Country Analysis

Hong Kong

Vision
Article 5 Basic Law
Article 5 The socialist system and policies shall not be practised in the Hong Kong Special Administrative Region, and the previous capitalist system and way of life shall remain unchanged for 50 years.
http://www.basiclaw.gov.hk/en/basiclawtext/index.html

Goals
Economic Economic Growth Political Reunion with PRC Social Societal Stability No significant slice of society losers. "Reform without Losers: An Interpretation of China's DualTrack Approach to Transition" (with Lawrence Lau and Grard Roland). Journal of Political Economy, February 2000, 108(1), pp. 120-143.

Tax Policy
Article 108 The Hong Kong Special Administrative Region shall practise an independent taxation system.

The Hong Kong Special Administrative Region shall, taking the low tax policy previously pursued in Hong Kong as reference, enact laws on its own concerning types of taxes, tax rates, tax reductions, allowances and exemptions, and other matters of taxation.

Fiscal Policy
Article 107 The Hong Kong Special Administrative Region shall follow the principle of keeping the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product.

Foreign Investment Policy

Article 112 No foreign exchange control policies shall be applied in the Hong Kong Special Administrative Region. The Hong Kong dollar shall be freely convertible. Markets for foreign exchange, gold, securities, futures and the like shall continue.

Foreign Trade Policy

Article 114 The Hong Kong Special Administrative Region shall maintain the status of a free port and shall not impose any tariff unless otherwise prescribed by law. Article 115 The Hong Kong Special Administrative Region shall pursue the policy of free trade and safeguard the free movement of goods, intangible assets and capital.

PART II. Taxation of Corporate and Capital Income (2 Table II.1. Corporate income tax rate 1

OECD
Country

Central government corporate income tax rate 2 30.0 25.0 33.99 (33.0) 19.0 20.0 25.0 26.0 34.43 15,825 (15,0) 25.0 20.0 (16.0) 15.0 12.5 27.5 30.0 22.0 21.84 (21.0) 28.0 25.5 30.0 28.0 19.0 25.0 19.0 30.0 26.3 8.5 20.0 28.0 35.0

PWC HK HK Corporate Tax

Assessable profits of corporation are taxed at the corporate tax rate of 16.5%. There are some tax incentives for special business operations, such as tax exemption for profits derived by offshore funds and profits derived from operating ships in Hong Kong.

Australiaa Austria Belgiumb Canada Czech Republic Denmark Finland Francec Germanyd Greece Hungarye Iceland Ireland Italyf Japan (2008 data) Korea Luxembourg Mexico Netherlandsj New Zealanda Norway Polandg Portugal (2008 data) Slovak Republic Spain Sweden Switzerlandh Turkey United Kingdoma United Statesi

OECD Tax Database

Hong Kong Monetary Policy

Convertibility Undertaking - An undertaking by a central bank or Currency Board to convert domestic currency into foreign currency and vice versa at a fixed exchange rate. Under the strong-side Convertibility Undertaking, the HKMA undertakes to buy US dollars from licensed banks at 7.75. Under the weakside Convertibility Undertaking, the HKMA undertakes to sell US dollars at 7.85.
http://www.info.gov.hk/hkma/gdbook/eng/c/convertibility_undertak.htm

Hong Kong Industrial Policy

Logistics Hub
Airport Port Roads Bridge to Zhuhai

Human Capital Policy

Education 3-4-4 Immigration

Context

Resources
Geographic
Deep Water Port Pearl River Delta Little arable or developable land [Constraint]

Financial
Exchange Fund

Foreign vs. Domestic Currency Assets

HK : Exchan ge Fund: A ssets HK D mn 1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 Sep-1999 Sep-2000 Sep-2001 Sep-2002 Sep-2003 Sep-2004

Foreig n Cur rency Assets

Hong Kong Dol lar Assets

Human Capital Resources

Well educated population Barro-Lee Database Harvard CIID http://www.cid.harvard.edu/ciddata/ciddata.html

Educational Attainment of the Total Population Aged 25 and Over Population Highest level attained Average Year over No First level Second Level Post-Secondary Years age 25 Schooling Total Complete Total Complete Total Complete of (1000s) (Percentage of the population aged 25 and over) School 2000 2000 4137 1923 10.7 12.7 26.6 28.3 13.9 16.8 47.4 48.5 28.7 13.2 15.3 10.6 8.7 7.2 9.47 8.12

Country

Hiong Kong Singapore

Rules of the Game Formal

Formal
Common Law Judiciary Executive Led System CE selected by Election Committee, Legco represents Geographical and Functional Constituencies.

Informal

Rules of the Game: Informal

Elimination of Legal and Civil Service Corruption Positive Non-Intervention Rule of Law Triangle of Influence between Central Govt, HK Govt and Tycoons

Players of the Game: Governmental

Land System
Govt owns all land in HK Govt makes new land available and negotiates terms of rezoning.

Regulating Financial System Regulating Financial System

HK Exchange SFC HKMA

Players of the Game Private Sector

Tycoons and Taipans: Conglomerates based around real estate development companies own many domestically oriented consumer companies. Hong Kong Bank PRC Companies Red Chips & Roundtripping Multinational Financial Industry SME Focus on China

External Dimension
Regional Foreign Trade Hub Integrating with China

Performance

Inflation
Inflation 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% -5.00% -6.00% -7.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008

ICOR: Incremental Capital Output Ratio

g Yt Yt 1 ICORt ; gt I t 1 Yt 1 Yt 1
Y t

Yt Yt 1 ICORt I t 1

2000 2001 2002 2003 2004 2005 2006 2007 2008

Incremental Output Capital $85,354 $258,398 $5,761 $278,835 $21,440 $286,223 $35,651 $272,799 $103,432 $275,329 $93,844 $282,173 $99,606 $293,610 $96,890 $314,534 $38,205 $325,349

ICOR 0.3303199 0.020661 0.0749066 0.130686 0.3756669 0.3325761 0.3392459 0.308043 0.1174277

GDP

Effective Exchange Rate

Singapore vs. HK Exchange Rat

US vs HK Interest Rates 10 Year