The 'Economy of
Hong Kong' is widely believed 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
PRC 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 13 consecutive years, since the inception of the index in 1995
[1][2]. It also places first in the
Economic Freedom of the World Report.
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
[3]. 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
GDP ranked as the 40
th highest in the world at
US$253.1 billion. Its per-capita GDP ranked as the 15
th highest at US$36,500, notably ahead of countries such as
Canada,
Japan,
Switzerland, and the
United Kingdom, and still well ahead of the
People's Republic of China.
[4]
| Year | Real Gross Domestic Product | Average Annual Growth Rate within 5 previous years |
|---|
| 1980 | 437,580 |
| 1985 | 574,710 | 5.60% |
| 1990 | 845,493 | 8.02% |
| 1995 | 1,110,240 | 5.60% |
| 2000 | 1,314,790 | 3.44% |
| 2005 | 1,619,980 | 4.26% |
History
The ever rising landscape is a reflection of the growing economy
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 affect in
China. The
Maoist era forecasted the production of
steel, and the inability to produce led to the immediate collapse of the economy
[5]. 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
[6]. By 1990 Hong Kong's
per capita income officially surpassed that of the ruling United Kingdom
[7].
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 8.6% and 7.3% respectively.
After peaking at 8% in 2003
[2], the unemployment rate eased back to 5.3% in October 2005, with an underemployment rate of 3.0%. 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
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,
[8] 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.
Transformation
Hong Kong's economy has transformed and re-adapted itself to different periods of time.
{| class="wikitable"
|-
! width=20% | Period
! Dominating Sector
! Description
|-
|
Colonial Hong Kong || Trade || In 1895 Hong Kong's trading port was 4th largest in the world
[9]. The economy revolved around international trading.
|-
|
1950s to
1960s || Industrial & Manufacturing ||
Textile manufacturing in particular, dominated all other sector, serving as the backbone for the entire economy
7[10].
|-
|
1970s to
1980s || Financial || The financial industry was responsible for the largest growth period in the economic history of Hong Kong
7.
|-
|
1990s to
2006 || Service || In recent years the service sector has accounts for 85% of the GDP. The major components of Hong Kong's service trade are shipping, civil aviation, tourism, and various financial services. One of the most distinguished characteristics of commerce in Hong Kong is that out of 500,000 establishments, 98% of local firms employ less than 50 people and the majority has less than 10 full-time staff members
[11]. Most notable event for the period is the
Asian Financial crisis.
|-
|
2007 to Present || Financial Service || By 2006 Chinese companies have raised about $84 billion in
IPO. According to
Ernst & Young, the city generated 17% of the total capital raised worldwide during the first 11 months of 2006. Hong Kong must manage the enormous pools of money the
PRC has amassed via huge
trading surpluses.
[12][13] Hong Kong has a safe finance infrastructure that makes it ideal for investments.
|-
The following table demonstrates which periods in the past exhibited some of the largest growth margins
7.
{| class="wikitable"
|-
! Start Period || End Period || Growth Percentage
|-
| 1948 || 1950 || 28.78%
|-
| 1950 || 1955 || 3.41%
|-
| 1955 || 1960 || 11.98%
|-
| 1960 || 1964 || 16.35%
|-
| 1964 || 1966 || 18.20%
|-
| 1966 || 1970 || 15.10%
|-
| 1970 || 1975 || 22.47%
|-
| 1975 || 1980 || 39.04%
|-
| 1980 || 1985 || 18.70%
|-
| 1985 || 1990 || 21.86%
|-
| 1990 || 1991 || 15.34%
|-
| 1991 || 1992 || 15.82%
|-
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.
[14] Many of the financial tycoons also oppose
universal suffrage, since the large number of poor would vote for
populists who promise costly social programs.
[15]
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 in particular has a geographical advantage, and a municipal government that is capable of turning the city into China's main economic center by as early as 2010. The target is to allow Shanghai to catchup to
New York by 2040-2050
[16], with the eventual projection that China will be Asia's most prosperous economy by 2040
[17]. 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.
Currency
Hong Kong 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.
{| class="wikitable"
|-
! Exchange rate to
US $1 || Period
|-
|-
| HKD $7.802 || First-half 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
|-
|-
Real Estate
Lai King Estate, one of many housing structures
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. 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
.
Stock exchange
Main articles: Hong Kong Stock Exchange
The
Hong Kong Stock Exchange is the
7th largest in the world, with a
market capitalization of about
US$1.71 trillion. In 2006, the value of
initial public offerings conducted in Hong Kong was second highest in the world after
London[18]. The rival stock exchange of the future is expected to be the
Shanghai Stock Exchange. As of 2006, Hong Kong Exchange and Clearing Limited (HKEX) has an average daily turnover of 33.4 billion dollars, which is 12 times that of Shanghai
18.
Other economic indicators
The economy functions well into the night
Population
★ 'Population below poverty line:' 4%
★ 'Inflation rate (consumer prices):' 0.9% (2005 est.)
★ 'Unemployment rate:' 4.4% (2007 est.)
[TdcTrade. "TdcTrade.com." ''Economic and Trade info on Hong Kong.'' Retrieved on 2007-03-14.]
★ 'Labour Force Participation Rate by sex' (2006)
[19]
★
★ ''Male:'' 71.0%
★
★ ''Female:'' 52.6%
★ 'Labour Force Participation Rate by age group' (2006)
[20]
★
★ ''Age 15-24:'' 42.9%
★
★ ''Age 25-44:'' 84.8%
★
★ ''Age 45-64:'' 65.1%
★
★ ''Age 65 and over:'' 5.8%
GDP
★ 'GDP (nominal)' - US$189 billion (2006 actual)
★ 'GDP - real growth rate:' 6.9% (2006)
★ 'GDP - per capita:' US$27,565 (2006))
★ 'GDP - composition by sector:' (2005 est.)
★
★ ''Agriculture:'' 0.1%
★
★ ''Industry:'' 9.2%
★
★ ''Services:'' 90.6%
Labour
The average work week is 47 hrs
★ 'Average Work Week:' 47 hours per week
[21]
★ 'Labour force - by sector:' (2006 est)
[22]
★
★ ''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%
Budget
★ 'Operating Revenues:' HK$211.61 billion (US$$27.24 billion, FY 2006-07 actual)
★
★ ''of which, direct taxes:'' HK$118.1 billion
★
★ ''of which, other recurrent revenue:'' HK$116.3 billion
★ 'Capital Revenue:' HK$53.8 billion
★ '= Government Revenue' HK$265.41 billion
★ 'Operating Expenditures:' HK$195.75 billion (US$$25.20 billion, FY 2006-07 actual)
★ 'Capital Expenditures:' HK$31.57 billion
★ '= Government Expenditures:' HK$227.32 billion
★ 'Subventions and other public sector spending:' HK$18.25 billion
★ '= Public Expenditure:' HK$245.57 billion
★ 'Foreign Currency Reserve Assets:' $972.32 billion (December 2005 est.)
★ 'Total assets of the Exchange Fund' including the Foreign Currency Reserve Assets: $1068.9 billion (December 2005)
Trade and investment
★ 'Exports:' $316.8 billion f.o.b., including re-exports (2006)
★
★ ''Exports - partners:'' Mainland China 43%, Japan 12%, Taiwan 8%, US 7%, South Korea 5%, Singapore 3% (2000)
★
★ ''Exports -
commodities:'' clothing, textiles, footwear, electrical appliances, watches and clocks, toys, plastics, precious stones
★ 'Imports:' $334.6 billion (2006)
★
★ ''Imports - partners:'' Mainland China 41%, Japan 13%, US 8%, Taiwan 7%, South Korea 5%, Singapore 4% (1998)
★
★ ''Imports - commodities:'' foodstuffs, transport equipment, raw materials, semimanufactures, petroleum; a large share is re-exported
★ 'Debt - external:' $72.04 billion (2005)
See also
★
Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)
★
Individual Visit Scheme
★
Positive non-interventionism
★
The Hongs
★
Taiwan Miracle
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
References
1. 2007 Index of Economic Freedom
2. Summary Economic Freedom Rating 2004 (Economic Freedom of the World - Annual report 2006 on page 13 or 9 of 23)
3. Schenk, Catherine Ruth. [2001] (2001). Hong Kong as an International Financial Centre: Emergence and Development, 1945-1965. United Kingdom: Routledge. ISBN 0415205832
4. "Rank Order - GDP - per capita (PPP)", The World Factbook, United States Central Intelligence Agency, last updated 2007-02-08. Retrieved on 2007-02-24.
5. Tang Tsou. [1986] (1986). The Cultural Revolution and Post-Mao Reforms: A Historical Perspective. University of Chicago Press. ISBN 0226815145
6. Rowley, Chris. Fitzgerald, Robert. [2000] (2000) Managed in Hong Kong: Adaptive Systems, Entrepreneurship and Human Resources. United Kingdom: Routledge Publishing. ISBN 0714650269
7. Yu Tony Fu-Lai. [1997] (1997) Entrepreneurship and Economic Development of Hong Kong. United Kingdom: Routledge. ISBN 0415162408
8. "About Hong Kong", Government Information Centre
9. Barber, Nicola. [2004] (2004) Hong Kong. Gareth Stevens Publishing. ISBN 0836851986
10. Buckley, Roger. [1997] (1997). Hong Kong: The Road to 1997 By Roger Buckley. Cambridge University Press. ISBN 0521469791
11. Tan, P Felix. Corbett, Scott. Wong Yuk-Yong. [1999] (1999). Information Technology Diffusion in the Asia Pacific: Perspectives on Policy, Electronic Commerce. Idea Group Publishing. ISBN 1878289489.
12. 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.
13. 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.
14. Msnbc. "Hong Kong's wealth gap widens since handover." ''HK wealth gap widens.'' Retrieved on 2007-07-06.
15. 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.
16. Richardson, Harry W. Bae, Chang-Hee C. [2005] (2005) Globalization and Urban Development: Advances in Spatial Science. ISBN 3540223622
17. Burgess, Rod. Jenks, Michael. [2001] (2001) Compact Cities: Sustainable Urban Forms for Developing Countries. United Kingdom: Spon Press. ISBN 0419251308
18. Hong Kong surpasses New York in IPOs, International Herald Tribune, 2006-12-25. Retrieved 2007-1-20.
19. Hong Kong census. "Census labour data." ''LFPR.'' Retrieved on 2007-03-14.
20. Hong Kong census. "Census labour data." ''LFPR.'' Retrieved on 2007-03-14.
21. Steers, Richard. [1999] (1999). Made in Korea: Chung Ju Yung and the Rise of Hyundai. United Kingdom: Routledge. ISBN 0415920507
22. Hong Kong census. "Census labour data pdf." ''Labour.'' Retrieved on 2007-03-14.
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