One primary driver that “makes Hong Kong tick” is a simple, low tax rate capped at 15 percent for salaries and 16.5 percent for profits with no sales or capital gains taxes, said Donald Tong, commissioner for economic and trade affairs for Hong Kong. “Our key philosophy is, ‘You should keep most of what you earn,’” Tong said during the Chicago Asia Pacific Speaker Series, sponsored by the student-led Chicago Asia Pacific Group, at Harper Center on February 25.
The other main factors behind Hong Kong’s economic engine, he said, are:
- A currency pegged to the U.S. dollar.
- Fortunate geography that places it at mainland China’s doorstep and midway between the trading hours of New York and London.
- A work force for which both Chinese and English are official languages.
- A population of 7 million people with GDP per capita of about $30,000.
- Rankings of second in Asia and seventh globally in foreign direct investment.
- Preservation of a “staunch commitment to free market principles” since the British handover of Hong Kong to China in 1997.
“Our government is clean and efficient, and we enjoy the free flow of capital, people, and information,” Tong said. “Hong Kong was ranked the world’s freest economy for 16 consecutive years by the Washington-based Heritage Foundation and the Wall Street Journal. This ranking illustrates the strength of Hong Kong’s fundamental and competitive spirit.”
Hong Kong was negatively affected by the global economic crisis, with a decline in GDP growth from 6.4 percent in 2007 to 2.5 percent in 2008, he said. However, its banks weathered the crisis and remain “solid” without government bailouts, Tong said.
To address the financial crisis, the Hong Kong government adopted strategies to stabilize the financial system, support enterprise, and preserve employment, he said. The costs of the government’s basic relief measures totaled more than $11 billion, Tong said. To address a liquidity crunch, another $12.8 billion was “deployed” to guarantee up to 80 percent of commercial loans to enterprises, he said.
With its manufacturing base shifted to China, Hong Kong has refocused its economy on services, which now account for 92 percent of GDP, Tong said. Together, the four leading sectors – financial services, tourism, trading and logistics, and professional services – represent 60 percent of GDP, he said.
“To meet the challenges of an increasingly global economy, Hong Kong must maintain its competitiveness by evolving into a high-value-added, knowledge-based economy,” Tong said. “We must further develop our economic pillars with a view toward innovation and job creation.”
Because China will be one of the driving forces pulling the global economy from the recession, business people must know the dynamics of the region, said Claire Kim, a second-year student in the Full-Time MBA Program and co-chair of the Chicago Asia Pacific Group.
“There are a lot of other Asian countries next to China that really need to define themselves – what their relationships are going to be with China, what their roles and responsibilities are going to be – in order to coexist and grow together,” Kim said. “It’s important to keep in mind what each city can do to improve its status, given the changing dynamics involving China.”