Mark Prisk MP, Shadow Minister for Business and Enterprise, is in Hong Kong with the UK All Party Parliamentary China Group. As the 10th anniversary of its handover from British rule looms, how has Hong’s economy faired and what are its prospects?
Since 1997, the economy of Hong Kong has had to weather considerable turbulence. A deep recession, deflation, and a 70% fall in property values combined with the SARS crisis left a deep sense of gloom about the very future of this bustling city. And yet, as I visit Hong Kong this week, it’s clear that the economy has bounced back.
After enjoying 8% growth in 2004, with impressive levels continuing last year and this year, property values have been restored and unemployment has fallen below 8%. There’s a real sense of optimism again.
Of course, many people will say that the boom on mainland China has been crucial to this turnaround. And they would be right. Yet there is a fascinating paradox at the heart of Hong Kong’s success: this is the freest economy in the world, despite being part of a communist-led nation.
The mantra “one country, two systems” is usually considered in a
political and constitutional sense. However, it’s just as significant
economically. Not only are there two currencies, but Hong Kong’s rule
of law gives it a completely different legal framework. The
Anglo-Saxon legal tradition has been retained and this, perhaps more
than any other aspect, provides the assurance needed for international
business to trade and invest with confidence.
Thus Hong Kong’s economy is separate from that of the mainland, whilst
the city is part of China. The unique position is a ‘win-win’
For the city itself it means being the best bridge into the booming
Chinese market, for international capital and corporations. They can
trade, but on legal terms they can be confident about. For China, Hong
Kong provides access to outside expertise without losing control. For
China’s leaders, it’s a great way to manage capitalism.
The result is that 41% of all foreign direct investment into mainland
China comes from Hong Kong. One of the questions most discussed this
week, during my visit, has been about the city’s political and economic
Politically, the prospects for universal suffrage seem to be firmly in
the long grass. A fractured legislative council seems unlikely to
resolve its differences, leaving the Chief Executive able to continue
his work, once next March’s ‘election’ is over. 2012 is the earliest
change might come.
Economically, this political gradualism is actually welcomed by many
business voices. To western ears, this may seem strange, but in fact
it simply reflects the mutual benefit to business and China’s leaders
of “one country, two systems”.
However, two issues merit closer thought. Locally, Hong Kong and its
neighbouring Guangdong Province have developed close ties. Over 70,000
factories in the Pearl River Delta now employ 11 million people and
Hong Kong money is heavily invested there. However, this hinterland
now faces the annual challenge of lower cost competitors and the urgent
need to reduce pollution. How this industrial transition is managed
is a top concern for business and city officials. To British ears,
this may sound familiar.
The second issue is the future of the Yuan. Until recently the
currency of China was restricted to the mainland. Yet, as the
mainland’s economy has opened up, so inevitably the currency has faced
pressure to become tradable.
To date, one of Hong Kong’s attractions to international finance has
been its currency is openly tradable and is pegged to the US dollar.
If China’s currency becomes similarly open, will this erode Hong Kong’s
position against cities like Shanghai?
Overall, the hard working, can do attitude of the people of this city
is what remains Hong Kong’s great strength. Underpinned by an open and
independent legal system, low taxes and an open economy, the future
looks bright for this remarkable community. Given our historical ties,
it’s a renaissance which the UK can and should welcome.