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.

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 Dual- Track Approach to Transition" (with Lawrence Lau and Gérard Roland). Journal of Political Economy, February 2000, 108(1), pp Reform without Losers: An Interpretation of China's Dual- Track Approach to Transition

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.

OECD PWC HK HK Corporate TaxHK 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. “ 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 Under the weak- side Convertibility Undertaking, the HKMA undertakes to sell US dollars at licensed banks

Hong Kong Industrial Policy Logistics Hub –Airport –Port –Roads –Bridge to Zhuhai

Human Capital Policy Education Immigration

Context

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

Financial Exchange Fund

Foreign vs. Domestic Currency Assets

Human Capital Resources Well educated population Barro-Lee Database Harvard CIID

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 –Gov’t owns all land in HK –Gov’t makes new land available and negotiates terms of rezoning. 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

ICOR: Incremental Capital Output Ratio

GDP

Effective Exchange Rate

Singapore vs. HK Exchange Rat

US vs HK Interest Rates 10 Year