ECON5200 Final Paper (v3.1) | Hong Kong | Renminbi


Group Project

Group Members: Adam Wong (20022200) Brian Lam (20023254) Pohchin Loh (20022066) Simon Chan (20021830) Angel Yeung (20023163) Calvin Yeung (20022224) Selina Cheung (02422367)

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Evolving from a fishing village to one of the world’s leading international financial centres, Hong Kong has been under the spotlight on the global platform for the past few decades. Since the return of sovereignty to China in 1997, criticism has it that Hong Kong would gradually be losing its competitive edge and surpassed by fast-growing cities in the Mainland China such as Shanghai or Guangzhou. To support the stance that Hong Kong has an economic future, this paper will analyse the success factors of this small but thriving city while rebutting some so-called threats from China to Hong Kong. Let us start off by having with an overview of Hong Kong’s economic background. Economic background Since 1980, there has been an upward trend in Hong Kong’s Gross Domestic Product (GDP) per capita, with an increase of 29% since the return to China . In 2011, Hong Kong received numerous recognitions in Asia and even around the world for its outstanding performance in different sectors . It was ranked number one in the world for economic freedom (WSJ, 2011) and it demonstrated competitive productivity growth in Asian economies (HK Economic Report, 2011). It was also recognised as one of the world’s most innovative economies (INSEAD Global Innovation Index 2011). Companies love Hong Kong because of the economic freedom (low tax, free trade, easily convertible currency, etc) and the strong productivity, and so Hong Kong has long been the preferred place for investment. Four key economic pillars have been playing a vital role in driving Hong Kong’s economy - financial services (15.4% of total GDP in 2011), trading and logistics (25.5%), tourism (4.4%), and professional services and other producer services (12.8%), which accounted for an average of 54% of total GDP from 2000 to 2009. On the other hand, the six industries which Hong Kong has clear advantages for further development are cultural and creative, medical services, education services, innovation and technology, testing and certification services and environmental industries, also contributed for 8.4% of GDP in 2010. These four economic pillars and the six growing industries will be the major arguments for the future economic prospect of Hong Kong, which we will further elaborate in the sections that follow.
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both the onshore and Hong Kong’s offshore market will grow together. First-mover advantage – Hong Kong has already developed a significant lead in acting as a RMB offshore centre.g. which will not compete directly with Hong Kong .FOUR ECONOMIC PILLARS: FINANCE Finance industry has for decades. The future sustainability of policy support is strengthened by the fact that Shanghai is to become an onshore business centre for China. Strong Legal Framework and Simple Tax Regime – Hong Kong is known for its strong legal protection on areas such as contract law. The finance industry contributes to more than 15% of Hong Kong GDP with 6% employment in 2011. and also remain competitive in the midst of a number of competing challenges. The expansion of policy support has allowed Hong Kong to develop more RMB products over the years. and it will be difficult for other global finance industries (e. It is also known for a simple tax regime and a low corporate tax rate. These resources and expertise have been accumulated with decades of being a leading financial centre. Singapore. Hong Kong will develop cross-border settlement in Renminbi (RMB) and associated products. by providing a channel for them to execute global trade settlement in RMB and also an opportunity to enhance its corporate branding and international recognition . As mainland companies grow and with the increasing number of foreign 10 corporates investing into China. and it will continue to be a sustainable strength into the future as it cannot be easily replaced or developed. there would be a demand for reliable financial services. This is a result of being a monopolised RMB offshore centre. These are essential for corporates to ensure their assets and innovations are protected. Hong Kong was recently recognised as the “Number 1 Financial Centre of the World . and have clarity on tax cost of each transaction. which allows them to accumulate a large RMB liquidity pool necessary to facilitate the development of other RMB products. held a prominent role in the economic development of Hong Kong. as China grows and its demand for RMB settlement grows. with efficiency and security that can be trusted by corporates 9 8 7 . it will be shown later that Hong Kong possesses a series of strengths that should ensure sustainable growth to its finance industry. Further policy support on the horizon includes the use of RMB deposits as Foreign Direct Investment (FDI) into mainland and also RMB Qualified Foreign Institutional Investors (RQFII). These strengths are unlikely to be eroded in the future. allowing Hong Kong banks to use RMB deposits to invest in mainland’s interbank bond market. as strong legal system and simple tax regime require decades to evolve. Therefore. Page 3 of 23 . It will become a platform for mainland companies to “go global”. particularly from Shanghai. systems and workforce . Sustainable Key Strengths of HK’s Finance Industry Policy Support – Hong Kong has been designated by the Chinese government to become a dominant offshore business centre for China. however. Hong Kong is in a perfect position to capture these opportunities with its strong and global networks. This position is not easy to maintain. and this position has been further emphasised recently in China’s 12 5-Year Plan th 6 5 3 4 and its National Economic Development Strategy. London) to compete in the long run. Robust Financial System – Hong Kong has a well-established financial system. This includes the introduction of RMB ‘dim-sum’ bonds. patent law and shareholder protection.

Secondly. we have seen Prada and Glencore listed in Hong Kong. Finally. the Chinese government will not develop an international board and risk its residents to lose money. financial institutions and enterprises 11 . The future of Hong Kong’s Finance Industry is well affirmed globally The future of Hong Kong’s finance industry has always been well affirmed globally. Finally. Recent Developments do not threaten the future of Hong Kong’s Finance Industry There have been a number of developments around the world which have the potential to challenge Hong Kong’s future. Global corporates. while Shanghai has the potential. and an absence of institutional investors is not ideal for small companies looking to attract funding. it will be the far future before it has a significant impact to Hong Kong 16 . by providing a testing ground for new measures. as Wen Jiabao understands. it will only lead to increase use of RMB globally. uncoordinated and ultimately unsustainable 20 19 . plus we already have first mover advantage. China will need time to develop a fair Page 4 of 23 . However. such as HSBC. the Chinese economy is “increasingly unstable. in turn will increase volume through Hong Kong’s finance industry. unbalanced. are now looking towards Hong Kong as an investment hub . Chinese investors are 90% retail. and these strengths will ensure HK continue to be the preferred financial destination for mainlanders. This is driven by the sustainable strengths highlighted above. such as luxury retailers and natural 15 resources companies. There is very remote possibility it will impact Hong Kong as mainland will always give preference of RMB business to Hong Kong. different accounting standards and regulatory scrutiny. There have also been reports that Shanghai will become a global RMB hub RMB 18 17 . The strongest case would be competition from Shanghai’s finance industry and the development of its ‘international board’ which will allow foreign companies to list in Shanghai. Hong Kong’s future will not be impacted because of the differences in product offerings On the issue of full between our positions as an offshore RMB centre versus Shanghai’s onshore role. with the lack of clarity and certainty on freedom of capital movement. However. it is unlikely global corporates will feel comfortable to list in Shanghai. as in the case of China Investment Corporation (CIC) few years ago. Hong Kong will continue be the destination of choice. convertibility. There are social problems which mainland will take decades to address before it can threaten Hong Kong’s future. there is no definite timeline when the international board will be established. along with full convertibility of . Thirdly.Home bias – Hong Kong market is preferred by Mainland fund-raisers. which demonstrates corporate confidence in Hong Kong’s finance system and signifies the strong future of our finance industry. China will only gradually reform its finance industry One may argue that China can completely reform its finance industry and be in direct competition with Hong Kong (as an extreme case). Firstly. In the past year. while consensus amongst analysts is that it will not happen that soon. China’s vice premier describes HK having an “irreplaceable role in the mainland's reform. it is known that London and Singapore both wants a share of Hong Kong’s offshore RMB business . until the general market condition improves. by 2015. Certain industries. also see Hong Kong "has all the attributes to host regional and international headquarters of any company including banks 14 13 12 . opening-up and modernization drive Hong Kong will promote RMB internationalisation component of China’s gradual currency reform. high tax. even if it did happen. a critical . investors.

Other nearby China cities which are catching up. by then. For trade performance. it is clear that Hong Kong’s finance industry will continue to grow and prosper. In terms of air cargo sector. This will shorten delivery time from th Guangdong manufacturing base to Hong Kong. IATA Consulting (International Air Transportation Association) has estimated an annual growth of 4. a total of 4. • Hong Kong-Zhuhai-Macau Bridge will be opened in 2016. with a total of 23. handbag. Hong Kong is still in good shape as of today. Thus. this will encourage deeper economic integration between Hong Kong & PRD (Pearl River Delta Region) and strengthen Hong Kong’s position as a logistics centre. In fact. Page 5 of 23 . This signals PRC is very concerned about Hong Kong’s development.5 hours to travel by road between Hong Kong and Zhuhai. With a 3 rd rd runway. The new bridge will shorten it sharply to 40 minutes. This means it is in a stable pace for the past 5 years in this industry. Hong Kong would have made further progress and it is unlikely that China can leapfrog Hong Kong in this and rule of law. Hong Kong has strong growth. this is first time that PRC explicitly put Hong Kong in its 5-year Plan. Hong Kong is encouraged to become a Regional Distribution Centre of high value good e. This agreement will further advance cooperation between two territories – reinforcing Hong Kong’s leading position of global supply chain. this will also facilitate development of tourism industry in PRD and further improve regional transport network. As a result. It will also boost local employment significantly .7 million TEUs (Twenty-foot Equivalent Units) 25 .g. • Framework Agreement on Hong Kong – Guangdong Cooperation has been signed in August 2010. Even so. for example Shenzhen. FOUR ECONOMIC PILLARS: TRADING AND LOGISTICS In Hong Kong. Hong Kong maintains as the third busiest container port in the world. Hong Kong has grown more than 11% in service and merchandise trade in 2011.3% per annum 22 .2% over the coming 20 years until 2030 . and continue to contribute to the per capita GDP growth of Hong Kong. • Plan for a 3 runway at Hong Kong International Airport is now under discussion given the increasing air traffic volume. it has just overtaken Memphis in US as the world’s most busiest air cargo hub in terms of cargo metric tonnes in 2011. before it can make significant social progress and achieve further economic successes 21 . camera.1 million tons of cargo 24 23 . Trading and Logistics is the largest contributor of GDP – with over 25. has still a long way to catch up to Hong Kong ‘s current position. In terms of container sector. Today it takes 4. there is slow but continual increase in 1. air traffic can grow substantially with greater flexibility and this can 26 improve turnaround and delivery time for businesses. Future Roadmap There are several projects that will benefit Hong Kong’s economic growth: • In 12 5-year Plan of China. In fact.5% of Hong Kong’s GDP in 2010. ranked after Shanghai and Singapore. In short. From 2004 to 2009. Besides.

• Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL) connecting Hong Kong to national rail network will be completed in 2016. Dongguan and Guangzhou and that will significantly reduce journey time. distribution centre. forged goods.g. fostering closer economic ties between Hong Kong and the mainland. handbag to other Asia Pacific countries with light modification e. attach local language label • • Reputation of providing security. efficiency.g.000 logistics courses to develop professionals in this sector. speed.g. Hong Kong is still competitive as compared with other cities in trading and logistics industry. can become logistics channel of companies. This has attracted many importers and exporters to choose Hong Kong as an exchange hub to transfer goods between Asia and other parts of the world. This rail system will run from the terminus in West Kowloon to Shenzhen. improving visibility. illegal distribution of films on Internet.000 km national high-speed rail network now being developed in full steam. Shanghai will be the next city within Great China to implement tariff-free hub. but this is only tentatively scheduled for 2020 or later (as per China government’s plans). cutting inventory costs and accelerating transit times • Centre of Excellence for Logistics Skills . • Hong Kong can provide value added service. • Re-export of high value goods e. • Strong intellectual property (IP) protection – Hong Kong government places a lot of emphasis on IP protection enforcement and takes tough actions against infringement of IP rights e. Use of GPS communication technology in fleet management of truck companies reducing lead times. instead of just moving boxes. Page 6 of 23 . • Leadership in e-logistics . and connectivity Short turnaround time: A real example is Tiffany takes only 72 to 96 hours to get product into retail stores in Hong Kong and Macau from its U. Competitive Advantages Hong Kong has a number of competitive advantages in Trading and Logistics sector: • Tariff–free hub – Hong Kong has been one of the two tax free ports in China for a long time since British rulership. camera. transparency.There are around 60 institutions offering over 1. We will become part of the 16. versus 21 days for a comparable transit to its locations in mainland China.e-freight initiative electronic submission of road cargo information enables seamless customs clearance at the land boundary control points.S. This has given exporters and importers high confidence in doing business in Hong Kong.

cruise (new cruise terminal). with an average annual growth rate of about 6% between 2000 and 2009 27 .500 passenger flights & 400 cargo flights weekly Connectivity World-class transportation system & excellent supporting network of hotels & restaurants Ease of entry Tariff / Other charges International experience and quality of events Free visa entry to citizens of 160 nations No trade license or tariff on most general merchandise to be exhibited More international events. hotel and meals (close to 90%). retail. 31 30 29 28 The composition of tourist expenditure is mainly on shopping. medical and eco-tourism. the Hong Kong Tourism Board has been working towards promotion of other areas such as MICE (Meetings. From the census data. in turn. accounting for 5. Singapore. it helps in job creation (especially lower-skilled jobs) for the economy. Also better protection of intellectual property in Hong Kong vs. Mainlanders form the majority of visitors to Hong Kong (~66% of total visitor arrivals ) and their tourism expenditure is also the largest. China Page 7 of 23 . Take the MICE industry for example. creates a multiplier on GDP level. Tourism is a useful pillar because consumption is created by the tourists – they bring in more money – and this. Due to tourism’s labour-intensive. FMCG. In 2011. these tourism areas should show signs of growth in the future as well. A large part of the growth in Hong Kong’s tourism sector is boosted by the increasing demand for overseas leisure travel from Mainlanders . food & beverage. Close to 30% of new jobs created between 2000 and 2009 were from the tourism sector .FOUR ECONOMIC PILLARS: TOURISM Tourism contributes 3-5% of Hong Kong’s nominal GDP and is the fastest growing of the four pillars. Hong Kong’s proximity with China and the relaxation of Mainland’s policy on travel visa has benefited Hong Kong’s tourism sector. tourist expenditure contributes to about 13% of Hong Kong’s nominal GDP with its positive spill-over effect on other industries (e. this boost in tourism will definitely help Hong Kong’s GDP to grow at a faster pace. Incentive travels. other service-sectors). Conventions and Exhibitions).g.g. While Hong Kong is traditionally renowned as a shopping and dining destination.5% of total employment in 2011 . service- focused nature. with the rest spent on Entertainment. tourism sector currently employs 193. Thus. Tours and others. offer better quality and performance than those held in China. China) Location Strategically located (closer to the huge China market than compared to Singapore) Linked to 130 cities worldwide by 3.200 persons. the table below lists Hong Kong’s competitive advantages over other countries in the region (e. With a strong forecast on increased visitor arrivals to 57 million by 2020 and tourism’s service-oriented nature.

International brands are less optimistic about setting up in China as prime retail locations become more expensive. In addition. Hence. In terms of tourist attractions in the region.One may argue that Mainland markets pose challenges for sustainable long term growth of tourism sector for Hong Kong. With the above mentioned developments and key advantages. Hong Kong Disneyland will maintain its competitive edge with Asia’s only Toy Story Land and 30 new attractions over the next five years. inconsistent business laws and rising labor costs. the trend would flatten out eventually. we strongly feel that tourism in Hong Kong will continue to flourish and remain as one of Hong Kong’s strategic advantage. China has a long way to go before it attains a standard which is comparable with Hong Kong. 32 Page 8 of 23 . Hong Kong would have made progress with the other tourism areas that it is exploring now by then. While Shanghai will also have its Disneyland (in 2016). Disneyland has forecast that visitor numbers would be large enough for Asia to sustain its business. its Hainan tax refund program suffers from retail management and product quality issues which further hurt consumer confidence in goods sold in China. For example. Hong Kong is still able to stand out from the crowd. China National Tourism Administration Vice-Chairman Gu Zhaoxi said the huge volume and growth of mainlanders travelling overseas can offset the increase in new attractions such as the Singapore casinos. However. Compared to Singapore. while initially Disneyland Shanghai may be “taking away” business from Hong Kong. improved connectivity of the Hong Kong-Zhuhai-Macau Bridge (due for completion in 2016) will further promote tourism between these city-states. Hong Kong duty free shopping is a main advantage vs. hence further expansion into good locations will be tough . Other issues in China include lack of proper intellectual property rights. Last but not least. For example. other destinations in Asia which are charging between 5-17% goods & services / value-added tax. Even if China eventually managed to resolve these issues.

Hong Kong management consulting companies can establish wholly-owned enterprises in the Mainland with minimum registered capital of only RMB30. accounting for 46. Management Consulting Services Hong Kong is a leading centre for management consulting services in Asia.51 billion) in 2009. in 2010. such as the Agricultural Bank of China’s IPO (in August 2011). etc. up 0. As of December 2010. As such Page 9 of 23 34 33 . which raised more than US$22 billion globally. finance management. contributing 30. the demand for legal services will definitely continue to increase in the coming years. The IPO deals included some of the world’s largest. With increasing demand for Hong Kong as the city for raising capitals. Hong Kong has always been the preferred business gateway into Asia and Mainland China because of its efficient and flexible law system. generates substantial opportunities for management consulting in the fields of corporate strategy. ranking the region in the first place globally. along with the simplified procedures for mainland enterprises to set up offices in Hong Kong. It is also becoming an increasingly important center for Chinese (PRC) companies looking to expand into the global market. Many top legal advisors in Asia's mergers and acquisitions (M&A) deals have a significant presence in Hong Kong. Most of the firms have an international client base and are especially focused on serving Mainland China.5% from the year-earlier period. According to the Global Financial Centers Index 2010 report published by the City of London. also helps boost the demand for a wide range of professional services provided by Hong Kong law firms. In particular. 000. Hong Kong's exports of legal services amounted to US$194 million (HK$1.FOUR ECONOMIC PILLARS: PROFESSIONAL SERVICES (LEGAL SERVICES AND MANAGEMENT CONSULTING SERVICES) Legal Services Hong Kong is one of the most liberal Asian jurisdictions in terms of permitting participation in the market by foreign professionals. Hong Kong ranked third after New York and London at global rating for the first time . there were 5. with over 250 banks from more than 30 countries and numerous investment houses and insurance companies. Hong Kong's legal services sector plays an important role in serving the needs for professional services associated with mainland-related investment. Many of the world’s top consulting firms are based in the city. The listing of mainland enterprises in Hong Kong.908 consultancy firms based in Hong Kong. information technology and product development. Hong Kong’s management consulting industry continues to prosper because of the city’s position as the main international financial centre in Asia.81 billion). In particular. With its background of being one of the most successful financial hubs worldwide. Hong Kong attracts many international professional firms to set up operations in Hong Kong to serve clients in the region.6% of the export of legal services . Asia was the most important region of destination. Hong Kong-based management consulting firms enjoy preferable access to the Mainland China market. organizational structure. In 2008 the total export value of Hong Kong’s business and management consultancy and public relation services was HK$21.3% of the total legal services exports in that year. the total equity funds raised through IPOs in Hong Kong exceeded US$31 billion. Under the Closer Economic Partnership Arrangement (CEPA). In 2009. Its financial industry. the Chinese mainland was the largest market in Asia. Hong Kong broke its own record by raising IPO funds that exceed US$40 billion.91 billion (US$2. and AIA (in October 2011) which raised about US$20 billion.

2000 with the mission to spearhead Hong Kong’s drive to become a world-class. Innovation and technology are drivers for economic growth and the key to enhance competitiveness of Hong Kong industries. employing a total of some 15. There is also an increasing demand for food testing conducted by private laboratories. Hong Kong's testing and certification industry has grown substantially since the 1980s. The industry provides testing and inspection services for consumer products manufactured in the Pearl River Delta for overseas buyers. environmental industry and education services.000 people representing an increase of 1. Given a robust accreditation system and a good international reputation. Hong Kong is well positioned to act as an independent third party to provide quality certification and product testing services for mainland enterprises to boost the confidence of overseas and local buyers . testing and certification. Guangdong and Hong Kong have launched the “Guangdong/Hong Kong Technology Cooperation Funding Scheme” since 2004 to encourage collaboration between research institutions Page 10 of 23 . the competitiveness of the industries in both places can be enhanced 39 38 37 36 . 30 management consulting companies had obtained HKSS certificates out of 38 applications. In 2009. business strategy as well as human resource management . The ITC manages different funding schemes to encourage Hong Kong companies to develop innovative ideas and technology businesses. Innovation and Technology Commission (ITC) was set up on July 1. the Closer Economic Partnership Arrangement (CEPA) has been signed and brought into force and the Chief Executive in his 2003 and 2004 Policy Addresses has stated very clearly the policy goal of broader and deeper collaboration across all fronts – including education. Basically Hong Kong has a strong competitive edge in the education services over its competitors in the region based on strong links with Mainland China and also its geographical location. China has emerged as one of the most attractive markets for global consulting firms. The continued privatization of Chinese SOEs and the internationalization of Chinese SMEs have created a huge demand for professional services in the fields of corporate governance and restructuring. medical services. and certification services for such products as well as for the relevant quality management systems. the industry is comprised of some 690 establishments. Since the issue of the Higher Education Review. long exposure to international culture and existing strong position as an international financial and economic centre. knowledge-based economy. the Chief Executive unveiled new incentives. Hong Kong can and should play a facilitating role in linking the Mainland and the world at large . The six industries contributed over HK$120 billion value added to the Hong Kong economy in 2009 (around 8% of Hong Kong’s GDP). During the past decade. The Government strives to strengthen co-operation between Mainland and Hong Kong in innovation and technology. culture and creative industries.000 people. including accommodative regulations. As of April 2010. Through combining Mainland’s rich human resources and research strengths with Hong Kong’s capability and experience in applied research and commercialization. The Hong Kong Council for Testing and Certification has been established to enhance the professional standards and recognition of Hong Kong’s testing and certification services in the international arena. to nurture six new industries namely.7% over 2008 . land policy.a lot of global companies can ride on the CEPA arrangement in Hong Kong and establish offices in Hong Kong as a stepping stone into the China market. financial incentives and human resources. most of which are private laboratories. 3% higher than in 2008 and employed over 390. innovation and technology. 35 SIX GROWING INDUSTRIES In the 2009/10 Policy Address.

The move signifies a shift from the government's laissez faire economic policy. R&D centre’s and community organizations from both sides. it found such labour movement to yield positive economic impact. Shenzhen and Hong Kong signed a cooperation agreement in 2007 to establish “Shenzhen/Hong Kong Innovation Circle”. In the case of European Union. the governments endorsed a “Three-year Action Plan” which contains 24 co-operation projects. as the rapid rise of mainland China as an economic power presents both opportunities and challenges. This seems to support case studies around the world on the impact of free labour movement on neighbouring economies. To foster economic diversification the Government is also rolling out support measures for the six industries where Hong Kong enjoys clear advantages . universities. Although the current contribution of the six industries in Hong Kong’s GDP is not as significant as the four pillars. the emerging superpower. 42 41 Page 11 of 23 . there are concerns that the relatively cheaper labour in mainland will lower the GDP capita of Hong Kong. GDP per capita continues to rise. and the benefits Hong Kong brought to China. In the case of Hong Kong. General speaking. free labour movement brought together the rich ‘west’ economies and the relatively poorer ‘east’ economies.and industries of the two places. to Hong Kong's traditional growth drivers. To conclude. and encourage closer co-operation between the research institutions of both places. In March 2009. and in the case of UK. The two sides have agreed to strengthen exchange and sharing of talents and resources. As we have seen earlier. The above scenario is also supported in Texas USA. With its abovementioned privileged advantages over China’s cities. with co-operation partners comprising government departments. they are still in their infant stages and have the potential to further drive the growth of the overall economy. With its own strengths and the strong support from China. where despite of growing influx of lower salary Hispanics and African-Americans. Yet empirical studies have found little evidence that it impacts local workers’ wage and employment . China will continue to support Hong Kong and eventually the two places will enjoy a win-win situation. 40 CONCLUSION Income levelling has always been a macroeconomic concern for neighbouring economies that have free movement of labour. the latter in the form of intense competition from cities such as Shanghai and Shenzhen. Hong Kong will definitely have a bright economic future and keep its status as one of the most fascinating cities in the world. the aim of the six new industries is to broaden Hong Kong's economic structure which is dominated by four pillar industries. the long-term sustainable growth of Hong Kong’s economywill continue to ride on the strong momentum of the four pillar industries as well as investments in the new potential industries to strengthen and secure its future growth. even after the handover. GDP per capita has continued to increase .

APPENDICES Appendix I – Graph showing GDP per capita in HK/Guangzhou/Shanghai/OECD Source: Guangdong Statistical Yearbook 2011. Hong Kong Census and Statistics Department Page 12 of 23 . World Bank Data. Shanghai Statistical Yearbook 2011.

Appendix II – Recognitions received by Hong Kong in 2011 General • The world's freest economy • The world's most service-oriented economy • The world's most competitive economy • The world's 2nd highest per capita holding of foreign exchange • Asia's 2nd most business-friendly economy • Asia's 2nd largest recipient of foreign direct investment • Asia's 2nd largest source of foreign direct investment • Asia's 2nd least corrupt place • The world's 10th largest trading economy • The world's 11th largest exporter of services Finance • Asia's highest concentration of fund managers • Asia's largest venture capital centre • Asia's 2nd most developed insurance market in terms of per capita insurance premium • Asia's 2nd largest syndication loan centre • Asia's 3rd and the world's 7th largest stock market • Asia's 3rd largest international banking centre • The world's largest IPO market • The world's 6th largest foreign exchange market Transportation • The world's busiest airport in terms of international cargoes • The world's 3rd busiest container port • The world's 4th busiest speedpost administration in terms of traffic volume • The world's 5th busiest airport in terms of international passengers Merchandise Trade th • The world’s 10 largest trading economy th • The world’s 11 largest exporter of commercial services • World ranking 2009 .Hong Kong as an exporter: • Ranked 2nd in clothing • Ranked 2nd in watches and clocks • Ranked 5th in fine jewelry Tourism • Top 10 travel destinations worldwide • Best in Asia in the Travelers’ Choice Destinations Awards organised by travel website TripAdvisor • HKTB won several awards in the 2011 Galaxy Awards • Forbes’ Top 10 Best Events of 2011.CNY in Hong Kong Page 13 of 23 .

gov.• Voted by UK & Irish travel agents as the “Long haul destination of the year for city breaks” in the “Travel Agents Choice Awards” organised by travel trade magazine Selling Long Haul.investhk.htm Communications and Media • The world's first major city to have fully digitised telephone network • The world's first commercial rollout of Video-on-Demand • Asia's busiest international telephone traffic • Asia's highest rate of telephone penetration • Asia's highest cellular mobile telephone penetration • The world's second highest broadband penetration Source: Page 14 of 23 . Page 15 of 23 .Appendix III – Breakdown of Hong Kong’s Trade Performance Source: HKSAR Census & Statistics Department (http://www.jsp?tableID=030) Appendix IV – World ranking of air cargo hub in terms of cargo metric tonnes in 2011 Source: CAPA Centre For Aviation ( V – Summary of Economic Impact Analysis of the Hong Kong Airport 2030 Project Source: Appendix VI – Ranking of Container Ports of the World Source: http://www.pdf Page 16 of 23 .mardep.

Source: Hong Kong International Airport Master Plan 2030 (http://www.hkairport2030. Hang Seng Bank Page 17 of 23 .html) Appendix VIII – Charts of Hong Kong Tourism Contribution to Nominal GPD and Tourism Sector Employment from 2000 .Appendix VII – HKIA Cargo Traffic 2008 to 2030.2009. Source: CEIC.

2% 2009 % share to GDP 2008 2009 Annual grow HK$15809M HK$16386M 1.6% 7.3% 0.4% HK$120293M HK$123918M 7.0% 4.0% 3.0% Page 18 of 23 .1% 3.1% -0.7% 4.4% 1.3% 13.6% 8.6% 0. Hang Seng Bank Appendix X – Six Industries Economic Data Value added 2008 Cultural & Creative industries Medical Services Education Services Innovation and technology Testing and certification services Environmental industries Six Industries HK$4499M HK$5090M 0.3% HK$ 63080M HK$ 62935M 4.4% HK$4178M HK$4697M 0.3% 0.0% 1.6% HK$10283M HK$10733M 0.3% 12.1% HK$22444M HK$24077M 1.Appendix IX – Charts of Hong Kong's Tourists Arrival Data (2005 to 2011) Source: CEIC.

80% 5.60% 2.60% 388.420 12.50% 26.70% Source: Quarterly Survey of Employment and Vacancies.90% 3.20% 56.30% 1.40% 5. Annual Survey of Economic Activities Page 19 of 23 .Employment 2008 Cultural & Creative industries Medical Services Education Services Innovation and technology Testing and certification services Environmental industries Six Industries 12.270 32. Survey of Innovation Activities.610 70.50% 31.90% 0.40% 1.260 188.40% -1.80% 9.440 71.990 191.30% 0.840 62.60% 1.090 27.410 0.320 394.40% 0.10% 2.240 1.470 0. 2009 Survey of Testing and Certification Activities.70% 0.970 11% 11.250 2009 % share to total employment 2008 2009 Annual grow 5.00% 2.

Page 20 of 23 .Appendix XI – Six Industries 2009/2010 Policy Address The Chief Executive unveiled new incentives in the 2009/10 Policy Address. including accommodative regulations. in an attempt to nurture six new industries indentified by the Task Force on Economic Challenges to drive longer-term growth and broaden Hong Kong's economic structure. land policy. financial incentives and human resources.

680 N/A N/A 690 15.120 Around HK$8 billion Around HK$5 billion 70 890 N/A N/A 50 2.Appendix XII – Six Industries Data – Hong Kong’s Testing and Certification Industry (in 2009) Number of Establishments Number of Persons Engaged Business Receipts Value-added Private independent establishments engaging in testing.600 in 2009 Source: Report on the 2009 Survey of Testing and Certification Activities.690 N/A N/A Note: According to Census and Statistics Department. mainly as supportive services to their major economic activities Government departments/public organizations (including laboratories in the hospitals of Hospital Authority. Census and Statistics Department Page 21 of 23 .) engaging in testing activities Total 570 12. etc. the value-added and employment of the testing and certification industry in private sector were HK$5. laboratories accredited by HKAS in local universities.1 billion and 12. inspection and certification activities as their major economic activity Manufacturers and exporters engaging 100 persons or more and with in-house laboratories for testing activities.

Appendix XIII – Texas. 1987-2009. Source: Texas Comptroller of Public Accounts Page 22 of 23 . US real GDP per capita and population mix. 17/Aug/2011 13 Submission on the 12th Five Year Plan.pdf) 26 See Appendix V for the Summary of Economic Impact Analysis of the Hong Kong Airport 2030 Project 27 Data source: Census & Statistics Department 28 See Appendix VIII for the charts of Tourism Contribution to Nominal GPD and Tourism Sector Employment from 2000 . 31 See Appendix IX for charts of Hong Kong's Tourists Arrival Data (2005 to 2011).wsj. The Standard. Economic Forum . Testing and Certification Industry in Hong Kong.ENDNOTES 1 2 See Appendix I for the graph showing GDP per capita in HK/Guangzhou/Shanghai/OECD from 1980 to 2010. 7 March 37 University Grants Committee. WSJ Market Watch. Hong Kong General Chamber of Commerce 10 Hong Kong: The Premier Offshore Renminbi Business Centre.Global Economic Analysis & Reports.CEIC. Hong Kong General Chamber of Commerce 8 Hong Kong’s Inclusion in China 5-Year Plan Shows Hong Kong General Chamber of Commerce 14 HSBC head says Hong Kong a fit place for HKMA. Roach. Source: CEIC. 7/Mar/2011 9 Submission on the 12th Five Year Plan. Source CEIC. 25 Ranking of Container Ports of the World ( 34 http://www. 27/Sep/2011 11 Hong Kong: The Premier Offshore Renminbi Business Centre.mardep. 31/Jan/2012 17 SAR tipped to weather Shanghai yuan advance. Hang Seng 35 InvestHK. Hong Kong: the facts. Stephen S. 2/Jan/2012 20 China 2025: Keynote II: China's Economic Future. Hang Seng Bank 32 http://online. 8/Sep/2011 19 The offshore RMB connection. www.html 33 http://law. Bloomberg News. 2009 41 Employment in Europe 2008.hktdc. The Standard. Management Consulting Services 36 InvestHK Hong Kong Higher EducationTo Make a Difference To Move with the Times 38 Bloomberg News. 3 Hong Kong Census and Statistics Department 4 Hong Kong Census and Statistics Department 5 World Economic Forum 2011 6 Hong Kong’s Inclusion in China 5-Year Plan Shows Importance. HKMA.investhk. Asian Banking & Finance.htm) 39 Innovation and Technology Commission. 31/Jan/2012 16 Q&A session with Eric Landheer . January 2004. Innovation and Technology. (http://www.Head of Issuer Marketing at Hong Kong Exchanges and Clearing. Hang Seng Bank 29 Hong Kong Tourism Fact Sheet August 2011 30 See Appendix IX for charts of Hong Kong's Tourists Arrival Data (2005 to 2011). from http://www. 31/Jan/2012 18 Analysts skeptical about yuan convertibility. European Commission 42 See Appendix XIII for the Texas.Head of Issuer Marketing at Hong Kong Exchanges and Clearing. 6/Jan/2012 22 See Appendix III for Breakdown of Hong Kong’s Trade Performance 23 See Appendix IV for 2011 world ranking of air cargo hub in terms of cargo metric tonnes 24 See Appendix VII Ifor HKIA Cargo Traffic Projection. Hang Seng Bank. The Six New Industries: A Roadmap for Hong Kong's Future? 28 Oct. See Appendix II for the list of international recognitions received by Hong Kong in various sectors within 27/Sep/2011 12 Chinese vice-premier delivers keynote speech at Hong Kong forum.lexisnexis. A budget to Reinforce the strengths of Hong Kong’s Economy March 2011.investhk. Source CEIC.hktdc. 19/Oct/2009 21 China can't do in 35 years what it took US 200 to do: Buffett. 7/Mar/2011 7 Submission on the 12th Five Year Plan. 2008 to 2030. 13/Jan/2012 15 Presentation by Eric Landheer . US real GPD per capita and population mix Page 23 of 23 . April 2011 40 HKTDC.

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