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Diplomacy in Action

Hong Kong (12/10/09)


December 10, 2009

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For the most current version of this Note, see Background Notes A-Z.

PROFILE

Geography
Area: 1,104.3 sq. km.; Hong Kong comprises Hong Kong Island, Kowloon, the New Territories, and numerous small islands.
Terrain: Hilly to mountainous, with steep slopes and natural harbor.
Climate: Tropical monsoon. Cool and humid in winter, hot and rainy from spring through summer, warm and sunny in fall.

People
Population (end of 2008): 7.0 million.
Population growth rate (2008): 0.8%.
Ethnic groups: Chinese 95%; other 5%.
Religions: About 43% participate in some form of religious practice. Christian, about 9.6%.
Languages: Cantonese (a dialect of Chinese) and English are official.
Education: Literacy--97.1% (98.7% male, 95.4% female).
Health (2008): Infant mortality rate--1.8/1,000. Life expectancy--82.5 yrs. (overall); 79.4 yrs. males, 85.5 yrs. females.
Work force (2008): 3.66 million. Wholesale, retail, and import/export trades and restaurants and hotels --29.0%; finance, insurance, real estate, and business services--14.3%; manufacturing--4.2%.

Government
Type: Special Administrative Region (SAR) of the People's Republic of China, with its own constitution-like charter (the Basic Law).
Branches: Executive--Administration: Chief Executive selected in March 2007; Executive Council, serving in an advisory role for the Chief Executive. Legislative--Legislative Council (LegCo) elected in September 2008. Judicial--Court of Final Appeal is highest court, other lower courts.
Subdivisions: Hong Kong, Kowloon, New Territories.
Suffrage: Permanent residents, at 18 years or over, living in Hong Kong for the past seven years are eligible to vote in certain local elections and for LegCo members.

Economy (2008)
GDP (2008): $215.2 billion.
GDP real growth rate (2008): 2.5%.
Per capita GDP (2008): $30,840.
Natural resources: Outstanding deepwater harbor.
Industry: Types--textiles, clothing, electronics, plastics, toys, watches, clocks.
Trade: Exports--$362.1 billion: clothing, electronics, textiles, watches and clocks, office machinery, electrical machinery, telecommunications equipment. Major partners--Mainland China 48.5%, U.S. 12.7%, Japan 4.3%, EU 8.0%. Imports--$387.9 billion: consumer goods, raw materials and semi-manufactures, capital goods, foodstuffs, fuels. Major partners--Mainland China 46.6%, Japan 9.8%, Singapore 6.4%, Taiwan 6.3%, U.S. 5.0%.

PEOPLE
Hong Kong's population has increased steadily over the past decade, reaching 7.0 million in 2008. Hong Kong is one of the most densely populated areas in the world, with an overall density of some 6,339 people per square kilometer. Cantonese, the official Chinese language in Hong Kong, is spoken by most of the population. English, also an official language, is widely understood, being spoken by more than one-third of the population. Every major religion is practiced freely in Hong Kong. All children are required by law to be in full-time education between the ages of 6 and 15. Preschool education for most children begins at age 3. Primary school begins normally at the age of 6 and lasts for 6 years. At about age 12, children progress to a 3-year course of junior secondary education. Most stay on for a 2-year senior secondary course, while others join full-time vocational training. More than 90% of children complete upper secondary education or equivalent vocational education.

HISTORY
According to archaeological studies, human activity on Hong Kong dates back over five millennia. Excavated neolithic artifacts suggest an influence from northern Chinese stone-age cultures. The territory was settled by Han Chinese during the seventh century, A.D., evidenced by the discovery of an ancient tomb at Lei Cheung Uk in Kowloon. The first major migration from northern China to Hong Kong occurred during the Sung Dynasty (960-1279). The British East India Company made the first successful sea venture to China in 1699, and Hong Kong's trade with British merchants developed rapidly soon after. After the Chinese defeat in the First Opium War (1839-42), Hong Kong was ceded to Britain in 1842 under the Treaty of Nanking. Britain was granted a perpetual lease on the Kowloon Peninsula under the 1860 Convention of Beijing, which formally ended hostilities in the Second Opium War (1856-58). The United Kingdom, concerned that Hong Kong could not be defended unless surrounding areas also were under British control, executed a 99-year lease of the New Territories in 1898, significantly expanding the size of the Hong Kong colony.

In the late 19th century and early 20th centuries, Hong Kong developed as a warehousing and distribution center for U.K. trade with southern China. After the end of World War II and the communist takeover of Mainland China in 1949, hundreds of thousands of people fled from China to Hong Kong. Hong Kong became an economic success and a manufacturing, commercial, finance, and tourism center. High life expectancy, literacy, per capita income, and other socioeconomic measures attest to Hong Kong's achievements over the last five decades.

On July 1, 1997, China resumed the exercise of sovereignty over Hong Kong, ending more than 150 years of British colonial rule. Hong Kong is a Special Administrative Region of the People's Republic of China with a high degree of autonomy in all matters except foreign and defense affairs. According to the Sino-British Joint Declaration (1984) and the Basic Law, Hong Kong will retain its political, economic, and judicial systems and unique way of life for 50 years after reversion and will continue to participate in international agreements and organizations under the name, "Hong Kong, China."

GOVERNMENT AND POLITICAL CONDITIONS
The Hong Kong Special Administrative Region (SAR) is headed by Chief Executive Donald Tsang Yam-kuen, who first took office in 2005. Tsang won re-election in 2007, running against Alan Leong Kah-kit, a senior barrister and legislator for the pro-democracy Civic Party. Tsang's current term ends in 2012. The Election Committee that votes on the Chief Executive (CE) is made up of approximately 800 Hong Kong residents from four constituency groups: commercial, industrial, and financial interests; professionals; labor, social services, and religious interests; and the legislature, the Chinese People's Political Consultative Conference, and the P.R.C. National People's Congress.

In July 2002, the Hong Kong Government implemented the Principal Officials Accountability System, which was designed to make the government more responsive to public concerns. Twelve political appointees, directly responsible to the Chief Executive, run the 12 policy bureaus. Three other senior civil service positions--the Chief Secretary, Financial Secretary, and Justice Secretary--are also filled by political appointments. This system was expanded in 2008 to include one Under Secretary and one Political Assistant position being filled by appointment in each bureau.

While Hong Kong remains a free and open society where human rights are respected, courts are independent, and there is well-established respect for the rule of law, residents are limited in their ability to change their government, and the legislature is limited in its power to affect government policies. The September 7, 2008 Legislative Council (LegCo) elections were seen as generally free, open, and widely contested with a record number of candidates, both party-affiliated and independent. Concerns were raised over the use of exit polling data by party-affiliated organizations to assist parties in urging their supporters to vote for particular candidates.

In December 2005 the LegCo rejected a Hong Kong Government-proposed package of incremental reforms to the mechanisms for choosing the CE in 2007 and forming the LegCo in 2008. In July 2007, the Hong Kong Government's Commission on Strategic Development issued a Green Paper on Constitutional Development, which set out a myriad of options to reform the CE and LegCo electoral mechanisms, with the "ultimate aim" of universal suffrage as prescribed by the Basic Law.

On December 12, 2007, Chief Executive Donald Tsang submitted a report on the Green Paper to the central government. The report said more than half of local people wanted universal suffrage by 2012, but 2017 might be a more realistic date. In December 2007, the P.R.C. National People's Congress Standing Committee (NPCSC) issued a decision on Hong Kong's constitutional development which, while ruling out universal suffrage in 2012, appears to open the way for Hong Kong to achieve full universal suffrage for the CE in 2017, and full universal suffrage for LegCo sometime thereafter. Any amendments to the Basic Law will require approval by the CE, at least two-thirds of LegCo, and then the NPCSC.

In November 2009, the Hong Kong Government began a public consultation for electing the CE and LegCo in 2012. The government has proposed expanding LegCo to 70 seats (five new geographic seats and five seats to be added to the District Councils Functional Constituency) and to expand the Election Committee for the CE to 1,200.

Principal Government Officials
Chief Executive--Donald Tsang Yam-kuen
Chief Secretary for Administration--Henry Tang Ying-yen
Financial Secretary--John Tsang Chun-wah
Secretary for Justice--Wong Yan-lung
Secretary for Education--Michael Suen Ming-yeung
Secretary for Commerce and Economic Development--Rita Lau Ng Wai-lan
Secretary for Constitutional and Mainland Affairs--Stephen Lam Sui-lung
Secretary for Security--Ambrose Lee Siu-kwong
Secretary for Food and Health--York Chow Yat-ngok
Secretary for the Civil Service--Denise Yue Chung-yee
Secretary for Home Affairs--Tsang Tak-sing
Secretary for Labour and Welfare--Matthew Cheung Kin-chung
Secretary for Financial Services and the Treasury--K C Chan (Chan Ka-keung)
Secretary for Development--Carrie Lam Cheng Yuet-ngor
Secretary for the Environment--Edward Yau Tang-wah
Secretary for Transport and Housing--Eva Cheng Yu-wah

ECONOMY
Hong Kong is one of the world's most open and dynamic economies. Hong Kong’s per capita GDP is comparable to that of developed countries. In 2009 Hong Kong’s real economic growth fell as a result of the global financial turmoil. Hong Kong’s economy contracted sharply through the first three quarters of 2009, though the pace of decline has slowed. In the period July-September 2009, Hong Kong’s GDP shrank by 2.4%. Analysts expect calendar year 2009 GDP will shrink by 3.3%, with some rebound in 2010. In response to the economic crisis, the Hong Kong Government unveiled several stimulus measures worth 5.2% of GDP targeted at the poorest Hong Kong residents. The government also offered guarantees for savings deposits and small-and medium-enterprise loans, and injected massive amounts of liquidity into the banking system to restore confidence. The banking system’s high capital reserves and limited exposure to structured products protected it from the worst of the global financial crisis. External trade, a significant component of Hong Kong’s economy, was severely hit as many of Hong Kong’s major trading partners continued to struggle in 2009. The beginning of 2009 saw monthly trade volume drop by 20%-30%. While there has been some recovery in recent months, monthly trade volume remains more than 10% below previous year figures. Domestic demand has begun to recover, with October 2009 retail sales up almost 10%. This is in large part due to increasing numbers of tourists coming from mainland China to shop as the unemployment rate in Hong Kong increased to 5.2% (Aug.-Oct. average).

Despite the crisis, Hong Kong’s economic strengths, including a sound banking system, virtually no public debt, a strong legal system, ample foreign exchange reserves, and an able and rigorously enforced anti-corruption regime, enable it to quickly respond to changing circumstances. The government promotes measures designed to improve its attractiveness as a commercial and trading center and is continually refining its financial architecture. The government is deepening its economic interaction with the Pearl River Delta in an effort to maintain Hong Kong's position as a gateway to China. These efforts include the conclusion of a free trade agreement with China, known as “the Closer Economic Partnership Arrangement” (CEPA), which applies zero tariffs to all Hong Kong-origin goods and preferential treatment in 40 service sectors and increasing scope for using the Chinese yuan in Hong Kong as a trade settlement currency, in savings deposits, and to purchase RMB (renminbi)-denominated bonds. Hong Kong, along with the Macau SAR, is also participating in a new pan-Pearl River Delta trade block with nine Chinese provinces, which aims to lower trade barriers among members, standardize regulations, and improve infrastructure. U.S. companies have a generally favorable view of Hong Kong's business environment, including its legal system and the free flow of information, low taxation, and infrastructure. However, the contracting world economy has affected business sentiment in Hong Kong and the region. The American Chamber of Commerce's annual business outlook survey, released in January 2009, showed only 39% of respondents had a "good" or "satisfactory" outlook for 2009. Survey results, however, suggested a positive economic outlook through 2011.

FOREIGN RELATIONS
Hong Kong's foreign relations and defense are the responsibility of China. Hong Kong is a separate customs territory and economic entity separate from the rest of China and is able to enter into international agreements on its own behalf in commercial and economic matters. Hong Kong, independently of China, participates as a full member of numerous international economic organizations including the World Trade Organization (WTO), the Asia Pacific Economic Cooperation forum (APEC), and the Financial Action Task Force (FATF). It is an articulate and effective champion of free markets and the reduction of trade barriers.

U.S.-HONG KONG RELATIONS
U.S. policy toward Hong Kong, grounded in a determination to promote Hong Kong's prosperity, autonomy, and way of life, is stated in the U.S.-Hong Kong Policy Act of 1992. The United States maintains substantial economic and political interests in Hong Kong. The United States supports Hong Kong's autonomy under the “One Country, Two Systems” framework by concluding and implementing bilateral agreements; promoting trade and investment; broadening law enforcement cooperation; bolstering educational, academic, and cultural links; supporting high-level visits of U.S. officials; and serving the large community of U.S. citizens and visitors.

Hong Kong is active in counterterrorism efforts. Hong Kong has joined the Container Security Initiative and remains an important partner in efforts to eliminate funding for terrorist networks and combat money laundering. Hong Kong participated in the Secure Freight Initiative in a limited capacity on a pilot basis from November 2007 to April 2009. Hong Kong has passed legislation designed to bring Hong Kong into compliance with applicable UN anti-terror resolutions and with most Financial Action Task Force recommendations. Hong Kong is currently considering legislation to allow it to adopt the most recent globally recognized standards for exchange of tax information and expand its circle of bilateral tax agreements.

The United States has substantial economic and social ties with Hong Kong. There are some 1,400 U.S. firms, including 923 regional operations (311 regional headquarters and 612 regional offices), and over 60,000 American residents in Hong Kong. According to U.S. Government statistics, U.S. exports to Hong Kong totaled $21.6 billion in 2008. According to Hong Kong statistics, U.S. direct investment in Hong Kong at the end of 2007 totaled about $37.5 billion (2008 figures are not yet available), making the United States one of the largest investors in Hong Kong, along with China, the British Virgin Islands, Japan, and the Netherlands.

Hong Kong enjoys a high degree of autonomy as a separate customs territory, with no changes to borders, staffing, or technology export controls since the 1997 handover. Intellectual property rights (IPR) protection is relatively strong and Hong Kong continues to take steps to improve both its legislation and its enforcement regime.

The Hong Kong Government maintains three Economic and Trade Offices in the United States. Addresses, telephone numbers, and web sites for these offices are listed below:

1520 - 18th Street NW
Washington, DC 20036
Tel: (202) 331-8947
Fax: (202) 331-8958
Web Site: http://www.hketowashington.gov.hk/dc/index.htm

115 East 54th Street
New York, NY 10022
Tel: (212) 752-3320
Fax: (212) 752-3395
Web Site: http://www.hketony.gov.hk/ny/index.htm

130 Montgomery Street
San Francisco, CA 94104
Tel: (415) 835-9300
Fax: (415) 421-0646
Web Site: http://www.hketosf.gov.hk/sf/index.htm

Principal U.S. Officials
Consul General--vacant
Deputy Principal Officer--Christopher J. Marut

The U.S. Consulate General is located at 26 Garden Road, Hong Kong. Tel: (852) 2523-9011 (general). Fax: (852) 2845-1598 (general); (852) 2147-5790 (consular); (852) 2845-9800 (commercial).
 



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