Hong Kong: From Junks to Jets – The Rise of a Global Powerhouse

Introduction

Today, Hong Kong has been known as one of the successful in East Asian for economy in terms of business and trade. Hong Kong has create the reputation not only recently but far before that. The influence of being one of the British colonies from 1841 to 1997 has been seen as the main factor on what is Hong Kong today. We can see some similarity between Hong Kong, Singapore, Australia and New Zealand which all the colonies are now been well in terms of country development.

It has been a great scenario to see the development and the growth in Hong Kong and how its can survive during the economic crisis in 1997 and once again in 2008. Although it can’t be deny that some slow in the economic growth been monitored during this period, anyway the magnificence is to see how Hong Kong keep its economy surviving until today comparing to other developing countries.

We are going to discuss from the historical background of Hong Kong, the factor that keep Hong Kong to be always competitive as economy power, the influence and impact after the handover to China and future of Hong Kong business.

Historical Background

Hong Kong has been a unique colony as East Asian economy power to the British since been found in 1841. Before that, Hong Kong is a part of China. History began when in 19th century, Chinese tea has boom in Britain (Szczepanski, 2009). The demand is high but British are unable to deal with Qing Dynasty for better transaction rather than pay with gold or silver. As a result, British decided to introduce opium from India to China for an exchanged for tea. China government is not agreed with these and destroyed a lot of opium own by British. The British has declared war due to this and won the First Opium War thru Treaty of Nanking in 1841. Here is when the interference of foreign power started in Hong Kong. At the beginning Hong Kong is just become a military staging point to British around the area.

The strategic geographical location of Hong Kong has been the main reason of it economy growth since then. Since during the colonial area, Hong Kong has been know to its free-market, private-enterprise and capitalistic system which benefits a lot of traders in terms of a free port, low taxes and limited government intervention to the economic and social affairs.

Therefore during the early stage of colonial period, British is very concern about Hong Kong potential of being free port and the possible treat can be to Hong Kong due to its location, surrounding by area that are still in China control. Anyway in 1898 British are able to lease Kowloon from China after won the Second Opium War. And in 1898, British sign the Second Convention of Peking, where all island surround Hong Kong are under British control for 99 years which are known as New Territories.

In year 1984, the Sino-British Joint Declaration has been signed to agree that Hong Kong, Kowloon and New Territories shall be given back to China as well. China has made a promise to implement One Country, Two System regime where allowing Hong Kong people are free to continue and practice capitalism and politic freedoms for 50 years.

Above we can understand that Hong Kong has established the relationship with Europe country especially British for such long time. The experience and understanding of dealing with European countries has made a great success for Hong Kong textiles and garment industries in the economic growth. Although Hong Kong has been officially handover to China on 1st July 1997, the strong fundamental based that Hong Kong have has make its able to sustain in the Asia economic crisis 1997.

Evolution of Hong Kong Economy

In early stage, Hong Kong as other islanders, the economy is based on fishing and agriculture. Anyhow within the colony Hong Kong as adopt a journey in being developing country towards manufacturing and service industrial base. Formerly Hong Kong has been made as a military port to monitor British interest in East Asian, acting as an international financial centre.

Historically Hong Kong has been incorporated into China during Qin Dynasty (221BC to 206BC). During year 1941 to 1945, Hong Kong has been occupied by Japan. This period has been a falling in all of the initial economy and trade activities in Hong Kong.

In early 1950’s, monitoring a lot of immigrants from mainland China especially from Shanghai move to Hong Kong (Yu, 1999). These cheap refugees have brought together with them the skills and capital along with them that helped Hong Kong to revive the economy. Following this pattern, foreign companies also have relocated offices from Shanghai to Hong Kong where this movement has make a changes in Hong Kong from territory entrepot trade to industrial and manufacturing.?

Early industrialization in Hong Kong only involves producing small items from buttons, artificial flowers, umbrellas and textiles. In the beginning of 1960’s, was a turning point for Hong Kong economy when the industrial and manufacturing is performing well and growing strong since. This is the period whereby the textile industry experienced a boom. The positive impact of the industrial development and growth in 1960’s was the development of multi storey building in Hong Kong. The potential of being an economy power from the industry has increase a massive number of immigrants from mainland China to Hong Kong where all of them acquire a place to start their life in Hong Kong. Hong Kong which is an island conceptually only has limited space for housing or building development. Therefore the multi storey building has been the best solution for this problem due to land scarcity. It helps the construction sector in Hong Kong to make it as one of the main economy source.

In 1997, China has decided to open their market for outsider. Anyway the China system is still far behind compare to what has Hong Kong established especially in terms of financial services, real estate, insurance, brokering and banking. Hong Kong has taken this opportunity as a gateway and resource for both China and foreign investor to success in their business. While China is starting to improve its skilled workers, Hong Kong already one step ahead to focus more on preparing themselves towards post industrial level in business and financial service sector.

During Asian Crisis 1997

Asian Financial Crisis (AFC) originally started in Thailand on 2nd July 1997 just after Hong Kong officially been hand over to China on 1st July 1997. Hong Kong as one of the power house economy in Asia also has no exception being affected by the crisis. It has been mentioned that Hong Kong was not well prepared to survive during the crisis. The crisis has spread quickly in Asia, where we can see financials problems in Japan and many corporate companies goes bankrupt in South Korea. During the crisis, phenomena seen are the falling stock markets prices, rising of interest rate, inflation, unemployment and growing social inequities.

The Surviving Factors for Hong Kong

Even though Hong Kong was handed to China, the impact of AFC in 1997 was not totally felt by Hong Kong. Hong Kong, during the recession the concerning factor was very much on the instability of the exchange rate (Floyd, 1998). The Hong Kong Monetary Authority (HMKA) took actions forcing the interest rate higher than normal and intervened in the stock and future markets to cut off all the currency speculators.

Among other key factors that save Hong Kong from disastrous affect of AFC was sound corporate governance, good supervision in the banking and financial system, large foreign reserve and strong commitment from China to stabilize the financial health.

Besides of all the surviving factors mentioned earlier, Hong Kong as several natural competitive atmospheres such as Hong Kong has been successfully in manufacturing like electrical goods and services economy which like in finance.

Hong Kong stock market has the potential to play a vital role of rising capital for China and plays an international role in the world economy. Influences of western law and openness to trade have played a great part in Hong Kong success today. Hong Kong in has a labor force of 2.8 million (1998) and low rate of unemployment (2 percent) to add value on this they have a skillful labor who can work for longer hours independently. Low tax rates in Hong Kong attract many international companies to make investment example the tax rate for local companies are same as per foreign companies. Other tax benefits are no value added/ sales tax, no capital gain/ withholding tax, no estate duty and no global taxation.

Hong Kong Economic Link to China and Growth Factors

Hong Kong was described as a “barren island with hardly a house upon it” (Chan, 1991, p.21) when was established 160 years ago by the then-British Empire as a key port for the pursuit of British interests in China (Zhu, 2005). The visiting American journalist coined it “dying city” in 1951 (Ho, 1992). However, by 1971, the per capita income of Hong Kong had reached HK$6,096 and placing it second behind Japan in East Asia (Riedel, 1974). Since then, Hong Kong has been growing in average rate of 6.5 per cent between periods of 1987-1991 (Chau, 1993). In year 1992, Hong Kong GDP has reached HK$ 742, 582 million and has emerged as one of the richest economies in Asia (Chau, 1993). This stellar economic growth and performance has triggered development economist to search for an explanation (Yu, 1999).

Hong Kong is a good case study of the economic growth factors (Sung & Wong, 1998). There are three factors drives Hong Kong economic growth, namely, innovation, imitation and technology transfer. According to Sung & Wong, 1998, innovation is defined as effort to develop a new technology to improve productivity factor, invention a new product or improvement of the quality of some existing products. Imitation is defined as a learning effort and improvement of the technology developed by other firm. Based on Yu’s survey (1995), 88 per cent of the manufacturers imitated and supplied similar garments that already appeared in the market while only 8 per cent of them are attempting to make unique and novel products. On the technology transfer, this can be due to technology spillover through firm-to-firm or person-to-person contacts (the contagion effect) (Findlay, 1978). It is believed that Hong Kong growth can be attributed to accumulation of primary factors such as physical capital and labour force, technological progress, and human capital accumulation (Sung and Wong, 1998). The manufacturing sector in Hong Kong is learning by doing effect by conducted joint ventures with foreign firms to obtain foreign technology “know-how” from multinational corporation that have taken advantage of Asia’s low production costs (Engardio and Cross, 1992)

When China opens up its economy to foreign trade and investment on 1979, Hong Kong is China largest investor. The cumulative direct investment in China from 1979 to 1995 was US$78.6 billion (Sung and Wong, 1998). In 1995, the real investment of Hong Kong to China reached peak in 1994, with US$12.5 billion. Besides, outward investment of Hong Kong to China, Hong Kong is receiving capital from China as Hong Kong remains the prime destination of China investments. However, China’s direct investment is much smaller than Hong Kong’s direct investment in China. For illustration, in 1995, China’s direct investment in Hong Kong is just 17.7 percent or US$1.37 billion of Hong Kong’s direct investment in China. The imbalances of investments are due to the factors of many multinational companies are using their Hong Kong subsidiaries to test China investment environments as Hong Kong has the expertise.

As Hong Kong moving up the economic “value ladder”, the abundance of cheap labour which drives the growth during Hong Kong early industrialization period is slowly diminishing. Labour-intensive manufacturing had relocated from Hong Kong to China due to significant wage and rental differentials. With the relocation of the labour-intensive processing to China, Hong Kong manufacturers can focus on skill-intensive operations and services such as product design, production management, sourcing, order taking, financing and marketing (Sung and Wong, 1998). The relocation of the manufacturing sector in Hong Kong had spurred the entrepot trade between Hong Kong and China. From 1979 to 1996, China’s trade via Hong Kong with third countries had rose from US$1.2 billion to US$120 billion. With the entrepot trade with China, Hong Kong had served as middlemen between China and the rest of the world, where Hong Kong acquires the technology and finance for China firms in return of Hong Kong development and growth (Sung and Wong 1998).

Future of Hong Kong

The future of Hong Kong is depends on how well it can be integrated with China (Floyd 1998). Through out the years of British rules, Hong Kong economy has become internationalized and Hong Kong city has become one of the most international cities in the world (Vogel, 1989). With this, China had recognized Hong Kong’s economy as an important asset for the China’s development (Hook and Neves, 2002). To maintain Hong Kong positions as international hub for trade and finance and the main gateway to China after the reversion of Hong Kong, China had implemented the “one country, two systems” policy. Hong Kong capitalism will be allowed to continue and it will benefit the economic reform process in China (Floyd, 1998). On the economic front, Hong Kong had increasing important to East Asian economies as Hong Kong’ trade with Japan and China is rising. However, it is speculated that a resurgent of Shanghai would compete with Hong Kong directly or even replace Hong Kong’s role in China’s future economic development (Wong, 2004).

Hong Kong survivable in the future depends on how well it alert to opportunities, flexible and adaptable to the fast changing environment (Yu, 1999). Hong Kong producers have conducted joint ventures with multinational corporations, learnt foreign technologies and imitated their products. To continue enjoy healthy economic growth in future, Hong Kong economy needs to diversify and go through structural change from manufacturing to services (Clark, 1945). When the labour intensive relocated to China, Hong Kong manufacturers had become property developers and transforming their former factory sites into commercial complexes and make investment in real estate (Yu, 1999).

China must maintain the government principles of “one country, two systems”, “a high degree of autonomy” and “Hong Kong people administering Hong Kong” way beyond the 50 years of Sino British Joint Declaration 1984 of no intervention in Hong Kong administration. With this, the business and entrepreneurship are given the freedom to operate and remain as the main driver in economic transformation and adaptive to environment changes. Riedel (1974) has remarks that “Hong Kong entrepreneurs are left free to do what they can do best…”

Conclusion

Hong Kong economy evolution was influenced by historical, geographical, cultural and technology driven factor. Historically, being a colonial of British, has prepared Hong Kong in the early stage for capitalism and free market society. Geographically, it was strategically located in East Asian, easy gateway for China, Taiwan, South Korea & Japan for international financial and trade center. Culturally, Hong Kong people are hardworking, high ethic and independent. Furthermore Hong Kong is gifted with technologically driven factors such as good financial system, communication; good infrastructure and government back up on research and development.

During the Asian Financial Crisis, Hong Kong managed to overcome the crisis due to solid governance and financial system plus a strong foreign reserve. After the handover to China, Hong Kong capitalism still prevails and the people are still enjoy democratic atmosphere. Under the “One Country, Two Systems” concept, China will continue to fully support Hong Kong liberalization economy which ensure the free market as well as the investor confidence on Hong Kong’s future.

In future, Hong Kong needs to be more alert, sensitive and adopt flexibility to the changing economic environment to grabs the investment opportunities. This is will ensure Hong Kong future prosperity and continuous growth.

Article Source: http://www.articlesbase.com/business-articles/hong-kong-from-junks-to-jets-the-rise-of-a-global-powerhouse-1384551.html