Kong has little arable land and few natural resources within its borders, and must therefore import most of its food and raw materials. Hong Kong is the world's 11th largest trading entity,[11] with the total value of imports and exports exceeding its gross domestic product. As of 2006, there are 114 countries that maintain consulates in Hong Kong, more than any other city in the world. Much of Hong Kong's exports consists of re-exports, which are products made outside of the territory, especially in mainland China, and distributed through Hong Kong. Even before the transfer of sovereignty to the People's Republic of China, Hong Kong has established extensive trade and investment ties with mainland China. The territory's autonomous status enables it to serve as a point of entry for investments and resources flowing into the mainland.
[edit] Transformation
Hong Kong's economy has transformed and re-adapted itself to different periods of time.
Period | Dominating Sector | Description |
---|---|---|
Pre-War | Trade | In 1895 Hong Kong's trading port was 4th largest in the world[12]. The economy revolved around international trading. |
1950s to 1970s | Manufacturing | was the largest share of the economy, led by textiles. Business services such as wholesaling, retailing, foreign trade and hotels and restaurants was the second largest sector, followed by finance.[13] |
1980s to 1990s | Finance | In 1981, financial services including real estate, insurance, brokering and banking, moved into the lead for the first time. Business services again took the lead in 1984 and retained that position until the end of the colonial era |
Post-Handover | Services | Since 1997, the economy has been led by two engines, the business and financial services sectors which together account for half of all economic activity. |
The following table demonstrates historic economic growth and inflation, as per the Census and Statistics Department.[14][15]
Year | Real GDP | Inflation |
---|---|---|
1962 | 14.16% | 1.99% |
1963 | 15.71 | 3.77 |
1964 | 8.57 | 5.05 |
1965 | 14.49 | 2.52 |
1966 | 1.75 | 0.60 |
1967 | 1.69 | 6.56 |
1968 | 3.39 | 3.35 |
1969 | 11.29 | 5.59 |
1970 | 9.22 | 8.89 |
1971 | 7.16 | 7.65 |
1972 | 10.53 | 9.22 |
1973 | 12.31 | 14.28 |
1974 | 2.28 | 11.70 |
1975 | 0.41 | 4.66 |
1976 | 16.23 | 9.60 |
1977 | 11.80 | 3.73 |
1978 | 8.38 | 7.99 |
1979 | 11.62 | 17.64 |
1980 | 10.34 | 15.49 |
1981 | 9.39 | 10.26 |
1982 | 2.98 | 11.11 |
1983 | 5.92 | 10.00 |
1984 | 9.91 | 8.59 |
1985 | 0.72 | 3.49 |
1986 | 11.04 | 3.60 |
1987 | 13.41 | 5.64 |
1988 | 8.44 | 7.80 |
1989 | 2.22 | 10.29 |
1990 | 3.90 | 10.19 |
1991 | 5.69 | 11.29 |
1992 | 6.09 | 9.58 |
1993 | 6.04 | 8.74 |
1994 | 6.01 | 8.87 |
1995 | 2.29 | 9.01 |
1996 | 4.19 | 6.27 |
1997 | 5.06 | 5.90 |
1998 | -6.03 | 2.83 |
1999 | 2.56 | -3.96 |
2000 | 7.95 | -3.76 |
2001 | 0.50 | -1.58 |
2002 | 1.84 | -3.12 |
2003 | 3.01 | -2.54 |
2004 | 8.46 | -0.40 |
2005 | 7.12 | 0.93 |
2006 | 6.75 | 2.02 |
2007 | 6.83 | 2.03 |
[edit] Present
Since the new millennium the wealth gap continues to widen in Hong Kong. The gini coefficient is used to measure discrepancies between the rich and poor. As of 2006 Hong Kong's measurement is at 53.3, which means the difference between the rich and poor is far greater than that of the PRC.[16] Many of the financial tycoons also oppose universal suffrage, since the large number of poor would vote for populists who promise costly social programs.[17]
[edit] Future
Since the 1997 handover Hong Kong's economic future became far more exposed to the challenges of economic globalization competition directly from mainland China. Shanghai claimed in particular to have a geographical advantage, and a municipal government that dreams of turning the city into China's main economic center by as early as 2010. The target is to allow Shanghai to catch up to New York by 2040-2050[18], with the eventual projection that China will be Asia's most prosperous economy by 2040[19]. Hong Kong, on the other hand, continue to have a more positive and realistic approach. It is sustainably be the international financial center in China. Until then, Hong Kong is expected to have higher overall economic figures yearly. Hong Kong's principal trading partners remain to be China, United States, Japan, Taiwan, Germany, Singapore, and South Korea.
[edit] Currency
The currency used in Hong Kong is the Hong Kong dollar. Since 1983, it has been pegged at a fixed exchange rate to the United States dollar due to the event of Black Saturday. The currency allows trade within a range between 7.75 and 7.85 Hong Kong dollars to one United States dollar. The government's fiscal year is from April 1 to March 31 of the next year.
Exchange rate to US $1 | Period |
---|---|
HKD $7.797 | 2007 |
HKD $7.769 | 2006 |
HKD $7.778 | 2005 |
HKD $7.779 | 2004 |
HKD $7.788 | 2003 |
HKD $7.800 | 2002 |
HKD $7.804 | 2001 |
HKD $7.799 | 2000 |
HKD $7.765 | 1999 |
HKD $7.747 | 1998 |
HKD $7.744 | 1997 |
[edit] Real Estate
Culturally speaking, the city view is a draw and marketing point. Hong Kong has always had an imbalance of supply and demand where the population far outstrips the available land. Almost 7 million people live on about 1,104 square kilometres (426 mi²) of space. In the high-end market, the Peak is ranked the 3rd most expensive city in the world in 2007 with a square foot per unit pricing of US $2,008 behind London and Monaco[20]. The classification of Hong Kong as a "free economy" also means anyone with money can buy real estate property. Many foreigners have invested heavily in the territory, making real estate one of the biggest contributors to economic statistics. The land is essentially rented from the government under a lease, even if one owns the property. Prior to 1997, lease terms were 75, 99 or 999 years. As of Hong Kong's return to China, new grants last for 50 years.[20]
[edit] Stock exchange
The Hong Kong Stock Exchange is the 6th largest in the world, with a market capitalization of about US$2.97 trillion. In 2006, the value of initial public offerings conducted in Hong Kong was second highest in the world after London[21]. The rival stock exchange of the future is expected to be the Shanghai Stock Exchange. As of 2006, Hong Kong Exchanges and Clearing (HKEX) has an average daily turnover of 33.4 billion dollars, which is 12 times that of Shanghai.[21]
[edit] Other economic indicators
[edit] Population
- Population below poverty line: 4% (2005)
- Inflation rate (consumer prices): +2.0% (2007)
- Unemployment rate: 3.6% (2007)[22]
- Unemployment rate (high): 7.9% (2003)
- Labour Force Participation Rate by sex (Sep-Nov 2007)[23]
- Male: 71.2%
- Female: 53.0%
- Labour Force Participation Rate by age group (Sep-Nov 2007)[24]
- Age 15-24: 42.4%
- Age 25-44: 85.5%
- Age 45-64: 64.6%
- Age 65 and over: 5.3%
[edit] GDP
- GDP (nominal) - US$208.7 billion (2007)
- GDP - real growth rate: 6.8% (2007)
- GDP - per capita: US$30,157 (2007))
- GDP - composition by sector: (2006)
- Agriculture: 0.1%
- Industry: 11.9% (of which: manufacturing 3.1%)
- Services: 88.0% (of which: trade and retailing: 25.7%)
[edit] Labour
- Average Work Week: 47 hours per week[25]
- Labour force - by sector: (2006 est)[26]
- Agriculture and fishing: 0.3%
- Mining and quarrying: 0.05%
- Manufacturing: 5.1%
- Electricity, gas and water: 0.4%
- Construction: 8.0%
- Wholesale and retail trades: 10.5%
- Import and export trade: 16.4%
- Restaurants and hotels: 7.1%
- Transport and storage: 9.4%
- Communications: 1.1%
- Financial services: 5.3%
- Real estate and business services: 10.1%
- Public administration: 3.7%
- Education and health services: 7.6%
- Personal services: 9.0%
- Recreational, other community and social services: 5.9%
[edit] FY 2007-08 Budget
- Operating Revenues: HK$248.3 billion (US$$31.8 billion)
- of which, direct taxes: HK$130.9 billion
- of which, other recurrent revenue: HK$117.4 billion
- Capital Revenue: HK$76.7 billion
- = Government Revenue HK$346.9 billion
- Operating Expenditures: HK$206.4 billion (US$$26.5 billion)
- Capital Expenditures: HK$30.1 billion
- = Government Expenditures: HK$237.2 billion
- Subventions and other public sector spending: HK$19.4 billion
- = Public Expenditure: HK$255.8 billion
- Fiscal reserves less government debt: HK$460.3 billion (end-March 2008)
[edit] Trade and investment (2007)
- Exports: $344.9 billion f.o.b., including re-exports[22]
- Exports - partners: Mainland China 48.7%, USA 13.7, Japan 4.5%, Germany 3.0%
- Exports - commodities: clothing, textiles, footwear, electrical appliances, watches and clocks, toys, plastics, precious stones
- Imports: $368.4 billion (2007)
- Imports - partners: Mainland China 46.3%, Japan 10.0%, Taiwan 7.1%, Singapore 6.8%
- Imports - commodities: foodstuffs, transport equipment, raw materials, semimanufactures, petroleum; a large share is re-exported
[edit] See also
- Mainland and HK Closer Economic Partnership Arrangement (CEPA)
- Mainland and Macau Closer Economic Partnership Arrangement (CEPA)
- Economy of the People's Republic of China
- Economy of East Asia
- Individual Visit Scheme
- Positive non-interventionism
- The Hongs
- Taiwan Miracle
[edit] External links
- Hong Kong Government
- Hong Kong Economic Structure, The Economist, 10-01-2007. Retrieved 24-02-2007.
- The Hong Kong Experiment by Milton Friedman
- Global Investment in Hong Kong Markets - Nicholas Vardy October 27, 2006
- Economic History of Hong Kong Catherine R. Schenk, University of Glasgow
[edit] References
- ^ 2008 Index of Economic Freedom. Heritage Foundation.
- ^ Summary Economic Freedom Rating 2004 (Economic Freedom of the World - Annual report 2006 on page 13 or 9 of 23) (English). The Fraser Institute, Canada. Retrieved on 2007-01-08.
- ^ Geocities. "Geocities." Doesn't Hong Kong show the potentials of "free market" capitalism?. Retrieved on 2008-03-06.
- ^ Lewis F. Abbott (ed.) (2003). Industry and Enterprise: an International Survey of Modernization and Development, 2nd edition, Manchester: Industrial Systems Research. ISBN 978-0-906321-27-0.
- ^ (2003) "Industry and Enterprise Development in the Far East", in Lewis F. Abbott (ed.): Industry and Enterprise: an International Survey of Modernization and Development, 2nd edition, Manchester: Industrial Systems Research. ISBN 978-0-906321-27-0.
- ^ Schenk, Catherine Ruth. [2001] (2001). Hong Kong as an International Financial Centre: Emergence and Development, 1945-1965. United Kingdom: Routledge. ISBN 0415205832
- ^ "IMF Database 2007", The World Factbook, United States Central Intelligence Agency, last updated 2007-02-08. Retrieved on 2007-02-24.
- ^ Tang Tsou. [1986] (1986). The Cultural Revolution and Post-Mao Reforms: A Historical Perspective. University of Chicago Press. ISBN 0226815145
- ^ Rowley, Chris. Fitzgerald, Robert. [2000] (2000) Managed in Hong Kong: Adaptive Systems, Entrepreneurship and Human Resources. United Kingdom: Routledge Publishing. ISBN 0714650269
- ^ Yu Tony Fu-Lai. [1997] (1997) Entrepreneurship and Economic Development of Hong Kong. United Kingdom: Routledge. ISBN 0415162408
- ^ "About Hong Kong", Government Information Centre
- ^ Barber, Nicola. [2004] (2004) Hong Kong. Gareth Stevens Publishing. ISBN 0836851986
- ^ Key Indicators of Developing Asian and Pacific Countries, Vol XXBuckley, Roger. [1997] (1997). Hong Kong: The Road to 1997 By Roger Buckley. Cambridge July 1991, Economics and Development Resource Centre, Asian Development Bank, p. 140.
- ^ Censtatd.gov.hk. "Censtatd.gov.hk." Inflation. Retrieved on 2008-03-06.
- ^ Censtatd.gov.hk. "Censtatd.gov.hk." GDP. Retrieved on 2008-03-06.
- ^ Msnbc. "Hong Kong's wealth gap widens since handover." HK wealth gap widens. Retrieved on 2007-07-06.
- ^ Msnbc. "Reinventing Hong Kong." Ten years after the change-over, Hong Kong is positioning itself to become Asia's New York City. Retrieved on 2007-07-06.
- ^ Richardson, Harry W. Bae, Chang-Hee C. [2005] (2005) Globalization and Urban Development: Advances in Spatial Science. ISBN 3540223622
- ^ Burgess, Rod. Jenks, Michael. [2001] (2001) Compact Cities: Sustainable Urban Forms for Developing Countries. United Kingdom: Spon Press. ISBN 0419251308
- ^ a b ABC News. "ABC News Go." "Hong Kong's Real Estate is World's Peak." Retrieved on 2007-04-06.
- ^ a b Hong Kong surpasses New York in IPOs, International Herald Tribune, 2006-12-25. Retrieved 2007-1-20.
- ^ a b TdcTrade. "TdcTrade.com." Economic and Trade info on Hong Kong. Retrieved on 2007-03-14.
- ^ Hong Kong census. "Census labour data." LFPR. Retrieved on 2007-03-14.
- ^ Hong Kong census. "Census labour data." LFPR. Retrieved on 2007-03-14.
- ^ Steers, Richard. [1999] (1999). Made in Korea: Chung Ju Yung and the Rise of Hyundai. United Kingdom: Routledge. ISBN 0415920507
- ^ Hong Kong census. "Census labour data pdf." Labour. Retrieved on 2007-03-14.
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