An Overview of Hong Kong Today582731

Hong Kong is the 424 sq mi gateway to Chinese Market with 7 Million people living within the territory now defined as the "Special Administrative Region" (SAR) of the People's Republic of China. Many businesses in Hong Kong have their manufacturing in Guandong province. Hong Kong's strengths are in high-tech sectors and well capitalized banking sector.

Hong Kong reverted to Chinese rule in 1997. During that year, Hong Kong  experienced a major economic disruption. In the two decades since that time, Hong Kong has remained a vibrant economy with a relatively high standard of living. Although the population is small, businessmen and women are used to western business practices.

Whereas Hong Kong, Singapore, Taiwan and South Korea all started out as low-cost, labor-intensive manufacturing bases, Singapore, Taiwan and South Korea have all developed high-technology industries, whereas Hong Kong has become a services center for companies (foreign as well as those from Hong Kong) doing business in China. The structure of the economy has therefore changed dramatically over the past decade: the manufacturing sector contributed just 5% of GDP in 2001, compared with 14.4% in 1991, and in 2002 employed only 9% of the labor force. The manufacturing sector has been replaced by a rapidly expanded services sector. Wholesale, retail and import/export trades, and community, social, and personal services are Hong Kong's two largest services sectors in 2002 (The Economist, 2004).

With the government averse to regulation, Hong Kong  has traditionally lacked the legislative and institutional measures that are used elsewhere to encourage competition. Partly because of this, there has been criticism that the domestic economy is monopolized by a few powerful local conglomerates. For instance, just two chains-Wellcome and Park 'n Shop-dominate the supermarket industry. These two firms are in turn owned by conglomerates, Jardine Matheson and Hutchison Whampoa respectively, which have a range of other interests in Hong Kong, owning, for example, major land developers.

The government has taken some steps to increase corporate competition in recent years, although its efforts have so far been limited largely to those areas over which it exerts a direct influence. New products can and do gain market share very quickly.

However, the composition of trade within Hong Kong has changed over the past 10 years. Hong Kong used to be an important intermediary for China's trade with the rest of the world. Now that China has increasingly direct access to world markets, less of this trade goes through Hong Kong (The Economist, 2004). Instead, Honk Kong is getting a larger share of "offshore" trade that takes advantage of Hong Kong's superior logistical services. But the value added component of this sort of trade is much lower.

Hong Kong operates an open, highly regarded, and efficient financial system that includes many of the world's largest financial institutions. In this context, Hong Kong's role as a financial services center will become more important. Even if China's financial linkages with the rest of the world were to deepen, Hong Kong is likely to continue to play a crucial role as a fund-raising center for Chinese firms. But maintaining international competitiveness in the face of rising competition from other aspiring financial centers will remain a challenge (The Economist, 2004).

The Hong Kong of today has a strong economic recovery underway from the Asian stock market crash of 1997. There are good near-term prospects for rising growth and an easing of deflation with the free flow of goods, capital, people and information between Hong Kong and China. The GDP growth for 2004 is currently 4&frac12; percent. The current economy is supported by the boost from Mainland tourism, the strengthening of the global economy, the advent of a new free trade zone between China and Hong Kong, as well as the associated improvement in domestic consumer sentiment (IMF Hong Kong Staff Visit, 2003).