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Hong Kong 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. It maintains a highly developed capitalist economy, ranked the freest in the world by the Index of Economic Freedom for 15 consecutive years. 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 $2.3 trillion as of December 2009. In that year, Hong Kong raised 22% of worldwide initial public offering (IPO) capital, making it the largest centre of IPOs in the world and the easiest place to raise capital. Hong Kong's currency is the Hong Kong dollar, which has been pegged to the US 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 World War II, 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 centre 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 11th 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% of all households owning at least $1 million. In 2011, Hong Kong was ranked second in the Ease of Doing Business Index, behind Singapore.


Economy - overview : Hong Kong has a free market economy, highly dependent on international trade and finance - the value of goods and services trade, including the sizeable share of re-exports, is about four times GDP. Hong Kong's open economy left it exposed to the global economic slowdown that began in 2008. Although increasing integration with China, through trade, tourism, and financial links, helped it to make an initial recovery more quickly than many observers anticipated, it again faces a possible slowdown as exports to the Euro zone and US slump. The Hong Kong government is promoting the Special Administrative Region (SAR) as the site for Chinese renminbi (RMB) internationalisation. Hong Kong residents are allowed to establish RMB-denominated savings accounts; RMB-denominated corporate and Chinese government bonds have been issued in Hong Kong; and RMB trade settlement is allowed. The territory far exceeded the RMB conversion quota set by Beijing for trade settlements in 2010 due to the growth of earnings from exports to the mainland. RMB deposits grew to roughly 7.8% of total system deposits in Hong Kong by the end of 2011, an increase of over 59% since the beginning of the year. The government is pursuing efforts to introduce additional use of RMB in Hong Kong financial markets and is seeking to expand the RMB quota. The mainland has long been Hong Kong's largest trading partner, accounting for about half of Hong Kong's exports by value. Hong Kong's natural resources are limited, and food and raw materials must be imported. As a result of China's easing of travel restrictions, the number of mainland tourists to the territory has surged from 4.5 million in 2001 to 28 million in 2011, outnumbering visitors from all other countries combined. Hong Kong has also established itself as the premier stock market for Chinese firms seeking to list abroad. In 2011 mainland Chinese companies constituted about 43% of the firms listed on the Hong Kong Stock Exchange and accounted for about 56% of the Exchange's market capitalization. During the past decade, as Hong Kong's manufacturing industry moved to the mainland, its service industry has grown rapidly. Growth slowed to 5% in 2011. Credit expansion and tight housing supply conditions caused Hong Kong property prices to rise rapidly in 2010 and inflation to rise 5.3% in 2011. Lower and middle income segments of the population are increasingly unable to afford adequate housing. Hong Kong continues to link its currency closely to the US dollar, maintaining an arrangement established in 1983.
GDP (purchasing power parity) : $350.4 billion (2011 est.)
GDP (official exchange rate) : $242.4 billion (2011 est.)
GDP - real growth rate : 5% (2011 est.)
GDP - per capita (PPP) : $49,300 (2011 est.)
GDP - composition by sector : agriculture: 0%
industry: 7%
services: 92.6% (2011 est.)
Labour force : 3.701 million (2011 est.)
Labour force - by occupation : manufacturing: 4.3%
construction: 2.4%
wholesale and retail trade, restaurants, and hotels: 41.4%
financing, insurance, and real estate: 12.5%
transport and communications: 6.3%
community and social services: 16.8%
note: above data exclude public sector (2011 est.)
Unemployment rate : 3.4% (2011 est.)
Population below poverty line : NA%
Household income or consumption by percentage share
: lowest 10%: NA%
highest 10%: NA%
Distribution of family income - Gini index : 53.3 (2007)
Investment (gross fixed) : 22.9% of GDP (2011 est.)
Budget : revenues: $55.53 billion
expenditures: $46.97 billion (2011 est.)
Taxes and other revenues
: 22.9% of GDP (2011 est.)
Budget surplus (+) or deficit (-)
: 3.5% of GDP (2011 est.)
Public debt
: 10.1% of GDP (2011 est.)
Inflation rate (consumer prices)
: 5.3% (2011 est.)
Central bank discount rate
: 0.5% (31 December 2011)
Commercial bank prime lending rate : 5% (31 December 2011 est.)
Stock of narrow money : $143.8 billion (31 December 2011 est.)
Stock of broad money : $1.028 trillion (31 December 2011 est.)
Stock of domestic credit : $540.7 billion (31 December 2011 est.)
Market value of publicly traded shares : $2.24 trillion (31 December 2011)
Agriculture - products : fresh vegetables; poultry, pork; fish
Industries : textiles, clothing, tourism, banking, shipping, electronics, plastics, toys, watches, clocks
Industrial production growth rate : 7.6% (2011 est.)
Electricity - production : 41.22 billion kWh (2011 est.)
Electricity - consumption : 43.14 billion kWh (2011 est.)
Electricity - exports : 2.75 billion kWh (2011 est.)
Electricity - imports : 10.75 billion kWh (2011 est.)
Oil - production : 0 bbl/day (2011 est.)
Oil - consumption : 303,800 bbl/day (2011 est.)
Oil - exports : 18,750 bbl/day (2011 est.)
Oil - imports : 375,000 bbl/day (2011)
Oil - proved reserves : 0 bbl (1 January 2012 est.)
Natural gas - production : 0 cu m (2011 est.)
Natural gas - consumption : 3.46 billion cu m (2011 est.)
Natural gas - exports : 0 cu m (2011 est.)
Natural gas - imports : 3.46 billion cu m (2011 est.)
Natural gas - proved reserves : 0 cu m (1 January 2011 est.)
Current account balance : $16.15 billion (2011 est.)
Exports : $427.9 billion (2011 est.)
Exports - commodities : electrical machinery and appliances, textiles, apparel, footwear, watches and clocks, toys, plastics, precious stones, printed material
Exports - partners : China 52.4%, US 9.9%, Japan 4% (2011 est.)
Imports : $482.6 billion (2011 est.)
Imports - commodities : raw materials and semi-manufactures, consumer goods, capital goods, foodstuffs, fuel (most is re-exported)
Imports - partners : China 44.9%, Japan 8.9%, Taiwan 7.5%, US 4.9% (2011 est.)
Reserves of foreign exchange and gold : $285.4 billion (31 December 2011 est.)
Debt - external : $903.2 billion (30 June 2011 est.)
Stock of direct foreign investment - at home : $1.141 trillion (31 December 2011 est.)
Stock of direct foreign investment - abroad : $988 billion (31 December 2011 est.)
Exchange rates : Hong Kong dollars (HKD) per US dollar - 7.79 (2011 est.); 7.77 (2010 est.); 7.75 (2009); 7.751 (2008); 7.802 (2007)




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