Hong Kong’s Economy – A Brief Overview
As of 2019, Hong Kong’s Economy Continues to Remain “the World’s Freest Economy”
Of all 43 countries in the Asia-Pacific region, Hong Kong’s economy continues to dominate as the “world’s freest economy”.
A Background Look at Hong Kong’s Economy
In 1997, Hong Kong’s economy became part of Special Administration Region (SAR) of the People’s Republic of China. As a nation, it has always been dependent on finance and international trade primarily. Since 1983, the country’s currency has shared close links with the U.S. dollar.
Hong Kong has always been an economy that was service-oriented. To encourage growth, Hong Kong’s economy attracts foreign investment by imposing no tariffs on imported goods. Excise duties are levied on only four commodities, which are tobacco, methyl alcohol, hard alcohol and hydrocarbon oil. This is regardless of whether these four are produced locally or imported. Additionally, no quotas or dumping laws are imposed.
However, this open economy concept left the country exposed when the 2008 global economic slowdown hit. Despite trying to aid recovery through increased integration with China, Hong Kong’s economy was still vulnerable. This was mainly attributed to its reliance on investment and foreign trade.
By the time the late 20th century came, Hong Kong became the 7th largest port worldwide. This placed it second behind Rotterdam and New York. It’s Kwai Chung container complex became Asia’s largest.
Long History with China
Mainland China has always been part of Hong Kong’s history, and as it happens, its economy too. China, as the largest trading partner, accounts for approximately half of the total trade value. Hong Kong’s economy is hindered by limited resources. Raw materials and food need to be imported. With China easing up on travel restrictions, mainland tourists into Hong Kong started to soar.
In the past decade alone the country’s manufacturing industry moved mainland. With the move, service industry rapidly began to grow. In 2014, the Closer Economic Partnership Agreement was signed between Hong Kong and China. With this new agreement, basic liberalisation of trade services was achieved in the Guangdong Province. By 2015, mainland Chinese companies made up approximately 51% of firms listed on the Hong Kong Stock Exchange.
Hong Kong’s Economy Today
Hong Kong’s economy has consistently maintained a high score on the Index of Economic Freedom. The latest was its 90.2 score for 2019. Because of this, many investors see it as a favourable place of business. Its economic strength includes:
- An extremely sound banking system
- No public debt
- Strong legal systems in place
- Abundant foreign exchange reserves
- Rigorous anti-corruption measures
- Being the sixth-largest stock exchange in the world
- Close links to China make it an ideal foothold into that market
- Modern financial industry
In 2017, Hong Kong’s economy adopted the “one country, two systems” agreement. In doing so, it gave Hong Kong’s economy a high level of autonomy except in the areas of foreign and defence policy. The policy has received some strain in recent years over interference from China, but that hasn’t hampered its growth. The economy continues to thrive and flourish, increasing its integration with the mainland via tourism, trade and financial links.