The world will be watching on June 30, 1997 as the United Kingdom relinquishes its control over Hong Kong and the territory reverts back to Chinese rule. The Heritage Foundation designated Hong Kong as the freest economy of the world in 1996. Hong Kong is estimated to be the world's third wealthiest economy on a per capita basis as the economy has more than quadrupled in the past 2 decades to become the world's fifth largest trading entity with the eighth largest stock market and $62 billion in foreign exchange reserves. Per capita GDP in 1996 was $24,000 higher than the United Kingdom, Canada and Australia. Overall GDP is expected to grow by 5.5 percent in 1997. Hong Kong is marked by an unemployment rate of 3.2 percent and is thus one of the world's most robust economies.
Hong Kong's government has throughout history been strongly supportive of an open market policy, resulting in a budget surplus for many years. Hong Kong now holds the position as the regions leading financial center after Tokyo. Approximately 1,800 multinationals are positioned in Hong Kong, 700 of which maintain regional headquarters there. This includes 85 of the world's top 100 banks. The world's biggest container port, Kwai Chung, controls eight percent of the world's merchant ships. Hong Kong is a media center for Asia with over 700 newspapers based there.
On June 30, 1997, the 99 year lease on Hong Kong held by the United Kingdom will come to an end and the colonial territory will become a special Administrative Region of the People's Republic of China. C.H. Tung has been promoted as the chief executive designate of the new Administrative Region. Despite the initial alarm regarding this upcoming event, there should be little to worry about for those with vested interests in this region. China agreed to allow Hong Kong to continue on its path of economic growth. This sentiment is outlined in a 1984 Sino-British joint declaration that ensures China's recognition of Hong Kong's social and business practices for at least 50 years.
In 1990, the declaration was reinforced by the Basic Law which was formulated by the PRC. It declared that Hong Kong will retain a "high degree of autonomy in all matters except foreign affairs and defense." More specifically Hong Kong will retain an independent court with ultimate judicial authority, keep its own currency, and maintain the right to enter international agreements. In addition, all Hong Kong laws will apply within the region, all finances will be independent of the PRC with no tax revenues sent to Beijing, and all government and civil service positions will be occupied by Hong Kong residents. Thus, many economists feel the transfer of authority will essentially be a "nonevent" in economic terms.
China's statements have been reassuring in its commitment to the Basic Law on all terms except one. The PRC has breached its agreement allowing the people of Hong Kong to elect its own legislature. China rejected a 1994 election reform initiated by the United Kingdom and has declared that the Chinese government dissolve the current Legislative Council and designate the new members on its own accord. These officials held their first meeting in December of 1996, and will hold this office until the next election.
Hong Kong will be dubbed as the second city of commerce in China, and the region is already China's largest trading partner. China is Hong Kong's largest investor and government officials have stated that they and the financial leaders of the PRC hold a great deal of respect for the economic system. Companies from mainland China have invested more than $7 billion in Hong Kong. Approximately 65 percent of foreign direct investment in China goes through Hong Kong.
1996 was a strong year for Hong Kong, despite the upcoming reversion which many investors thought may spark increased hesitation in the financial system. According to Ken Rossiter, equity sales manager for Nikko Securities, the political risks attached to China are grossly exaggerated. The Hang Seng Index was up 27 percent through December 13, 1996. The Hong Kong Society of Accountants has urged policy makers to ignore the transition date when constructing economic policy for this year's budget. There will, in fact, be only two new major tax laws contained in the budget. One is an increase of 9 percent in the excise tax on products such as tobacco and fuel. The other is an increase in the airport departure tax from HK$50 to $HK100. Other signs of confidence in 1997 include the recovery of the property sector which holds 50 percent of the profits of Hong Kong listed companies. Property prices are now at record highs as additional capital and people stream into the territory. Investors are now choosing to focus on consumer stocks directly tied to China's growing economy.
The Hong Kong monetary authority, which is similar to a central bank, continues to focus on maintaining the financial stability of the region and promoting Hong Kong's position as an international financial center. Its members have continued to finalize repurchase agreements with countries throughout the region, including Japan, to ensure currency stability throughout the area. This means that the central banks of the two countries would have additional sources of money to draw on should their currencies come under "speculative pressure." Thus the government cannot maintain such a tight grip on economic policy when the currency has been internationalized. Such actions should further reassure investors that the financial stability of Hong Kong will be maintained.
Hong Kong's economy is continuing the transition from a manufacturing center to service-oriented industries. The region is now reliant on people-based business and consumer sentiment, as services account for 70 percent of Hong Kong's GDP. These include hi-tech services, financial services and markets, professional services, the motion picture industry, tourism, and convention services. Hong Kong possesses an advantage in providing trade related services because of its geographical location at the center of Asia's growth region. Within the country there has been a rising demand for professional and other support services (market research, advertising, design and exhibition services, etc. )
Hong Kong is also the leader of The Dragons in the telecommunications industry. The country is considered, along with Tokyo, as the internet capital of the region. Hong Kong is the largest teleport in Asia containing 15 satellites. In order to maintain this edge, plans for major upgrading in the telecommunications infrastructure have been implemented. Hong Kong Telecom, for instance, invested approximately $560 million to improve its network and services.
The Hong Kong Trade Development Council continues to play an increasingly important role in promoting international commerce and investment in the previously mentioned industries. The council is known as the " international marketing arm" for buyers and sellers in the manufacturing, service and telecommunication sectors. With 37 branch offices in 26 countries, it consists of 18 members and seven specialized Industry Advisory Committees. Its functions include creating awareness around the world of business opportunities in Hong Kong, matching potential traders and investors worldwide, and maintaining a computer database of 55,000 local manufacturers and trading firms, and 24,000 overseas importers.
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