In 2006 alone, Hong Kong with its population of 6.857 million enjoyed the recognition of being the world's freest (1st of 155) economy (Heritage 2007: 205) for the thirteenth straight year, the 11th (of 125 countries) most competitive nation on earth (World Economic Forum 2006: xvii), the 6th richest economy in the world in terms of per capita GDP at current market prices (HKSAR 2007: 14), and the world's 2nd most competitive economy after the U.S. (IMD 2006: 7). Before going into a discussion of Hong Kong's economic statistics in the last ten years, it would be appropriate to summarize the main events that took place during the period which had noticeable effects on its economic performance.
Shortly after the handover in July 1997, Hong Kong was caught in the middle of the Asian financial crisis that lasted until late 1998. As its economy rebounded, it was then hit by the global economic downturn in 2000-2001. By 2002, Hong Kong's economy was recovering with the rest of the world when it was hit by a health scare: fatal cases of Severe Acute Respiratory Syndrome (SARS) turned away tourists and led many skilled workers to leave. From 2004-2005, political problems related to pro-democracy strikes by locals created instability that led to the resignation of its Chief Executive, Tung Chee Hwa, who was into his second term of office. These events explain some of the movements in Hong Kong's economic indicators during the ten-year period.
Nature of Hong Kong's Economy
Hong Kong's economic performance in the last ten years can be better understood by reviewing briefly how its economy functions. Hong Kong was "developed" by its former British colonizers in the mid-19th century as a free port and evolved into the world's freest economy by the time of its handover in 1997. Its economy enjoys a liberal investment regime without trade barriers, no discrimination against overseas investors, free capital movement, an established rule of law, transparent regulations, low tax rates, a government that does not interfere with the private sector, allowing businessmen to do anything to make money within the law.
Supported by world-class infrastructure (airport, seaports, road transport, energy, communications, housing, etc.) and highly-skilled labor from all over the world, Hong Kong is home to the regional offices of thousands of multinational corporations. Its main natural resources are its people, government policies, an ideal seaport, and location close to China. Hong Kong transformed its economy from one that was manufacturing-based and export-led after the communist takeover of China in 1949 into one that is now dominated by services - trading, legal and financial services, tourism, property ownership and development, and re-export of goods manufactured in China. Latest figures (in 2006) show that services accounted for over 90% of Hong Kong's Gross Domestic Product (GDP) of HK$ 1.47 trillion, and that this is even exceeded by the value of its goods (mostly re-exports from China) amounting to HK$ 5.07 trillion (HKSAR 2007: 20-24; Heritage 2007: 205-206). With the exchange rate at a relatively stable level of HK$ 7.768 per U.S. Dollar (US$) in 2006, these figures translate into US$ 189.2 billion of GDP, a per capita income of US$ 27,598 and total annual trade of US$ 652.7 billion.
The following key economic indicato