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Country Commercial Guides FY 1999: Hong Kong

   


CHAPTER I.   EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look
at Hong Kong's commercial environment using economic, political
and market analyses.  The CCGs were established by recommenda-
tion of the Trade Promotion Coordinating Committee (TPCC), a
multi-agency task force, to consolidate various reporting documents
prepared for the U.S. business community.  Country Commercial
Guides are prepared annually at U.S. embassies and consulates
through the combined efforts of several U.S. Government agencies.

On July 1, 1997, Hong Kong reverted to Chinese sovereignty
after over 150 years under British rule.  The Sino-British Joint
Declaration, signed in 1984, and the Basic Law, passed by China's
National People's Congress in 1990, form the legal basis for
China's "One Country, Two Systems" guarantees for the Hong
Kong Special Administrative Region (SAR) of China.  These
documents, which guarantee a high degree of autonomy for the
HKSAR except in matters relating to foreign affairs and defense,
have to date been scrupulously observed.  So far, Beijing has
honored its commitments that the Hong Kong people will continue
to enjoy the social and economic systems, life-style, and rights
and freedoms that they previously enjoyed.  The HKSAR continues
to enjoy executive, legislative and independent judicial power.

A year after the handover, the problems facing Hong Kong
relate not to the return to Chinese sovereignty, but rather to
the financial and economic crisis that has affected the entire
Asian region.  Unemployment has risen to 4.2%, a fourteen-year
high, and is expected to rise further in 1998; retail sales are
off 14% for the first half of 1998 and tourism receipts are
expected to decline 6% for the year; the stock market has fallen
some 50% from its peak last August; and in the first quarter of
1998 Hong Kong experienced negative growth (-2%), for the first
time since 1984.  Some analysts predict negative growth for the
entire year, as the regional crisis continues unabated.

Pressure on the Hong Kong dollar, which is linked to the U.S.
dollar at a rate of HK$7.8 = US$1, has caused a rise in interest
rates, leading to a sharp correction in property prices, down
35-40% so far from their 1997 peak levels.  Hong Kong's economy
remains susceptible to external factors, notably the economies
of China, the U.S., Japan, and the EU, as well as risks from
intra-regional shocks from Indonesia, Korea, and Thailand.

In 1997, however, Hong Kong's economy continued to perform well.
Its open, services-dominated economy achieved a real growth rate
of 5.3%.  Inflation averaged 5.7% in 1997, and foreign currency
reserves totaled US$92.8 billion at year's end, the world's
seventh largest.  A tradition of prudent fiscal management has
generally enabled Hong Kong to realize budget surpluses.  The
fiscal year 1997 surplus was estimated by the government to be
US$9.9 billion.  According to U.S. Government statistics, U.S.
exports to Hong Kong totaled US$15.1 billion in 1997, and two-
way trade totaled US$25.3 billion, making Hong Kong the
United States' fifteenth largest trading partner.
   
The keys to Hong Kong's economic success -- its free-market
philosophy, entrepreneurial drive, absence of trade barriers,
well established rule of law, low and predictable taxes, trans-
parent regulations, and complete freedom of capital movement --
should enable Hong Kong to make it through the current regional
downturn, and to be among the first economies in the region to
return to the type of growth it has experienced in the past.
Longer term, Hong Kong's attractiveness as a profitable
commercial and financial center should be enhanced as the high
cost of doing business, largely stemming from rising property
and labor costs, has come down considerably because of the
economic crisis.   Rising unemployment has eased wage pressure
and dampened the high turnover that most companies faced here,
as a result of the extremely low unemployment rates that had
prevailed in the past (2.2% in 1997).
  
Hong Kong's Kai Tak Airport, which was strained beyond capa-
city in 1997 with 30 million passengers and 1.6 million tons
of cargo, has now been replaced by the US$9 billion Chek Lap
Kok Airport. The new facility will have annual capacity of 87
million passengers and nine million tons of air cargo when its
second runway opens in late 1998.  Hong Kong also boasts the
world's busiest container port, now handling over 14 million
TEU's (twenty-foot equivalent units) of cargo per year.  An
expansion of the container terminal facilities is planned, as
construction of Hong Kong's ninth container terminal (CT 9)
is expected to begin in early 1999.

There are over 1,100 U.S. businesses represented in Hong
Kong -- including over 400 regional operations -- and over
50,000 American citizens reside in Hong Kong.  According to
preliminary U.S. Government statistics, U.S. direct invest-
ment in Hong Kong totaled US$19 billion at year-end 1997
(based on historical cost), making the United States one of
Hong Kong's largest investors, along with the U.K., China
and Japan.  Thirty-two American "authorized financial
institutions" operate in Hong Kong, including 7 of the top
10 U.S. banks. 

Geographic proximity and cultural and linguistic ties,
particularly to adjacent Guangdong province, have greatly
accelerated Hong Kong's economic integration with China.
Trade and investment with China have surged as China's
economy continues its fast-track growth.  China is Hong
Kong's largest trading partner, absorbing one-third of
Hong Kong's total exports of US$186.7 billion.  Hong Kong
serves as the principal transshipment point for Chinese
exports.  Almost 60% of cumulative foreign investment in
China originated from or transited through Hong Kong.
Over 5 million Chinese workers are employed by Hong Kong-
invested enterprises in Guangdong alone.

With a per-capita GDP of US$26,302, Hong Kong's sophisti-
cated population offers outstanding opportunities for sales
of a full range of U.S. products and services, the current
economic downturn notwithstanding. Hong Kong's role as a
regional financial services and transportation hub con-
tributes to a promising market in computers, telecommuni-
cations equipment and information technology services.  A
growing population and pressures for improvements in
quality of life support growing demand for building
products, pharmaceuticals, and environmental services and
equipment.  With its new airport offering significant new
capacity, the market for aircraft and parts should flourish.
All of these areas offer outstanding opportunities for U.S.
exporters, as do such products traded through Hong Kong to
China as paper and high value food products.
 

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Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.

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