Economy of Hong Kong

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Economy of Hong Kong
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Hong Kong's highly favorable geographical position and entrepot trading opportunities are 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 million 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.

Since the 1970s, the economy of Hong Kong has been governed both under British and Chinese rule under an economic policy dubbed Positive non-interventionism espoused by former financial secretary John James Cowperthwaite.

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.

Measuring discrepancies between the rich and poor with the Gini Coefficient indicates that the wealth gap continues to widen in Hong Kong since the new millennium. 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 People's Republic of China.^[1] Many of the financial tycoons also oppose universal suffrage, since the large number of poor would vote for populists who promise costly social programs.^[2]

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.

Contents 1 Resources 2 History 2.1 Transformation 2.2 Macro-economic trend 2.3 Inflation & Deflation 2.3.1 Inflation, GDP: 1962-2007 3 Currency 4 Real Estate 5 Stock exchange 6 Economic Predictions 7 Positive Non-interventionism 8 Economic Freedom 9 Economic Indicators 9.1 Population 9.2 GDP 9.3 Labour 9.4 FY 2007-08 Budget 9.5 Trade and investment (2007) 10 See also 11 External links 12 References

[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,^[3] 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] History

During Hong Kong's time as a British Colony, Positive non-interventionism was the economic policy of Hong Kong. It was first officially implemented in 1971 by John James Cowperthwaite, who observed that the economy was doing well in the absence of government intervention. The policy was continued by subsequent Financial Secretaries, including Sir Philip Haddon-Cave. Hong Kong's model allowed for the flexibility and renovation of any given industry in a very short time^{[citation needed]}. 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^[4]. By 1990 Hong Kong's per capita income officially surpassed that of the ruling United Kingdom^[5].

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.^[6]

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.

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 4.0% in 2007. 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] 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[7]. 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.[8]
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.

[edit] Macro-economic trend

Hong Kong deliberately began collecting and regularly publishing economy-wide data much later than its East Asian peers. The earliest gross domestic product estimates (for 1961 and subsequent years) were only released in 1973 and other basic data such as for the balance of payments were not compiled until 1999.^[9] Any GDP formed prior to this period was based on international trade statistics that came after 1971^[10].

The chart below shows the change in real and nominal GDP by decades from when data first began to be published.

Year	Real GDP	Nominal Growth	Change in deflator
1960s*	8.7%	12.7%	3.7%
1970s	8.9%	19.2%	9.5%
1980s	7.4%	16.9%	8.9%
1990s	3.5%	9.0%	5.3%
2000s **	4.7%	2.8%	-1.8%

• 1962-69 **2000-07

At the end of 2007, GDP was HK$1,627.5 billion (US$208.7 billion) and GDP per capita was HK$235,134 (US$30,157).

[edit] Inflation & Deflation

Hong Kong's inflation rate is markedly varying, up and down in a roller coaster ride between the 1960s and 1990's. In the early 21st C., Hong Kong became one of the few developed economies to have experienced deflation in the post-WW2 period; the other main example is Japan. Just how much prices are affected, however, depends on what’s being measured. Here are several examples of recent price changes:^[11]

Measure (Average Annual Percent Change Per Annum)	2000-04	2005	2006	2007
Consumer Price Index	(2.3%)	0.9%	2.1%	2.0%
*CPI: Food	(0.6)	2.2	1.7	4.3
*CPI: Durables	(0.1)	0.4	(6.4)	(4.7)
GDP Deflator	(3.7)	(0.1)	0.0	3.0
Private Consumption Deflator	(2.2)	1.8	1.3	3.7
Retail Price Deflator	(0.8)	0.7	1.4	2.5
Imported Goods	(1.0)	1.9	2.1	1.8
Imported Services	1.5	1.0	0.8	3.0

[edit] Inflation, GDP: 1962-2007

The following table demonstrates historic economic growth and inflation, as per the Census and Statistics Department.^[12][13]

1960s: Real GDP Increases by Percentage, Inflation by Percentage

Year	1962	1963	1964	1965	1966	1967	1968	1969
Real GDP	14.16	15.71	8.57	14.49	1.75	1.69	3.39	11.29
Inflation	1.99	3.77	5.05	2.52	0.60	6.56	3.35	5.59

1970s: Real GDP Increases by Percentage, Inflation by Percentage

Year	1970	1971	1972	1973	1974	1975	1976	1977	1978	1979
Real GDP	9.22	7.16	10.53	12.31	2.28	0.41	16.23	11.80	8.38	11.62
Inflation	8.89	7.65	9.22	14.28	11.70	4.66	9.60	3.73	7.99	17.64

1980s: Real GDP Increases by Percentage, Inflation by Percentage

Year	1980	1981	1982	1983	1984	1985	1986	1987	1988	1989
Real GDP	10.34	9.39	2.98	5.92	9.91	0.72	11.04	13.41	8.44	2.22
Inflation	15.49	10.26	11.11	10.00	8.59	3.49	3.60	5.64	7.80	10.29

1990s: Real GDP Increases by Percentage, Inflation by Percentage

Year	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999
Real GDP	3.90	5.69	6.09	6.04	6.01	2.29	4.19	5.06	-6.03	2.56
Inflation	10.19	11.29	9.58	8.74	8.87	9.01	6.27	5.90	2.83	-3.96

2000+: Real GDP Increases by Percentage, Inflation by Percentage

Year	2000	2001	2002	2003	2004	2005	2006	2007
Real GDP	7.95	0.50	1.84	3.01	8.46	7.12	6.75	6.83
Inflation	-3.76	-1.58	-3.12	-2.54	-0.40	0.93	2.02	2.03

[edit] Currency

Main article: Hong Kong dollar

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 is allowed to 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.

[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^[14]. 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.^[14]

[edit] Stock exchange

Main article: Hong Kong 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^[15]. 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.^[15]

[edit] Economic Predictions

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^[16], with the eventual projection that China will be Asia's most prosperous economy by 2040^[17]. 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] Positive Non-interventionism

Main article: Positive non-interventionism

This policy has often been cited by economists such as Milton Friedman and the Cato Institute as an example of the benefits of laissez-faire capitalism. However others have argued that the economic strategy was inadequately characterized by the term lassez-faire^[18] They point out that 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.^[19]

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.

[edit] Economic Freedom

Main article: Economic Freedom

Hong Kong has ranked as the world's freest economy in the Wall Street Journal and Heritage Foundation's Index of Economic Freedom for 14 consecutive years, since the inception of the index in 1995^[20][21]. The Index has been categorized as using inappropriately weighted indicators for economic freedom, leading to wealthy and/or conservative countries with barriers to trade placing high on the list, while poor and/or socialist countries with fewer restrictionsrestrictions on trade place lowJohn Miller at Dollars & Sense. Neither does the Index account for the actions of governments to nurture business John Miller at Dollars & Sense in the manner of the Japanese Zaibatsus during the late 20th C, that helped lead to the Japanese economic miracle. It also places first in the Economic Freedom of the World Report.

[edit] Economic Indicators

[edit] Population

• Inflation rate (consumer prices): +2.0% (2007)
• Unemployment rate: 4.1%
• Labour Force Participation Rate by sex (Sep-Nov 2007)^[22]
  • Male: 71.2%
  • Female: 53.0%
• Labour Force Participation Rate by age group (Sep-Nov 2007)^[23]
  • 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^[24]

• Labour force - by sector: (2006 est)^[25]
  • 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^[26]
  • 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
• Poverty Campaign: Speak Up

[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
• Key Economic and Social Indicators - Hong Kong Census and Statistics Department

[edit] References

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v • d • e Economy of Asia Sovereign states Afghanistan · Armenia1 · Azerbaijan1 · Bahrain · Bangladesh · Bhutan · Brunei · Burma2 · Cambodia · People's Republic of China · Cyprus1 · East Timor3 · Egypt4 · Georgia1 · India · Indonesia · Iran · Iraq · Israel · Japan · Jordan · Kazakhstan4 · North Korea · South Korea · Kuwait · Kyrgyzstan · Laos · Lebanon · Malaysia · Maldives · Mongolia · Nepal · Oman · Pakistan · Philippines · Qatar · Russia4 · Saudi Arabia · Singapore · Sri Lanka · Syria · Tajikistan · Republic of China5 · Thailand · Turkey4 · Turkmenistan · United Arab Emirates · Uzbekistan · Vietnam · Yemen Dependencies, autonomies, other territories Aceh · Adjara1 · Abkhazia · Akrotiri and Dhekelia · Altai · British Indian Ocean Territory · Buryatia · Christmas Island · Cocos (Keeling) Islands · Guangxi · Hong Kong · Inner Mongolia · Iraqi Kurdistan · Jakarta · Khakassia · Macau · Nagorno-Karabakh · Nakhchivan · Ningxia · Northern Cyprus · Palestine (Gaza Strip · West Bank) · Papua · Sakha · South Ossetia · Tibet · Tuva · West Papua · Xinjiang · Yogyakarta Italics indicates an unrecognised or partially recognised country.  1 Sometimes included in Europe, depending on the border definitions.  2 Also known as Myanmar.  3 Sometimes included in Oceania, and also known as Timor-Leste.  4 Transcontinental country.  5 Commonly known as Taiwan.