Economy of Hong Kong Totally Explained

Everything about Economy Of Hong Kong totally explained

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. It also places first in the Economic Freedom of the World Report

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   Although Hong Kong has been cited as an example of laissez-faire capitalism, 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.
   A survey by Industrial Systems Research 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.

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. This is a chart of trend of real gross domestic product of Hong Kong at constant market prices (External Link

) 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 38^th highest in the world at US$263.1 billion. Its (PPP) GDP per capita ranked as the 6^th highest at US$38,127.

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%

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. 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. By 1990 Hong Kong's per capita income officially surpassed that of the ruling United Kingdom.
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.

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, 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.

Period	Dominating Sector	Description
Pre-War	Trade	In 1895 Hong Kong's trading port was 4th largest in the world. 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.
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.

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