Hong Kong - Economy

Economy

As one of the world's leading international financial centres, Hong Kong has a major capitalist service economy characterised by low taxation and free trade. The currency, Hong Kong dollar, is the eighth most traded currency in the world as of 2010. Hong Kong was once described by Milton Friedman as the world’s greatest experiment in laissez-faire capitalism, but has since instituted a regime of regulations including a minimum wage. It maintains a highly developed capitalist economy, ranked the freest in the world by the Index of Economic Freedom every year since 1995. It is an important centre for international finance and trade, with one of the greatest concentrations of corporate headquarters in the Asia-Pacific region, and is known as one of the Four Asian Tigers for its high growth rates and rapid development from the 1960s to the 1990s. Between 1961 and 1997 Hong Kong's gross domestic product grew 180 times while per-capita GDP increased 87 times over.

The Hong Kong Stock Exchange is the seventh largest in the world, with a market capitalisation of US$2.3 trillion as of December 2009. In that year, Hong Kong raised 22 percent of worldwide initial public offering (IPO) capital, making it the largest centre of IPOs in the world and the easiest place to raise capital. The Hong Kong dollar has been pegged to the U.S. dollar since 1983.

The Hong Kong Government has traditionally played a mostly passive role in the economy, with little by way of industrial policy and almost no import or export controls. Market forces and the private sector were allowed to determine practical development. Under the official policy of "positive non-interventionism", Hong Kong is often cited as an example of laissez-faire capitalism. Following the Second World War, Hong Kong industrialised rapidly as a manufacturing centre driven by exports, and then underwent a rapid transition to a service-based economy in the 1980s. Since then, it has grown to become a leading center for management, financial, IT, business consultation and professional services.

Hong Kong matured to become a financial centre in the 1990s, but was greatly affected by the Asian financial crisis in 1998, and again in 2003 by the SARS outbreak. A revival of external and domestic demand has led to a strong recovery, as cost decreases strengthened the competitiveness of Hong Kong exports and a long deflationary period ended. Government intervention, initiated by the later colonial governments and continued since 1997, has steadily increased, with the introduction of export credit guarantees, a compulsory pension scheme, a minimum wage, anti-discrimination laws, and a state mortgage backer.

The territory has little arable land and few natural resources, so it imports most of its food and raw materials. Agricultural activity—relatively unimportant to Hong Kong’s economy and contributing just 0.1% of its GDP—primarily consists of growing premium food and flower varieties. Hong Kong is the world's eleventh largest trading entity, with the total value of imports and exports exceeding its gross domestic product. It is the world's largest re-export centre. Much of Hong Kong's exports consist of re-exports, which are products made outside of the territory, especially in mainland China, and distributed via Hong Kong. Its physical location has allowed the city to establish a transportation and logistics infrastructure that includes the world’s second busiest container port and the world’s busiest airport for international cargo. Even before the transfer of sovereignty, Hong Kong had established extensive trade and investment ties with the mainland, which now enable it to serve as a point of entry for investment flowing into the mainland. At the end of 2007, there were 3.46 million people employed full-time, with the unemployment rate averaging 4.1% for the fourth straight year of decline. Hong Kong's economy is dominated by the service sector, which accounts for over 90% of its GDP, while industry constitutes 9%. Inflation was at 2.5% in 2007. Hong Kong's largest export markets are mainland China, the United States, and Japan.

As of 2010 Hong Kong is the eighth most expensive city for expatriates, falling from fifth position in the previous year. Hong Kong is ranked fourth in terms of the highest percentage of millionaire households, behind Switzerland, Qatar, and Singapore with 8.5 percent of all households owning at least one million US dollars. In 2011, Hong Kong was ranked second in the Ease of Doing Business Index, behind Singapore. General principle No. 5 of the Basic Law of the SAR suggests that the CPC expects that it shall have brought the economic system of the Mainland and Hong Kong into harmony by 2047, by which time the Chinese economy is predicted by Businessweek to have been the largest by any measure of GDP for decades.