Module 2.4: Economic Performance and Human Resources of Hong Kong

Economic Performance Indicators of Hong Kong

Measuring Economic Performance: The performance of the Hong Kong economy can be assessed using several key quantitative indicators: * Gross Domestic Product (GDP): Defined as the total market value of all goods and services produced within a country or region during a specific period (typically one year). * A higher GDP indicates active production and better economic health. * A lower GDP indicates poorer economic performance. * Components of Hong Kong GDP: Includes agricultural products, securities trading services, logistics and transport services, industrial products, wholesale and retailing services, and energy. * Recent Trends: The GDP of Hong Kong has followed an upward trend, rising from approximately $1,373.08\,Billion\,HKD$ in $1997$ to $2,981.60\,Billion\,HKD$ in recently recorded years, indicating steady growth. * Per Capita Gross Domestic Product: This refers to the average GDP per person in a region. * Formula: $\text{Per capita GDP} = \frac{\text{GDP}}{\text{Total population}}$ * Implications: A higher per capita GDP generally signifies a better standard of living for residents. In Hong Kong, this figure rose from $186,704\,HKD$ in $1997$ and $211,592\,HKD$ in $1998$ to $395,642\,HKD$ in recent years. * Caveat (Wealth Inequality): High per capita GDP does not guarantee even wealth distribution. If growth is concentrated in a few hands, wealth inequality occurs (e.g., the United States has high per capita GDP but faces serious wealth inequality issues). * Unemployment Rate: The percentage of unemployed persons within the labour force. * Key Definitions: * Unemployed Persons: Individuals aged $15$ or above who have sought work but have not found any yet. * Labour Force: The land-based non-institutional population aged $15$ and over, including both employed and unemployed persons. * Formula: $\text{Unemployment rate} = \frac{\text{Number of unemployed persons}}{\text{Labour force}} \times 100\%$ * Historical Performance: Between $1997$ and $2023$ , the rate peaked at $7.9\%$ in $2003$ . It has generally remained at an average level of $4.4\%$ . Lower rates (e.g., $2.2\%$ in $1997$ or $2.9\%$ in $2023$ ) indicate satisfactory economic performance. * Inflation Rate: The rate of continuous change in the prices of goods and services, reflected by the Consumer Price Index (CPI). * Interpretation: * Inflation: CPI above $0\%$ . Goods become more expensive, increasing the cost of living. * Deflation: CPI below $0\%$ . This may discourage business investment and hinder growth. * Golden Ratio of Inflation: Many economists believe a rate of $2\%$ is ideal. Below $2\%$ , enterprises lack profit incentive; above $2\%$ , currency purchasing power weakens. * Hong Kong Statistics: Average inflation from $1997$ to $2023$ was $1.5\%$ , though fluctuations were large ( $-4.0\%$ in $2003$ to $5.8\%$ in $1997$ ). Deflation was experienced from $1999$ to $2004$ .

Industrial Structures and Recent Transformations

Classification of Industries: * Primary Industry: Activities involving growing crops, animal husbandry, and resource extraction (e.g., farming, fishing, quarrying). * Secondary Industry: Processing natural or artificial raw materials (e.g., manufacturing, construction, energy industries/electricity generation). * Tertiary Industry: Provision of services (e.g., retailing, banking, hospitality/tourism, finance).
Changes in Hong Kong's Industrial Structure: * Decline of Primary and Secondary Sectors: Primary industry dropped to $0.1\%$ of GDP by $2020$ . Secondary industry, which was $30.8\%$ in $1980$ , shrank to $6.5\%$ by $2020$ . * Rise of the Tertiary Sector: Increased from $68.3\%$ of GDP in $1980$ to $86.6\%$ in $2000$ , and over $93.4\%$ in $2020$ .
Key and Priority Industries: * Four Key Industries: Financial services, tourism, trading and logistics, and professional/producer services. These contribute nearly $50\%$ of GDP. * Six Priority Industries (Proposed in 2009): * Cultural and creative industries ( $4.5\%$ of GDP in $2022$ ). * Medical services ( $2.4\%$ in $2022$ ). * Education services ( $1.3\%$ in $2022$ ). * Innovation and technology ( $0.9\%$ in $2022$ ). * Testing and certification ( $0.4\%$ in $2022$ ). * Environmental industries ( $0.4\%$ in $2022$ ). * The total share of these six industries rose from $7.5\%$ in $2008$ to $9.9\%$ in $2022$ .

Characteristics of the Hong Kong Economy

Economic Freedom: According to the "Economic Freedom of the World 2023 Annual Report" (Fraser Institute), Hong Kong ranked $2nd$ globally with an average score of $8.55$ . Rankings in specific areas include: * Area 4 (Freedom to trade internationally): Rank $1st$ ( $9.04$ score). * Area 5 (Regulation): Rank $3rd$ ( $8.55$ score).
Highly Externally Oriented and Open Economy: * Resource Dependency: Hong Kong has scarce natural resources and must import them to maintain development. * External Trade Ratio: The total value of external merchandise trade is typically over $2\times$ the GDP. For example, in $2018$ , trade was $8,879.5\,Billion\,HKD$ while GDP was $2,835.4\,Billion\,HKD$ . * Open Market Freedoms: * Freedom of trade: No tariffs, surcharges, or import quotas (Basic Law Article 114). * Freedom of operation: Low requirement for establishing companies; government rarely intervenes. * Free flow of capital: Free exchange between HKD and foreign currencies; no offshore fund restrictions (Basic Law Article 112). * Freedom of shipping/stay: Status as a free port; visa-free entry for nationals of about $170$ countries ( $7$ to $180$ days). * Freedom of information: No licenses required for printing periodicals or text publications.

Connection Between Global Events and Economic Security

Impact of Major Events: * Positive Events: * Individual Visit Scheme (2003): Drove retail, catering, and hotel sectors via Mainland tourist consumption. * CEPA Agreement on Trade in Services (2015): Lowered thresholds for Hong Kong service industries to operate in the Mainland. * Negative Events: * Asian Financial Crisis (1997): Stock/property market crash and rising unemployment. * SARS Outbreak (2003): Hit tourism and retail due to health fears and travel restrictions. * Global Financial Crisis (2008): Triggered by the US real estate bubble burst; caused HK stock market plumments. * China-US Trade Dispute (2018): Led to additional tariffs and decreased re-exports. * COVID-19 pandemic (2019-2023): Drastically reduced visitor arrivals; GDP dropped to $2,676\,Billion\,HKD$ in $2021$ with unemployment at $5.3\%$ .
Economic Security: Refers to a country's ability to resist external impacts and resolve risks to ensure stable development. * Hong Kong's Role: Stabilizing HK's economy is vital for national economic security. HK serves as a bridge for Mainland enterprises to import technology and export goods. * The 1997/1998 Speculation Attack: International speculators aggressively sold Thai baht, spreading crisis to HK. The HKSAR Government used the Exchange Fund in August $1998$ to buy HK dollars and stocks to protect the Linked Exchange Rate System.

Ties with Mainland China's Development

Historical Overview: * Post-WWII/Civil War (1946-1949): Influx of capital, skill, and labour from the Mainland laid the industrial foundation. * Korean War (1950): UN embargo on China led to a drop in HK's entrepôt trade, forcing a shift to manufacturing (textiles, toys, electronics). * Reform and Opening Up (1978): Manufacturing relocated to the Mainland, shifting HK toward service industries (finance, shipping, trade).
Business Models and Contributions: * Front Shop, Back Factory: HK handled overseas orders and sales ("Front Shop"), while the Pearl River Delta focused on production ("Back Factory"). * The "First Person to Eat Crabs": A metaphor used by Xi Jinping to describe HK's pioneering risk-taking in China's reform. Specific examples include: * Xiangzhou Wool Spinning Factory (Zhuhai): First HK-invested enterprise. * Beijing Aviation Food Company Limited: First China-foreign joint venture. * White Swan Hotel (Guangzhou): First five-star hotel in the Mainland. * Super-connector Role: HK connects national and international markets through the Shanghai-Hong Kong Stock Connect ( $2014$ ) and Shenzhen-Hong Kong Stock Connect ( $2016$ ). * Investment: In $2022$ , the Mainland's outward direct investment into Hong Kong was $97.53\,Billion\,USD$ , accounting for $59.8\%$ of its total outward investment.

Economic Globalisation and Hong Kong

Definition: The increasing cross-border economic activity and integration of raw materials, production chains, commodities, labour, and financial markets.
iPhone 15 Pro Max Case Study: Illustrates international division of labour. * Design/Headquarters: US ( $33\%$ of production cost allocation). * Parts: Japan ( $10\%$ ), South Korea ( $29\%$ ), Taiwan ( $9\%$ ). * Assembly/Packaging: Mainland China ( $2\%$ ), Vietnam. * Estimated Production Cost: $USD\,400-450$ .
Factors Contributing to Globalisation: * International Organisations: IMF ( $1944$ ), WTO ( $1995$ ), APEC ( $1989$ ), EU ( $1993$ ), ASEAN ( $1967$ ), AIIB ( $2015$ ). * Historical Precedent: The Dutch East India Company ( $1602$ ) is considered the first multinational corporation, with $15,000$ branches by the mid- $17th$ century.
Impacts: * Positives: Facilitates growth via OEM (Original Equipment Manufacturing) factories (e.g., Foxconn with $1\,million$ employees in China); increases consumer choice. * Negatives: Economic fluctuations spread faster (2008 crisis); production interdependence risks (e.g., $311\,Earthquake$ in Japan slowed global electronics); labour rights issues in developing countries (Oxfam T-shirt data: worker wages only $1.75\%$ of a $100\,HKD$ retail price).

Hong Kong as an International Financial Centre (IFC)

Characteristics: Mature financial market, diversified services (stocks, bonds, funds, insurance), sound legal systems (judiciary independence), free flow of capital, and free market information.
Rankings: According to the Global Financial Centres Index ( $2023$ ), Hong Kong ranked $4th$ globally (NYC 1st, London 2nd, Singapore 3rd). In the Asia-Pacific, it ranked $2nd$ behind Singapore.
Reasons for IFC Success: * Strategic Location: Time zone bridge between London and New York; adjacent to the Pearl River Delta. * Simple Tax System: Profits tax at $16.5\%$ (lower than Japan at $23.2\%$ or the Philippines at $30\%$ ). No capital gains, inheritance, or VAT. * Rule of Law: Basic Law Article $109$ mandates maintaining HK's IFC status. * Infrastructure: Billiteracy and trilingualism (English, Cantonese, Mandarin) and advanced communication networks (Basic Law Article $30$ ).
Opportunities & Challenges: * Opportunities: Offshore Renminbi (RMB) centre; role as "super-connector" for the Belt and Road Initiative. * Challenges: Financial market volatility; competition from Singapore (similar legal system/tax) and Shanghai (large state-owned institutions); demand for high-end AI/fintech talent.

Youth Employment and Future Perspectives

Employment Trends by Industry: * Employment in the tertiary industry for youth aged $15-39$ is roughly $90\%$ . * Rise in: Public administration, social and personal services; finance, insurance, and professional services. * Decline in: Import/export trade, retail, and manufacturing.
Youth Unemployment: Rates for those aged $15-19$ are significantly higher than the overall average ( $9.6\%$ vs $2.9\%$ in $2023$ ) due to lack of experience and academic qualifications.
The Gig Economy: A new trend where young people work as "slashers" (self-employed/freelance). * Advantages: Flexibility, balance between work and life. * Disadvantages: Lack of promotion, no job guarantee, no medical/sick leave welfare, risk of delayed work progress.
Technological Impact: * Jobs at Risk: Waiters, security guards, bank tellers (replaced by robots/AI). * Emerging Jobs: AI model engineers, e-sports players, prompt engineers ( $USD\,330,000$ annual salary potential), and internet celebrities (KOLs).
Greater Bay Area (GBA) Opportunities: * Overview: Cluster of $11$ cities (Hong Kong, Macao, and $9$ cities in Guangdong). * Incentives: "One-hour living circle" transport; Youth Development Fund; GBA Youth Employment Scheme (monthly salary not less than $18,000\,HKD$ with a $10,000\,HKD$ government allowance). * Challenges: Higher competition for talent, cultural/language differences, and adapting to the Mainland legal system.

Questions & Discussion

How can we measure economic performance?: Through quantitative metrics like GDP, per capita GDP, unemployment rates, and inflation rates.
Does high per capita GDP mean everyone is rich?: No. It is an average market value; real-world wealth may be concentrated among a small elite, leading to inequality.
What is the impact of market monopoly on consumers?: Consumers may face more expensive products, fewer choices, and lower service quality.
Why is the unemployment rate for those aged 15–19 higher?: This group often lacks the academic qualifications, professional skills, and work experience required by employers.
How should "slashers" overcome challenges?: Improve self-management, set clear career goals, purchase personal medical insurance, and master new technologies to increase market value.