NCPA - National Center for Policy Analysis

Hong Kong's Glorious Success And Uncertain Future

June 23, 1997

The entire world will be watching what happens as free-enterprise Hong Kong reverts to communist China's control as of July 1, 1997.

  • Only about one-fifth the size of Delaware and lacking in natural resources, the tiny British crown colony has enjoyed a gross domestic product growth rate averaging over 5 percent annually for the past decade.
  • Without sales or capital gains taxes, and with corporate profits taxed at only 16.5 percent, its citizens realize a per capita annual income averaging $24,282 -- higher than that of the United Kingdom and rivaling that of the U.S.
  • As the world's eighth-largest trading economy, unemployment last year was only 2.8 percent.

Its trading and investment relationship to relatively backward mainland China is a case-study in how political and economic freedoms on one tiny portion of the earth can benefit people trapped in a much-less-free colossus next-door.

  • Hong Kong has poured more that $250 billion into mainland China to date -- two-thirds of China's total foreign investment and one-third of its foreign exchange earnings.
  • After Japan, Hong Kong is China's largest business partner -- making up 16 percent of the mainland's total trade flows.
  • About 60 percent of goods which leave China exit through Hong Kong and 42 percent enter China along the same route -- amounting to $152 billion in trade last year, a 6.6 percent increase from the prior year.

American firms have invested $13 billion in Hong Kong and imported $8 billion in goods from it last year. Hong Kong's service sector accounted for 84 percent of its gross domestic product in 1995, with manufacturing accounting for only about 9 percent -- with services steadily gaining share over the past 15 years.

The economic reality is that China brings to the partnership both natural resources and cheap labor, while Hong Kong brings neither -- just intelligence, expertise and the wealthy heritage of a free-market tradition.

Source: Adrienne Fox and Daniel J. Murphy, "End of Hong Kong's Experiment?" Investor's Business Daily, June 23, 1997.


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