Economy of Hong Kong

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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.

[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^[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. It's 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]

[edit] 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].

[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,^[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.

[edit] Transformation

Hong Kong's economy has transformed and re-adapted itself to different periods of time.

The following table demonstrates which periods in the past exhibited some of the largest growth margins^[7].

[edit] Present

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 6.3% in 1999, the unemployment rate eased back to 4.8% in mid-2000. As of October 2005, the unemployment rate was 5.3%, 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.

[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 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^[12], with the eventual projection that China will be Asia's most prosperous economy by 2040^[13]. 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

Hong Kong 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 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.

[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$1.71 trillion. In 2006, the value of initial public offerings conducted in Hong Kong was second highest in the world after London^[14]. The rival stock exchange of the future is expected to be the Shanghai Stock Exchange. As of 2006, HKSE has an average daily turnover of 33.4 billion dollars, which is 12 times that of Shanghai^[14].

[edit] Other economic indicators

The economy functions well into the night

[edit] Population

• Population below poverty line: 4%

• Inflation rate (consumer prices): 0.9% (2005 est.)

• Unemployment rate: 4.4% (2007 est.)^[15]
• Labour Force Participation Rate by sex (2006)^[16]
  • Male: 71.0%
  • Female: 52.6%
• Labour Force Participation Rate by age group (2006)^[17]
  • Age 15-24: 42.9%
  • Age 25-44: 84.8%
  • Age 45-64: 65.1%
  • Age 65 and over: 5.8%

[edit] GDP

• GDP: purchasing power parity of $227.3 billion (2005 est.)
• GDP - real growth rate: 7.3% (2005)
• GDP - per capita: purchasing power parity of $32,900 (2005 est.)
• GDP - composition by sector: (2005 est.)
  • Agriculture: 0.1%
  • Industry: 9.2%
  • Services: 90.6%

[edit] Labour

The average work week is 47 hrs

• Average Work Week: 47 hours per week^[18]

• Labour force - by sector: (2006 est)^[19]
  • 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] Budget

• Revenues: $31.31 billion
• Expenditures: $32.3 billion, including capital expenditures of $5.9 billion (2005 est.)
• 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)

[edit] Trade and investment

• Exports: $298.3 billion f.o.b., including re-exports (2006)^[15]
  • 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: $291.6 billion (2005)
  • 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)

[edit] See also

• 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

[edit] References

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