Hong Kong: Pathway to the Freest Economy

This chapter gives a summary of the economic development of Hong Kong. Since its early colonial days, Hong Kong has been an open port serving China and the international community. Reexport trade was the traditional advantage until 1949, when China adopted a closed-door policy. Industrialization since the 1950s has brought growth and expansion, taking advantage of the low cost of labor and the British legal system. However, the situation changed after the early 1980s, partly because of low costs in China pulled investment from Hong Kong, and the post-1997 political uncertainty also resulted in short-term investment behavior. Economic overheating in the mid-1990s led to severe recession after the Asian financial crisis. Economic restructuring has been slow since 1997. Economic narrowness with concentration in real estate development and finance, together with an increase in welfare spending, lowered competitiveness. Economic integration with China would best be based on comparative advantage, with “win, win” outcomes.