Economic Policy
Hong Kong has long been well-known for its market-led economic policies. 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 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 opening up the telecommunications, information technology 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 and the Asia-Pacific Economic Co-operation group, and by negotiating and entering into bilateral arrangements such as those for air services.
Prudent Fiscal Practice
The Government adheres to prudent fiscal practice, whilst maintaining a simple tax structure with low tax rates that sustain workers incentive to work and entrepreneurs incentive to invest. In 2002, the corporate profits tax rate and salaries tax rate, at 16 per cent and 15 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 aim 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 South-East 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.
Financial Markets
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 professional staff from overseas further contribute to the development of the financial markets.
The Banking Sector
The international financial community has a strong presence. At the end of December 2002, Hong Kong had 133 licensed banks, of which 121 were foreign-owned banks. Of the world's top 100 banks, 73 have operations in the HKSAR, while 91 subsidiaries or related companies of foreign banks operate as restricted licence banks and deposit-taking companies. A further 94 foreign banks have local representative offices. The banking sector's external assets are among the highest in the world.
Exchange Market
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 7th largest centre for foreign exchange trading according to the 2001 triennial global survey conducted by the Bank for International Settlements.
Stock Market
The stock market is one of the world's largest in terms of market capitalisation. At the end of December 2002, 978 public companies were listed on the Stock Exchange of Hong Kong Limited with a total market capitalisation of $3611.3 billion (US$463 billion).
The stock market is the 3rd largest in Asia behind Japan and the Mainland. The Growth Enterprise Market (GEM), a NASDAQ-style second board of the stock exchange, was launched in November 1999 to provide 'start-up' companies, in particular those involved in high-tech business, with access to equity market financing. At end of 2002, 166 companies were listed on GEM with a total market capitalisation of $52.2 billion (US$6.69 billion). In a pilot programme launched in May 2000, Hong Kong became the first city in Asia to offer 'live' trading on the Asian time-zone of seven leading US NASDAQ stocks.
Economic Links with the Mainland
Hong Kong is the premier gateway for trade and investment into and out of 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 42 per cent of Hong Kong's total trade value in 2002. About 90 per cent of Hong Kong's re-export trade is related to the Mainland, making it both the largest market and the largest source for Hong Kong's re-exports.
Hong Kong is a major service centre for the Mainland generally and South China in particular, providing a wide range of financial and other support business 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$206 billion accounting for about 46 per cent of the total value of inward direct investment. More than 100 000 Hong Kong companies source goods in China and employ some 5 million workers in Guangdong Province alone. Approximately 150 000 Hong Kong expatriates work in the Mainland, mainly in managerial and training positions.
The Mainland is also a major investor in Hong Kong's economy. There are more than 2 000 Mainland enterprises operating in Hong Kong with a total investment of US$123 billion, making it one of the largest sources of external direct investment.
China's Accession to the WTO
Hong Kong has the skills and connections with Mainland organisations and business that will enhance China’s status as a key world trading power, upon its accession to the World Trade Organisation. With the opening up of financial sectors, there will be opportunities for increased investment from both retail investors and institutional investors interested in East Asia. Additional direct investment by small and medium-sized foreign firms is also quite likely, and Hong Kong is well placed to play a part in this given its traditional intermediary brokering role.
Gateway to the Mainland
Hong Kong is a key gateway to the Mainland both for business and for tourism. In 2002, some 55.6 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 also went up, to 3.49 million. Every day there are over 90 sailings, 170 flights, more than 500 train connections and 33 800 vehicle crossings between Hong Kong and the Mainland.
