the economics freedoms of hongkong beta

7/31/2019 The Economics Freedoms of Hongkong Beta

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Quick FactsPopulation: 7.1 millionGDP (PPP):

$302.0 billion-2.7% growth3.1% 5-year compound annual

growth$42,748 per capita

Unemployment: 5.3%Inflation (CPI): 0.5%

FDI Inflow: $48.4 billion


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Hong Kongs economic freedom score is 89.7, making its economy thefreest in the 2011 Index . Its overall score is unchanged from last year, withsmall declines in the government spending score and labor freedomoffsetting improvements in fiscal freedom, monetary freedom, and freedomfrom corruption. Hong Kong is ranked 1st out of 41 countries in the AsiaPacific region.

Hong Kong, one of the worlds most competitive financial and businesscenters, demonstrated a high degree of resilience during the globalfinancial crisis. Effective legal and regulatory frameworks and openness toglobal commerce strongly support entrepreneurial dynamism, while overallmacroeconomic stability minimizes uncertainty. For the 12th consecutiveyear, Hong Kong has been Asias second largest destination for foreigndirect investment, trailing only mainland China. Hong Kongs economicinteraction with China has become more intense and sophisticated, chieflythrough strengthened financial linkages.

Hong Kongs economy has taken some populist policy turns in 2010.Vagueness lingers concerning potential applications of the competition lawthat was introduced in July 2010, and the introduction of a statutoryminimum wage aimed at reducing inequality runs the risk of becoming adrag on business activity and employment, particularly for small-scaleenterprises.


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Summary

.. The Hong Kong economy remained robust in the third quarter of 2010.Real GDP expanded briskly further by 6.8% year-on-year, following astrong growth of 7.2% in the first half of 2010. On a seasonally adjustedquarter-to-quarter comparison, real GDP expanded further by 0.7%.

.. Merchandise exports maintained strong momentum in the third quarter. The strong domestic demand and further expansion in intra-regional

production activity in the Asian markets provided the main impetus. Thefurther recovery in the US and European markets was also contributory,though demand in these markets had yet to return to their pre-crisis peaksin 2008.

.. Exports of services were likewise vibrant. Inbound tourism thrived on thesurge in visitor arrivals from the Mainland and other Asian markets.Exports of trade-related and transportation services continued to benefitfrom the resurgence in trade flows. Exports of financial and businessservices grew solidly further.


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Domestic sector held up rather well. Privateconsumption expenditure picked up further, riding onimproving employment situations and rising incomes.Investment saw a modest growth, mainly due to the relapsein machinery and equipment acquisition after three quartersof very fast growth. Construction activity grew notablyfurther, as the surge in public sector works went on.

Labour market continued to improve on a broadfront. Total employment rose to a new high since early 2009,pushing the seasonally adjusted unemployment rate downto 4.2%. Underemployment rate also improved further to1.9%. Labour income continued to increase.


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Local stock market was range-bound in July andAugust, then rallied in September alongside othermarkets worldwide on increasing market expectationsof a new round of monetary easing in the UnitedStates. Local property market made further gains in July and August, yet turned quieter inSeptember.

Underlying consumer price inflation notched upto 2.0% in the third quarter,

as both domestic and external cost pressurescontinued to feed through. Yet overall price pressures remained moderate so far,

particularly whenviewed alongside the brisk economic expansion.


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The Special Administrative Region of Hong Kong ispart of the Peoples Republic of China, but itgoverns its own affairs on a day-to-day basis andenjoys a wide range of freedoms under theterritorys mini-constitution, the Basic Law. Thegovernment has promised democratic reforms, butimplementation has been delayed. Hong Kongboasts one of the worlds most prosperouseconomies, thanks to small government, low taxes,and light regulation. Major industries includefinancial services and shipping; manufacturing hasmigrated largely to the mainland. Ongoingconcerns include cronyism in governmentpolicymaking, government control of land, andrestrictions on the free flow of information.


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Business freedom in Hong Kong is wellprotected within an efficient regulatory

framework. Transparency encouragesentrepreneurship, and the overallenvironment is conducive to theformation and operation of start-upbusinesses in various sectors of theeconomy.


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Hong Kongs weighted average tariff rate was 0 percent in 2009. Restrictive

pharmaceuticals regulation, marketaccess restrictions for some services,and food and energy labelingregulations add to the cost of trade. Tenpoints were deducted from Hong Kongstrade freedom score to account for non-tariff barriers.


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Inflation has been low, averaging 1.6percent between 2007 and 2009. Sincethe Hong Kong dollar maintains a fixedexchange rate with the U.S. dollar,interest rates and currency movementsfollow trends in the United States. HongKong has efficient clearing and settlementsystems. The government regulates theprices of public transport and electricityand some residential rents. Five pointswere deducted from Hong Kongsmonetary freedom score to account formeasures that distort domestic prices.


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Foreign capital receives domestictreatment, and foreign investment isstrongly encouraged. There are no limits

on foreign ownership and no screening orspecial approval procedures to set up aforeign firm except for certain legalservices and in broadcasting, whereforeign entities may own no more than 49percent of local stations. There are nocontrols or requirements on currenttransfers, access to foreign exchange, orrepatriation of profits. Bureaucracy isefficient and transparent.


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Hong Kongs financial regulatory and legalenvironment focuses on ensuring transparency andenforcing prudent minimum standards. Overall, thesystem has weathered the global financial turmoil

quite well, and the banking sector remains wellcapitalized. Hong Kong has further solidified itscompetitive status as a dynamic international financialcenter. In terms of initial public offerings, it toppedother competing global financial hubs for the secondyear in a row in 2010. Banks are overseen by the

independent Hong Kong Monetary Authority. Credit isallocated on market terms. There are no restrictions onforeign banks, which are treated the same as domesticinstitutions. The Hong Kong Stock Exchange remainsone of the worlds most capitalized and vibrant.


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Corruption is perceived as minimal.Hong Kong ranks 12th out of 180

countries in TransparencyInternationals Corruption PerceptionsIndex for 2009. Giving or accepting abribe is a criminal act.


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GDP (purchasing power parity) :$323.3 billion (2010 est.)country comparison to the world: 38$305.9 billion (2009 est.)

$314.7 billion (2008 est.)**note: data are in 2010 US dollars

GDP (official exchange rate) :$226.5 billion (2010 est.)

GDP - real growth rate :5.7% (2010 est.)country comparison to the world: 43-2.8% (2009 est.)2.2% (2008 est.)
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Labor force:3.7 million (2010 est.)country comparison to the world: 92

Labor force - by occupation : manufacturing: 6.1%construction: 1.9%wholesale and retail trade, restaurants, and hotels:42.9%

financing, insurance, and real estate: 21.4%transport and communications: 7.9%community and social services: 19.7%**note: above data exclude public sector (2008 est.)
https://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html?countryName=Hong%20Kong&countryCode=hk&regionCode=eashttps://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html?countryName=Hong%20Kong&countryCode=hk&regionCode=eashttps://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html?countryName=Hong%20Kong&countryCode=hk&regionCode=eas


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Unemployment rate : 4.6% (2010 est.)

country comparison to the world: 445.2% (2009 est.)

Population below poverty line : NA%
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Household income or consumption by percentage share :lowest 10%: NA%highest 10%: NA%Distribution of family income - Gini index :

53.3 (2007)country comparison to the world: 16

Investment (gross fixed) : 22.2% of GDP (2010 est.)

country comparison to the world: 64

Public debt :18.2% of GDP (2010 est.)country comparison to the world: 111

37.4% of GDP (2009 est.)
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Inflation rate (consumer prices) : 2.2% (2010 est.)country comparison to the world: 65-0.5% (2009 est.)

Central bank discount rate : 0.5% (31 December 2009)country comparison to the world: 1380.5% (31 December 2008)

Commercial bank prime lending rate : 5% (31 December 2009 est.)country comparison to the world: 1505% (31 December 2008 est.)
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Stock of narrow money :$84.88 billion (31 December 2010 est)country comparison to the world: 34$75.49 billion (31 December 2009 est)Stock of broad money :$850.8 billion (31 December 2009)country comparison to the world: 18$808.8 billion (31 December 2008)

Stock of domestic credit :$374.8 billion (31 December 2010 est.)country comparison to the world: 29$351.2 billion (31 December 2009 est.)
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Market value of publicly traded shares :$2.292 trillion (31 December 2009)country comparison to the world: 8$1.32 trillion (31 December 2008)$1.163 trillion (31 December 2007 est.)

Agriculture - products :Fresh vegetables; poultry, pork; fish

Industries :textiles, clothing, tourism, banking, shipping,electronics, plastics, toys, watches, clocks
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Industrial production growth rate :-0.3% (2010 est.)country comparison to the world: 156

Electricity - production :39.4 billion kWh (2009 est.)country comparison to the world: 57

Electricity - consumption :42.1 billion kWh (2009 est.)country comparison to the world: 49

Electricity - exports :3.926 billion kWh (2009 est.)

Electricity - imports :11.7 billion kWh (2009 est.)
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Oil - production :0 bbl/day (2009 est.)country comparison to the world: 185

Oil - consumption :359,000 bbl/day (2009 est.)country comparison to the world: 35

Oil - exports :160,000 bbl/day (2009)country comparison to the world: 53

Oil - imports :440,000 bbl/day (2009)country comparison to the world: 29
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Oil - proved reserves :0 bbl (1 January 2010 est.)country comparison to the world: 169

Natural gas - production :0 cu m (2009 est.)country comparison to the world: 175

Natural gas - consumption :2.83 billion cu m (2009 est.)country comparison to the world: 75

Natural gas - exports :0 cu m (2009 est.)country comparison to the world: 171
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Natural gas - imports :2.83 billion cu m (2009 est.)country comparison to the world: 41

Natural gas - proved reserves :0 cu m (1 January 2010 est.)country comparison to the world: 167

Current account balance :$18.07 billion (2010 est.)country comparison to the world: 18$18.28 billion (2009 est.)
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Exports :$382.6 billion (2010 est.)country comparison to the world: 12$321.8 billion (2009 est.)

Exports - commodities :electrical machinery and appliances, textiles,apparel, footwear, watches and clocks, toys,plastics, precious stones, printed material

Exports - partners :China 51.2%, US 11.6%, Japan 4.4% (2009 est.)
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Imports :$413 billion (2010 est.)country comparison to the world: 10$348.7 billion (2009 est.)

Imports - commodities :raw materials and semi-manufactures, consumer goods, capital

goods, foodstuffs, fuel (most is re-exported)

Imports - partners :China 46.4%, Japan 8.8%, Taiwan 6.5%, Singapore 6.5%, US 5.3%

(2009)

Reserves of foreign exchange and gold :$262.7 billion (31 December 2010 est.)country comparison to the world: 8$255.8 billion (31 December 2009 est.)
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Debt - external :$69.86 billion (31 December 2010 est.)country comparison to the world: 45$655.1 billion (30 September 2009)

Stock of direct foreign investment - at home :$962.2 billion (31 December 2010 est.)country comparison to the world: 5$912.2 billion (31 December 2009 est.)

Stock of direct foreign investment - abroad :$873.1 billion (31 December 2010 est.)country comparison to the world: 6$834.1 billion (31 December 2009 est.) Exchange rates :Hong Kong dollars (HKD) per US dollar - 7.78 (2010), 7.7518(2009), 7.751 (2008), 7.802 (2007), 7.7678 (2006)
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1.1 The Hong Kong economy continued to see a robust recovery in thethird quarter of 2010. Private consumption picked up further, thanks toimproving income and job prospects. While business sentiments remainedsanguine in general, investment expanded modestly further after three quartersof notable growth. The strong growth momentum in the external sectorextended well into the third quarter. Merchandise exports continued toperform very well in the Asian markets. Further revival in demand in the USand Europe also rendered additional support to the overall export performance.Exports of services were vibrant across the board, driven by buoyant inboundtourism, surging trade flows, as well as thriving fundraising and othercommercial activities. Nevertheless, external trade environment remainedsubject to considerable headwinds, amid more volatile movements in thecurrency markets, rise in protectionist sentiment, and increasing signs of advanced economies losing steam. Local stock market was range-bound in

July and August, but embarked on an uptrend during September alongside othermarket rally worldwide on expectations of an imminent round of quantitativeeasing in the US. Inflation notched up further, but remained moderate when

viewed against the brisk economic expansion.


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1.2 In the third quarter of 2010, theGross Domestic Product (GDP)(1) leaped by6.8% in real terms over a year earlier,following a 6.5% growth in the secondquarter (unchanged from the earlierestimate). On a seasonally adjusted quarter-to-quarter comparison(2), GDP grew by0.7% in real terms in the third quarter, the

sixth consecutive quarter of expansion. As aresult, the seasonally adjusted GDP level inthe third quarter surpassed the pre-crisispeak in the first quarter of 2008 by some2.3%.


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1.3 Total exports of goods maintained strong momentum inthe third quarter. Exports to major Asian markets continued to bethe growth driver, thanks to the strong domestic demand in theseeconomies and also the increase in intra-regional productionactivity. Exports to the US and Europe also improved further, astheir import demand continued to rise back from their troughs in2009. The global economic recovery remained uneven acrossregions(3). Asia was the bright spot, with strong domestic demandand thriving exports. Hong Kong was no exception. In the thirdquarter, total exports of goods surged by 20.8% in real terms overa year earlier, further to the 20.1% growth in the second quarter.

Yet the fundamentals of advanced markets remained rather

fragile, and the pace of expansion in economic activities tended todecelerate more recently. The near-term trade outlook in the Asiaregion has dimmed somewhat and remains subject to potentialheadwinds from the weakening recovery in the advancedeconomies.


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1.4 Exports of services continued to performwell in the third quarter, up14.0% in real terms over ayear earlier, after the 17.1% increase in the secondquarter. Exports of travel services were buoyed by

robust growth in incoming visitors across most majormarkets, in particular the Mainland and other Asianmarkets. Exports of transportation and trade-relatedservices continued to benefit from the vibrant tradeflows in the region and the resurgence in trade withthe rest of the world. Exports of financial and

business servicesexpanded solidly further from the higher base of comparison a year earlier.


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1.6 Overall investment spending in terms of gross domesticfixed capitalformation increased modestly by 0.3% in real terms in the thirdquarter of 2010over a year earlier, after a strong growth of 15.6% in the secondquarter. The

more moderate growth in the third quarter was mainly due to arelapse inmachinery and equipment acquisitions, a highly volatile componentwhich canshow big fluctuations from quarter to quarter. For the third quarterspecifically,there was a decline of 6.4% in real terms over a year earlier, afterthree quartersof double-digit year-on-year growth. On the whole, businesssentiments werestill sanguine. The latest Quarterly Business Tendency Survey resultsindicated that the large enterprises remained positive about the near-termbusiness outlook, while the views of small and medium enterprises(SMEs)were a bit mixed (See Box 1.1 for details of the survey on SMEs).


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1.7 The labour market improved further on abroad front, thanks to anincreasingly entrenched economic recovery. Totalemployment continued to

climb back, pushing the seasonally adjustedunemployment rate down further to4.2% in the third quarter of 2010, the lowest levelsince end-2008. Theunderemployment rate also continued its downtrend,

reaching 1.9% in the thirdquarter. Meanwhile, labour wages and earnings rosefurther in the secondquarter.


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1.8 Local stock market showed some rebound in July but fell again in August, generally range-bound as

market sentiments remained under the influence of the ongoing sovereign debt problem in Europe andthe bumpy recovery in the advanced economies.Nevertheless, local stock market resumed an uptrendalongside other major markets worldwide on enteringSeptember, on expectations of an extension of thesuper-loose monetary stance in the advancedeconomies and in particular, a new round of

quantitative easing by the United States. Hang SengIndex rallied during September, closing the month at22 358, up 11% and 2% respectively over end-Junethis year and end-2009.


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1.9 Residential property market remained vibrant in July and August,gaining in both prices and transaction volume, before turning somewhatquieterin September, after the Financial Secretary announced further measures inmid-August to control the potential risks of asset market bubble in thepropertysector. Overall flat prices rose by 5% between June 2010 and September 2010,following a cumulative increase of 29% during 2009 and a further rise of 9%during the first half of 2010. Transactions in the third quarter leaped by 18%over the preceding quarter, reflecting the active trading amid positive marketsentiment. With the exceptionally low mortgage interest rates, homepurchaseaffordability (i.e. the ratio of mortgage payment for a 45-square metre flat tomedian income of households, excluding those living in public housing) was

still below the long-term average of 53% over 1989 to 2008, but has risenfurther to around 42% in the third quarter. Meanwhile, rentals for flats, officesand shops notched up further, along with the pickup in leasing demand andcommercial activities.


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1.10 Consumer price inflation climbed up further in the third quarterof 2010, as the reflationary process that accompanied the economic recoverywenton. On the external front, renewed weakening of the US dollar during thethirdquarter, rising global food prices and higher inflation in Asia all added to theprice pressure from imported sources. Yet hefty productivity growth in theoverall economy has provided an effective cushion, which was the majorcontributory factor behind the still relatively moderate inflationnotwithstandingthe rapid economic growth so far this year. Underlying consumer priceinflation, which nets out the effect of Governments relief measures to provideamore accurate indicator of the inflation trend, averaged at 2.0% in the thirdquarter, up from 1.5% in the second quarter. Taking into account the effect of Governments one-off measures, headline consumer price inflation stood at2.3% in the third quarter as compared to 2.6% in the second quarter. Thenarrowing gap between the headline and underlying inflation rates in thethirdquarter was largely due to the dissipation of the low base effect created bytheelectricity subsidy with the final payment ended in August last year, as well asan extra month of public housing rental waiver in the third quarter this yearas


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1.11 The GDP deflator went up by 2.5%in the third quarter as compared to a yearearlier. The faster increase as compared tovirtually flat in the second quarter was duemainly to a reversion to improvement in theterms of trade, brought about by a narrowerincrease in the prices of imports of goodsand services. Domestic demand deflator

continued to rise in the third quarter, asinflationary pressure from domestic sourcessustained alongside the economicrecovery.


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1.12 With the economic recovery becoming moreentrenched, activity across most major sectors saw furtherexpansion by varying extents in the second quarter of 2010.

The manufacturing sector expanded moderately further by2.5% in the second quarter, after reverting to growth in thefirst quarter. Construction sector expanded robustly by16.2% over a year earlier, helped mainly by the surge inpublic sector works. The services sector, the mainstay of Hong Kongs economy, leaped further by 6.2% in the secondquarter over a year earlier. Thanks to thriving trade flowsand business activity, import and export trade continued to

see the sharpest growth, followed by wholesale and retailtrades, and transport and storage. Growth in financing andinsurance decelerated notably alongside the intensificationof the European sovereign debt problem in the earlier partof the second quarter. Real estate fell modestly further by1.8% during the quarter.


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1.13 The Government announcedfurther measures in August to control thepotential risks and curb speculative

activities in the property market. Themeasures include increasing the landsupply, disallowing confirm or transactionsof first-hand uncompleted flats, raising the

forfeiture in cancelling property transactionsto 10%, and monitoring the implementationof earlier measures to enhance thetransparency of property information andtransactions.


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the economics freedoms of hongkong beta

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