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 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 for the 12th consecutive year retained its rating as the freest economy in the world in the 2006 Index of Economic Freedom released by The Heritage Foundation. The Cato Institute in the United States, in conjunction with more than 60 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 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 was the second best-performing host economy for foreign direct investment (FDI) in Asia, according to the World Investment Report 2005 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 5.3 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 Cooperation and Development economies. Per capita GDP in Hong Kong has also more than doubled over the same period, with an average annual growth rate of about 4 per cent in real terms. In 2005, it reached US$25,622 at current market prices.
Hong Kong has long been well known for its market-led economic policy. '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 the 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 in opening up the telecommunications, information technology (IT) 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 (WTO) and the Asia-Pacific Economic Cooperation, and by negotiating and entering into bilateral arrangements such as those for air services.
Prudent Fiscal Practice
The Government adheres to prudent fiscal practice, while 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 Southeast 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 overseas professional staff further contribute to the development of the financial markets.
The Banking Sector
The international financial community has a strong presence in Hong Kong. At the end of May 2006, Hong Kong had 134 licensed banks, of which 122 were foreign-owned. Of the world's top 100 banks, 69 had operations in the HKSAR, while 44 subsidiaries of foreign banks operated as restricted licence banks and deposit-taking companies. A further 88 foreign banks had 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 sixth largest centre for foreign exchange trading, according to the 2004 triennial global survey conducted by the Bank for International Settlements.
Stock and Debt Markets
Hong Kong's stock market is one of the world's largest in terms of market capitalisation. At the end of May 2006, 1 144 public companies were listed on the Hong Kong Exchanges and Clearing Limited with a total market capitalisation of $9,411 billion (US$1,206.5 billion).
The stock market is the second largest in Asia, behind Japan's.
Hong Kong's debt market has developed into one of the most liquid markets in the region. The Central Moneymarkets Unit (CMU) Service, established in 1990, is operated by the Hong Kong Monetary Authority (HKMA) to provide a clearing and custodian system for Exchange Fund Bills and Notes (EFBNs) and other private debt securities. The EFBNs had an outstanding amount of about HK$130.4 billion at the end of September 2006, when daily turnover in these papers averaged HK$36.3 billion. For the private debt securities, a total of HK$112 billion debt issues were launched in the first half of 2006.
Economic Links with the Mainland
Hong Kong is the premier gateway for trade with and investment into and from 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 45 per cent of Hong Kong's total trade value in 2005. About 90 per cent of Hong Kong's re-export trade is related to the Mainland, making it both the largest market for and the largest source of Hong Kong's re-exports.
Hong Kong is a major services centre for the Mainland generally and South China in particular, providing a wide range of financial and other business support 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$260 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 cooperation 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-related enterprises operating in Hong Kong.Total direct investment from the Mainland amounted to US$131 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 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-related enterprises seek to extend their business outward, Hong Kong can help them gain access to overseas markets.
Gateway to the Mainland
Hong Kong is a key gateway to the Mainland for both business and tourism. In 2005, some 62.7 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 4 million. Every day there are 128 sailings, about 100 flights, more than 400 train connections and 40 200 vehicle crossings between Hong Kong and the Mainland. top