Hong Kong's reunification with China occurred at a time when China's internal power structure had become most stabilised and when China's influence in the international community was very positive, and when the international environment focused more on peaceful co-existence and cooperation than conflicts and struggles. Therefore it can be said that the Hong Kong SAR further helped facilitate China's domestic economic and social reforms as well as enhance China's international position.
(2003-07,China Daily)
Presently it serves as a model for Mainland China's market liberalisation. Furthermore the successful implementation of 'one country, two systems' in Hong Kong reflects a positive and important example for reunification with Taiwan. As after July 1997, Hong Kong has been successful in establishing a constructive relationship with Taiwan. Hong Kong has in fact continued to serve as an important bridge between Beijing and Taipei. Third, Hong Kong is allowed to have separate participation in international organizations, which also benefits China's international profile and diplomatic activities. (5+10)
According to statistics despite suffering some fallout from the global economic downturn, Hong Kong's economic situation is relatively healthy. (6) (Lardy, N., 2002) Five years after its return to Chinese sovereignty, Hong Kong remains the world's freest economy, the world's 10th-largest trading entity and ninth-largest banking centre. With per capita gross domestic product at $23,571 in 2001, its standard of living is about the European Union average. Hong Kong's banking system is sound, and the government treasury maintains massive operating reserves from previous surplus years. This is in large part because Hong Kong has benefited from its rule of law, lack of trade barriers and low taxes. (7) (Lardy, N., 1998)
Further to that we can state that Hong Kong is a unique city in China. It occupies an important position in China's overall developmental process, both domestically and internationally.
Hong Kong and relations with China
The relationship between the two monetary authorities follows the two mutually independent monetary systems of the mainland and Hong Kong that the two monetary authorities are also equally independent.
As Hong Kong and the mainland develop increasingly close economic ties in both trade and investment, close co-operation between the two monetary authorities becomes even more important. The two monetary authorities therefore, strengthen further the present co-operation of central banking functions, including monetary management, banking supervision and the development of the financial infrastructure. (Lardy, N, 1998)
“By the time of Hong Kong’s reversion to Chinese sovereignty in 1997, its population of six million ineffectively supplied China’s prime capital market accounted for about 50% of the mainland’s trade with the rest of the world. Provided two-thirds of inward investment and represented about 25% of China’s total gross national products (GNP)” (Story, J, 2003)
The strong economic fundamentals of Hong Kong and management skills of the people of Hong Kong are also between some of the important points for its continued wealth and stability. Unlike China Hong Kong enjoys freedom of expression and independent thinking, high quality of monitoring functions exercised by a rational opposition and the media. It is a transparent society with great freedom in information flow and has an elevated degree of market freedom managed by uncorrupted and efficient public administration.
Although Hong Kong's continues representation in the international community and international organisations under China's sovereignty, Hong Kong still stands out from China with its high degree of internationalisation. (EO309 Week 8 Lecture notes)
According to politicians the overall relationship between Hong Kong SAR and the central government in Beijing dramatically improved in the first year after the handover. A major reason behind this success is because Hong Kong SAR enjoyed a much greater degree of autonomy than expected. In the first few months after 1 July 1997, social and political stability was maintained effectively.
Additionally, economic developments of the mainland have created excellent conditions for Hong Kong's continued prosperity and stability. Therefore even after the handover Hong Kong has managed to continue its role as an international financial centre and also became the most important funding centre for China and now is one of the most important financial centres for the Asian region as a whole. (8)
When China market first started to develop and become open to opportunities in the early 1980s, (9)(Chai, J, 1997) Hong Kong investors were some of the first through to invest in China. In the process, they helped build China's Pearl River Delta into a powerhouse of assembly and export-oriented manufacturing. (10)
Today, Hong Kong's economic influence penetrates deep into southern China, with around 10-12million workers released every year from Mainland to work in Hong Kong. (EO306 lecture notes + FT, 28th Nov, 2003)
Despite the advent of American and European competitors, Hong Kong still accounts for nearly half of outside investment in China and still accounts for more than 40% of China's foreign trade. (Story, J., 2003)
Changes in the Mainland or/and in Hong Kong directly can affect each other’s economical balance and growth visibly as they are their largest trading partners. The mainland of China is also one of the leading investors in Hong Kong, with total investment reaching US$25 billion in 2002. At the same time, Hong Kong has also contributed greatly to the mainland of China's reform and modernisation, both in terms of investment and know-how. One determinant of China’s success in attracting Foreign Direct Investment (FDI) is the large Chinese investors in overseas, with Hong Kong, Singapore and Taiwan being the prime traditional sources. Basically, overseas Chinese investors hold about 80% of the stock of FDI on the mainland, often with investment registered as originating from Hong Kong. As a result Hong Kong is the main source, with Taiwan the second biggest investor. (11) (Story, J., 2003)
The total direct investment from Hong Kong has currently reached US$78.6 billion, accounting for 58% of total foreign direct investment. Also, for the 23 Chinese companies listed on overseas stock markets, the trading of such overseas stocks is most active in Hong Kong. Out of the 23 companies, 21 had their primary listing in Hong Kong. (12)
Hong Kong’s economy bounced back in late 1999, and enjoyed one of the world's fastest growth rates during 2000, (13) To a greater degree, Hong Kong's prosperity depends on trade between China and the West and in particular, the United States. As Hong Kong is the world capital of the toy business; Hong Kong is also a key player in consumer categories like clothing, home electronics and holiday accessories. (EO309 Lecture)
Moreover geographic proximity combined with cultural and linguistic ties plays an important role in Hong Kong’s relations with China, especially to the Pearl River Delta in neighbouring Guangdong Province, means that Hong Kong traders and distributors are uniquely positioned to help American businesses access the rapidly increasing China market. Seeing that China is Hong Kong's largest trading partner, now Hong Kong can be highlighted as the principal transhipment point for Mainland Chinese exports. (14)
Relationship with United States
Five years into the arrangement, the development of Hong Kong's "One Country, Two Systems" "is still very much a work in progress," U.S. Consul General Michael. Klosson said. Klosson stressed the importance of maintaining "the balance inherent in the arrangement," noting that the United States has "a significant stake in Hong Kong's autonomy and distinctiveness." (15) (April 9, 2002)
“Hong Kong is America's 13th largest export market and 15th largest trading partner, Klosson” said. The U.S. trade surplus with Hong Kong was $4.2 billion ($4,200 million) in 2001. Approximately 1,100 American companies have set up shop in Hong Kong. The United States has $23.3 billion ($23,300 million) dollars worth of direct investment in Hong Kong, and much more in funds and portfolios. (16)
Once more, according to Klosson and Hong Kong University Hong Kong is expected to remain an important platform for U.S. business operating in the region. An extensive study (17) by academic drew on responses from over 1,000 companies; found that Hong Kong has a dominant position as a regional business centre. Thirty-five percent of the companies have put their Asian regional headquarters in Hong Kong, more than any other location, and over half of these operations have responsibilities that extend beyond China and Taiwan to Japan and even as far field as Australia.
Although the focus these days is mainly on China, Hong Kong itself remains a place where the United States has important economic interests at stake. The SAR is U.S.’s 13th largest export market, and 15th largest trading partner, and the U.S. trade surplus with Hong Kong was $4.2 billion in 2001. In addition approximately 1,100 American companies have shops in Hong Kong. (6+11+13) The U.S. has $23.3 billion dollars worth of direct investment in Hong Kong, and much more in funds and portfolios. With the second highest per capita income in Asia, Hong Kong offers good opportunities for U.S. exporters and service companies. Telecommunications products and services are a promising area as the SAR continues to liberalise its telecommunications market. Interest in computers and other information technology products also might grow over the next few years as Hong Kong companies started to find ways to use high technology to do better quality products.
Conclusion
Few nations have changed as fast or as dramatically as China has since the 1970s. The world's most populous nation (EO309-lecture notes) has radically liberalised its economy and gone from producing low-quality and simple exports to sophisticated high-technology goods, while developing a vibrant private sector and attracting nearly $500 billion in foreign direct investment. (Foreign Affairs Organisation, 2003) The country has turned into a alarming exporting machine among its Asian neighbours, (6+11) China’s total exports grew over $380 billion between 1990 and 2003; and its exports in the electronics industry now account for 30 percent of Asia's total in that sector. China's share of global exports is expected to reach 6 percent by the end of 2003, compared to 3.9 percent in 2000. In 2002, China accounted for 16 percent of the growth in the world economy, ranking second only to the United States.
As China continues with its financial and economical reforms, Hong Kong’s role as a key financial centre for China will be crucial and as seen throughout the essay its likely that this close relationship will become even more important. It is therefore one can say that Hong Kong has played an significant role in boosting China’s economic growth and smoothing China’s relations with its heavily trading neighbours as well as managing to keep its economic system in balance.
Appendix
References & Bibliography
- http:/www.chinaembassy.org.au/eng/3182
- Johnson D. J., (2003) Secretary General OECD, China in the World Economy- By Organisation for Economic Co-operation, http://www.info.gov.hk/trans/jd/jd4.htm
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- Report by Chen Yuan, Deputy Governor People's Bank of China
- Lardy, N. R., (2002) Ed., Integrating China into the Global Economy, R.R. Donnelley and Sons Co-Virginia
- Lardy, N.R., (1998) Ed., China’s Unfinished Economic Revolution, R.R. Donnelley and Sons Co-Virginia
- Chai, J., (1997) Ed. Studies on Contemporary China- China Transition to a Market Economy, Clarendron Press-Oxford
- Story, J., (2003) Ed., China - The Race to Market, Biddles Ltd- UK
- http://www.heritage.org/Press/Commentary/ED062802.cfm
- Distributed by the Office of International Information Programs, U.S. Department of State. (Web site: http://usinfo.state.gov)
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“Five Years after the Handover” speech by U.S. Consul General Michael Klosson in Washington State China Relations Council, Seattle, Washington
April 9, 200 ()
- http://www.amherst.edu/~jsyuan/policy%20definitions.html
http://www.fmprc.gov.cn/eng/ziliao/3602/3604/t18027.htm
http://www.iie.com/publications/papers/goldstein0903.htm
