Vii) Financial Centre (Hong Kong)

When British rule ended in Hong Kong (1997), the Chinese government talked of "one country, two systems" for 50 years. Hong Kong was an important financial centre and gateway linking the Western world with China. Since 1997 it has had to handle the Asian Financial Crisis, a property crash, SARS and poor administration with a small elite reaping most of the benefits, eg 39 billionaires, etc.

Recently this has changed with the growth of financial centres inside China like Shanghai & Beijing; they have bigger economies than Hong Kong (it currently accounts for 3% of Chinese total GDP in 2014 as against 19% in 1997). Also, Singapore has emerged as a serious rival to Hong Kong for global corporations looking to set up their Asian headquarters.

Thus Hong Kong now relies more on mainland Chinese tourists (up to 50+ m expected in 2014; more than 7 times the local population) visiting Hong Kong to buy products cheaper than in China, especially luxury goods. It is estimated that these tourists spend around US $ 50 b. (of this, around US $ 12 b. is on luxury goods). This influx of tourists has significantly changed Hong Kong, with upmarket luxury goods stores replacing small family stalls and putting pressure on the city's infrastructure, ie it is one of the most crowded cities in the world.

The decline of Hong Kong's middleman status has created fewer opportunities for young professionals, ie
"...Hong Kong has become ever more reliant on China via its tourism and banking sectors, but at the same time it has become less important to China..."

Lisa Murray, 2014

Also, there is increasing competition from mainlanders for school and university positions plus mainlander mothers giving birth in Hong Kong so that their children can claim permanent residency status.

As Hong Kong's economic base narrows, its risk profile increases, ie the past 5 years, Hong Kong exposure to mainland China has grown by around 6 times. This equivalent to over 300% of GDP; up from 70% in 2008. Additionally, China continues to open up its economy by loosening state controls on interest rates, setting up more free trade zones & promoting Shanghai as a viable alternative.

One advantage Hong Kong still enjoys is the rule of law (in the Western sense).

On the other hand, this is being severely tested with the continuous public protests, mainly by the youth, in Hong Kong. These protests started in 2019. How the Chinese government resolve this situation is being watched with great interest.


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