Critical Factors Influencing Investment in Hong Kong


Research Paper (undergraduate), 2014

14 Pages, Grade: 97.0


Excerpt

Table of Contents

INTRODUCTION

CURRENT POLITICAL LEADERSHIP AND STABILITY

GOVERNMENT POLICIES AND ATTITUDES TOWARDS

FOREIGN INVESTMENT

DEMOGRAPHIC TRENDS

KEY ECONOMIC INDICATORS AND TRENDS

UNIQUE HISTORICAL, CULTURAL, AND RELIGIOUS INFLUENCES

GEOGRAPHIC ADVANTAGES AND DISADVANTAGES

LOW CORRUPTION AND CRIME RATE

KEY FINANCIAL RISKS OF INVESTING IN HONG KONG

INTERNATIONAL TRADE IN HONG KONG

HONG KONG DOLLAR’S PEGGED SYSTEM

CONCLUSION

BIBLIOGRAPHY

INTRODUCTION

As a native of Hong Kong, I spent my entire adolescence in the changing socio-political atmosphere of the city, but have never researched in detail the financial risks that the city might have or what the economy is like in Hong Kong. The research of this paper helped me to better understand my own city, especially in regard to its financial and economical situation. It will start with a brief introduction so that the audience can also get a better idea about Hong Kong’s economy, how it was shaped, and what the future outlook will be. Hong Kong is located in East Asia, on the coast of China. It was a colony of the United Kingdom for 99 years, until July 1st 1997. It was then returned to the People Republic of China and became the Hong Kong Special Administrative Region (SAR). In the following, there will be an analysis of ten factors that influence the financial aspects within the city, trading issues in Hong Kong, and its currency.

CURRENT POLITICAL LEADERSHIP AND STABILITY

After 99 years of British rule, the sovereignty of Hong Kong was returned to China. Due to the adaptation of the Sino-British Joint Declaration (1984) and the Basic Law, China has promised to retain a “One Country, Two Systems” policy, which indicated that the Chinese government would not intervene Hong Kong’s political, judicial, and economical system; and it would be recognized as a dependent territory with a high degree of autonomy for the next 50 years. Hong Kong has its own head of government — the Chief Executive, which is not voted on by citizens of Hong Kong, but by a 1,200-member election committee designated to represent various groups and districts. The maintenance of political stability has become a measurement of whether the political handover has been successful or not.1

Since the handover, Hong Kong has been facing political problems and challenges under the “One Country, Two Systems” policy. “The first executive’s popularity had been below 50% (widely considered a failing mark) since July 2002.”2 The second executive announced some new policies during the financial crisis in 2008, hoping to relieve inflation, but it ended up creating chaos and confusion.

Superficially, Hong Kong is a democratic and politically stable territory, but according to this research, it is still being regulated by the Chinese government in many aspects. Hong Kong was never entirely free from the observation and involvement of China. There are always numerous marches and demonstrations every week, and most of them are about how unsatisfied the citizens are with the government. Poor leadership and uncertain political development could hinder investors to invest in the city, especially with the shadow of mainland China in the background. “In the coming years, governance and political leadership in Hong Kong will be extremely difficult.”3

GOVERNMENT POLICIES AND ATTITUDES TOWARDS FOREIGN INVESTMENT

Out of all 151 economies, Hong Kong is ranked the freest economy of the world, according to the Index of Economic Freedom 2012. Foreign investment is the foundation of Hong Kong’s status as an international financial center. The government encourages and welcomes foreign investment, imposing a laissez faire like policy, with very few restrictions on foreign investment. The Hong Kong government advocates equitable competition and has no discrimination against foreign or domestic investors. The most important factors in attracting foreign investment to Hong Kong are low taxation, absence of exchange control, free flow of information, and more. “Capital gains are not taxed, nor are there withholding taxes on dividends and royalties. Profits can be freely converted and remitted.”4

DEMOGRAPHIC TRENDS

Hong Kong has a population of about 7.2 million as of 2013. Its small size and high population make it one of the most densely populated areas on Earth. However, Hong Kong’s birth rate is very low, yet it has one of the highest life expectancy in the world, like many other Asian economies. An aging population is one of the biggest problems that the area faces today. The aging population puts pressure on government finances, decreases labor supply, and lowers the potential long run GDP growth. The graph below predicts that the population growth in Hong Kong will be slowing down in the future decades.

illustration not visible in this excerpt

In order to solve 5 the labor supply issue, the People’s Republic of China issued the “Permit for Proceeding to Hong Kong and Macao,” which allows residents of mainland China to leave the mainland permanently to settle in Hong Kong or Macau.6 Although the imposition of the Oneway Permit was controversial, it helped migration from mainland China to Hong Kong, increasing the labor force and economic growth.

KEY ECONOMIC INDICATORS AND TRENDS

Hong Kong is slowly recovering from the financial crisis in 2012. Due to the migration of the manufacturing industry to mainland China in the past few decades, service sectors have been growing rapidly. However, due to the unstable economy, the percentage change of GDP in Hong Kong is still fluctuating, shown in the chart below. In 2012, it was estimated that Hong Kong’s GDP was USD $375.5 billion, ranked 36th in the world. Yet, the good news is - Hong Kong has a high GDP per capita, with USD $52,300, ranked 13th in the world. When evaluating a city’s attractiveness, one big focus is unemployment rate. Hong Kong holds a constant low and declining unemployment rate, with 3.3% in 2012, ranked 28th in the world.7

illustration not visible in this excerpt

[...]


1 Lam, Jermain. T.M. “After Ten Years of Transfer of Sovereignty: Political Stability and Reforms in Hong Kong.” New Zealand Journal of Asian Studies. New Zealand Asian Studies Society: New Zealand, Dec 2008. Print.

2 Lam, Jermain. T.M. “After Ten Years of Transfer of Sovereignty: Political Stability and Reforms in Hong Kong.” New Zealand Journal of Asian Studies. New Zealand Asian Studies Society: New Zealand, Dec 2008. Print.

3 Lam, Jermain. T.M. “After Ten Years of Transfer of Sovereignty: Political Stability and Reforms in Hong Kong.” New Zealand Journal of Asian Studies. New Zealand Asian Studies Society: New Zealand, Dec 2008. Print.

4 “2012 Investment Climate Statement.” U.S. Department of State. www.state.gov. June 2012. Web. Nov 25, 2013.

5 Circosta, Matthew. “Demographic Trends Challenge Hong Kong.” Dismal Scientist. www.economy.com. Mar 12, 2013. Web. Nov 26, 2013. (population chart)

6 Hong Kong Government. LCQ17: One-way Permit. info.gov.hk: Hong Kong Government, Jan 6, 2010. Web. Feb 2, 2017.

7 “Hong Kong, the World Factbook.” Central Intelligence Agency. www.cia.gov. 2013. Web. Nov 25, 2013.

Excerpt out of 14 pages

Details

Title
Critical Factors Influencing Investment in Hong Kong
College
Westminster College
Grade
97.0
Author
Year
2014
Pages
14
Catalog Number
V359242
ISBN (eBook)
9783668440623
ISBN (Book)
9783668440630
File size
473 KB
Language
English
Tags
Hong Kong, Finance, Business, Economics, Research, Investment, Factors
Quote paper
Adele Gor-man (Author), 2014, Critical Factors Influencing Investment in Hong Kong, Munich, GRIN Verlag, https://www.grin.com/document/359242

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