Economic System in Hong Kong
The objective of Hong Kong's monetary policy is to maintain currency stability. Given the highly externally oriented nature of the economy, this objective is further defined as a stable external value for the Hong Kong dollar in terms of a linked exchange rate against the US dollar at the rate of $7.80 to US$1. This objective is achieved through the linked exchange rate system introduced in October 1983.
Hong Kong is characterised by its high degree of internationalisation, business-friendly environment, rule of law, free trade and free flow of information, open and fair competition, well-established and comprehensive financial networks, superb transport and communications infrastructure, sophisticated support services, and a well-educated workforce complemented by a pool of efficient and energetic entrepreneurs. Added to these are substantial foreign exchange reserves, a fully convertible and stable currency, and a simple tax system with low tax rates.
A Free Economy
Hong Kong has retained its rating as the freest economy in the world in the 2004 Index of Economic Freedom released by The Heritage Foundation, for the 10th consecutive year. The Cato Institute in the United States, in conjunction with more than 50 economic institutes worldwide, also ranks Hong Kong as the world's freest economy. The International Monetary Fund classifies Hong Kong as an advanced economy. Other highly regarded institutions—like the World Economic Forum, the International Institute of Management Development and the Economist Intelligence Unit—also identify Hong Kong as one of the world's most competitive business environments. And Hong Kong is the best-performing host economy for foreign direct investment (FDI) in Asia, according to the World Investment Report 2002 published by the United Nations Conference on Trade and Development (UNCTAD).
Gross Domestic Product (GDP) Growth
Over the past two decades, the Hong Kong economy has more than doubled in size, with GDP growing at an average annual rate of 4.9 per cent in real terms. This means Hong Kong has outperformed the growth of the world economy as well as that of the Organisation for Economic Co-operation and Development economies. Per capita GDP in Hong Kong has also more than doubled over the same period, equivalent to an average annual growth rate of about 3.7 per cent in real terms. In 2003, it reached US$23,027, second only to Japan in Asia and higher than many Western countries.
Hong Kong has long been wellknown for its market-led economic policies. Market-led means that the Government does not seek to direct or plan the course that the economy or the markets should take, as investors and entrepreneurs are deemed to understand markets far better than officials. Private sector initiatives are a surer way to build Hong Kong's prosperity than the bureaucrat's blueprints. Economic vitality is thus the key to maintaining competitiveness and engendering prosperity for all people in Hong Kong.
Maximum Support, Minimum Intervention
The Government firmly believes in 'maximum support and minimum intervention'. Its primary role is to provide the most business-friendly conditions possible, including the fundamental 'software' of personal liberty, the rule of law, a clean and efficient administration, and a level playing field for all businesses, as well as the land and infrastructural 'hardware' such as schools and roads that Hong Kong needs for growth.
In addition, the Government has a special responsibility for removing market restrictions and promoting fair competition. It has made considerable strides in liberalising the securities, futures and banking industries, and opening up the telecommunications, information technology and broadcasting markets.
The Government protects and promotes Hong Kong's commercial interests in the international arena through representation in such international forums as the World Trade Organisation and the Asia-Pacific Economic Co-operation group, and by negotiating and entering into bilateral arrangements such as those for air services.
Prudent Fiscal Practice
The Government adheres to prudent fiscal practice, whilst maintaining a simple tax structure with low tax rates that sustain workers incentive to work and entrepreneurs incentive to invest. The corporate profits tax rate and salaries tax rate, at 17.5 per cent and 16 per cent respectively, are low by international standards.
International Financial Centre
Hong Kong is an international financial centre with an integrated network of financial institutions and markets. The Government's policy is to maintain and develop a sound legal, regulatory, infrastructural and administrative framework with the aims of providing a level playing field for all market participants, maintaining the stability of the financial and monetary systems and enabling Hong Kong to compete effectively with other major financial centres.
A favourable geographical position, which bridges the time gap between North America and Europe, strong links with the Mainland and other economies in South-east Asia and excellent communications with the rest of the world have helped Hong Kong to develop into an important international financial centre. The absence of any restrictions on capital flows into and out of Hong Kong is another important factor.
Hong Kong's financial markets are characterised by a high degree of liquidity. They operate under effective and transparent regulations, which meet international standards. A highly-educated workforce and ease of entry for professional staff from overseas further contribute to the development of the financial markets.
The Banking Sector
The international financial community has a strong presence. At the end of 2003, Hong Kong had 134 licensed banks, of which 121 were foreign-owned banks. Of the world's top 100 banks, 75 have operations in the HKSAR, while 81 subsidiaries or related companies of foreign banks operate as restricted licence banks and deposit-taking companies. A further 87 foreign banks have local representative offices. The banking sector's external assets are among the highest in the world.
Hong Kong has a mature and active foreign exchange market, which forms an integral part of the global market. Links with centres overseas enable foreign exchange dealing to continue 24 hours a day around the world. Hong Kong was the world's 6th largest centre for foreign exchange trading, according to the 2004 triennial global survey conducted by the Bank for International Settlements.
The stock market is one of the world's largest in terms of market capitalisation. At the end of May 2004, 1 057 public companies were listed on the Hong Kong Exchanges and Clearing Limited with a total market capitalisation of $5,484.4 billion (US$703.1 billion).
The stock market is the 2nd largest in Asia, behind Tokyo's. The Growth Enterprise Market (GEM), a NASDAQ-style second board of the stock exchange, was launched in November 1999 to provide 'start-up' companies, in particular those involved in high-tech business, with access to equity market financing. As at May 2004, 195 companies were listed on GEM with a total market capitalisation of $74.5 billion (US$9.55 billion). In a pilot programme launched in May 2000, Hong Kong became the first city in Asia to offer 'live' trading on the Asian time-zone of seven leading US NASDAQ stocks.
Economic Links with the Mainland
Hong Kong is the premier gateway for trade with and investment into and out of the Chinese Mainland. Since the Mainland adopted its economic reform and open-door policy in 1978, economic links with Hong Kong have gone from strength to strength.
Trade with the Mainland
The Mainland is Hong Kong's largest trading partner, accounting for 43 per cent of Hong Kong's total trade value in 2003. About 90 per cent of Hong Kong's re-export trade is related to the Mainland, making it both the largest market and the largest source for Hong Kong's re-exports.
Hong Kong is a major service centre for the Mainland generally and South China in particular, providing a wide range of financial and other support business services like banking and finance, insurance, transport, accounting and sales promotion.
Investments between Hong Kong and the Mainland
Hong Kong companies are the largest external investors in the Mainland, with cumulative investments of more than US$218 billion accounting for about half of the total value of inward direct investment. Hong Kong's closest economic links are with Guangdong Province. Some 10 million workers in Guangdong are employed by industrial ventures with Hong Kong interests. Implementation of the Closer Economic Partnership Arrangement (CEPA) in 2004 and various policy initiatives to enhance economic co-operation between Guangdong and Hong Kong serve to expand business opportunities.
The Mainland is also a major investor in Hong Kong's economy. There are more than 2 000 Mainland enterprises operating in Hong Kong with a total investment of US$220 billion, making it one of the largest sources of external direct investment.
China's Accession to the WTO
With continuing reform and liberalisation of the Mainland economy, particularly after China's entry into the World Trade Organisation (WTO), Hong Kong's service hub role for the Mainland will continue to strengthen. Hong Kong possesses a strong niche in partnering with and providing business support services for foreign enterprises seeking to enter the Mainland market. In the other direction, as more Mainland enterprises seek to extend their business outward, Hong Kong can help them to gain access to overseas markets.
Gateway to the Mainland
Hong Kong is a key gateway to the Mainland both for business and for tourism. In 2003, some 52.6 million trips were made by Hong Kong residents to the Mainland. The number of trips made by foreign visitors to the Mainland through Hong Kong totalled 2.71 million. Every day there are 116 sailings, about 170 flights, more than 400 train connections and 35 400 vehicle crossings between Hong Kong and the Mainland.
(Source: Hong Kong Special Administrative Region Government website)