Hong Kong Economics

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HONG KONG

1. Introduction

Hong Kong is an autonomous territory at the south-eastern tip of the mainland of China. Coming in number 4 in the ranking of the world’s most densely populated territory, having a total population of 7.31 million, and a land area of 1,105.7 square kilometres, as of 2015 (gov.hk, 2016).

Hong Kong has emerged from being described as ‘barren rock’, to a British colony of millions, to becoming a Chinese territory with a booming economy and stratospheric property prices, over the years (Griffiths, Kwok, & Yubas, 2017).

There are four main economic sectors in Hong Kong. It is the world-class tourism, professional and producer, trading and logistics, and financial services. (Research Office Legislative Council Secretariat, 2015)

1. Trading and Logistics

The economic sector that provides the largest contribution to Hong Kong’s real GDP comprises of trading and logistics industry. In 2015, trading and logistics provides 22.3% of Hong Kong’s real GDP. It may come from postal and courier services, import and export trade, wholesale, storage services, and freight transport.

1. Financial Services

Making up 17.6% of Hong Kong’s total GDP in 2015, the second largest contributor to Hong Kong’s economy is financial services. It may come from insurance, banking and other financial services such as, asset management, stock brokerage, financial leasing and investment.

1. Professional and Producer

Professional and Producer services is the third largest contributor to Hong Kong’s economy, contributing 12.3% of total GDP in 2015. It may come from architecture and engineering activities, accounting and auditing services, scientific research and development, technical testing and analysis, legal and, other professional services such as information technology services.

1. Tourism

The last of the 4 key contributors of Hong Kong’s economic sector is tourism, making up 5% of total GDP. It may come from retail trade, accommodation services, food and beverages services and travel agencies.

Today, Hong Kong is a greatly developed region and is ranked 1st for having the world’s freest economy. In fact, Hong Kong have been able to successively hold on to this title since the year 1995.

In 2015, Hong Kong also come in second place for the world’s most competitive economy. This was attained due to Hong Kong’s business and government efficiency.

1. Production Output Performance Analysis

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Figure 2.1  

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Figure 2.2  

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Figure 2.3

With reference to the figures above, Hong Kong’s real GDP (Gross Domestic Product) has grown from US$ 181.57 billion in 2005 to US$ 291.46 billion in 2014. The average growth of Hong Kong’s economy is 0.99% quarter-on-quarter. While the GDP per capita have been steadily increased from US$ 27688.7 million in 2005 to US$ 365657.5 million in 2014, with an exception of the year 2009.

Based on figure 2.2, the real GDP growth is mainly positive, excluding the years 2009, 2011 and 2014. The rate falls to a record low of -3.40% during the first quarter of 2009. This was due to the collapse of the Lehman Brothers, which is the American investment bank, that led to the global economic crisis which had affected Hong Kong’s economy badly as it is heavily dependent on the external trade and financial services. The returns from the financial services sector saw a decline and the volumes of trade in Hong Kong also dropped 21% from September 2008 to March 2009. This resulted to Hong Kong’s GDP decreasing drastically in the 2nd half of year 2008 and 1st quarter of year 2009.

Upon entering 2011, Hong Kong’s economy have sustained strong momentum, however, it went downwards since the 2nd quarter. This was due to faltering demand in the advances economies and the re-emergence of the eurozone sovereign debt crisis that causes the external environment to be increasingly plagued.

To help the country’s businesses and its employees, the government of Hong Kong have set forth several measures to support enterprises and to stabilise its financial market.

In October 2008, Hong Kong’s government declared 2 pre-emptive measures to overcome the global financial crisis (2008 Economic Background and 2009 Prospects, 2009). Firstly, by using the Exchange Fund to guarantee repayment of every deposits held with authorise institutions in Hong Kong. Secondly, Contingent Bank Capital Facility was formed to supply extra capital to locally incorporated banks when needed. The measures remained till end of 2010 to help stabilise Hong Kong’s financial system.

To help SME’s (small & medium-sized enterprises) that face severe cash flow problems and tight credit conditions, the implementation of Special Loan Guarantee Scheme was carried out (Secretariat, TFEC, 2009).

Hong Kong Monetary Authority also inserted Hong Kong dollar into the banking system and reduced the base interest rate on money borrowed through discount window to render liquidity assistance to the licensed banks.

The Hong Kong’s government also set aside a budget of HKD 40 billion in the 2009/2010 Budget released and proposed an expenditure of HKD 200 billion.

From 2010 to 2015, led by the prudent fiscal policies that the government pursue, Hong Kong’s GDP has since stabilized.

1. Labour Market Analysis

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Figure 3.1

With reference to Figure 3.1, the highest unemployment rate is approximately 6.4% in 2005 and the lowest unemployment rate is approximately 3.1% in 2014.

The after effect of the Severe Acute Respiratory Syndrome (SARS) could be the reason for the high unemployment as seen in the year 2005 since Hong Kong was badly affected by it. The region had the highest number of SARS casualties; with 299 deaths and 1755 infected (Ngo, 2015).