Hong Kong's Economic Development and Transformation

KC KwokGovernment Economist

29 August 2007

Recent economic performance• Rapid economic rebound after SARS

Above-trend GDP growth for the past 15 quarters

6.9

4.11997 - 2006

trend growth

-10

-5

0

5

10

15

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

(y-o-y %)

HK’s strong economic rebound• Real GDP growth: 7.7% p.a. during 2004-

2006, 6.3% in H1 07• Unemployment has fallen from a high of 8.6%

in 2003 to 4.1%; improvement is across-the-board

• Recovery broadening to more sectors, boosting investor and consumer confidence

• Inflation has remained mild

Is it the best of times?Or is it the worst of times?

• HK’s macroeconomic performance is the best in the past 20 years

• HK is benefiting from and contributing to China’s modernization

• HK is the most competitive city in China

• HK has lost a decade and many people are still earning less than 10 years ago

• China needed HK in the past; HK needs China today

• HK is expensive and is being overtaken by other Mainland cities

• A centre of excellence for China• Rule of law, global connectivity, protection of

property rights, good governance, freedom of information and speech

• Will China be managed in a Japanese style? Or will China be much more internationally oriented?

Is HK being marginalised? Or is HK in demand as never before?

Major highways in Guangdong province

International Herald Tribune 23 June 2006.

Container throughput for China ports

21.7

18.5

7.7 7.1 6.6

0.30.90.3 0.5 0.50.71.01.12.5

14.417.8

0.51.32.01.71.22.6

5.06.3

1.2

6.0

23.5

4.0 3.21.3 1.2

0

5

10

15

20

25

Hon

g K

ong

Sha

ngha

i

She

nzhe

n

Qin

gdao

Nin

gbo

Gua

ngzh

ou

Tian

jin

Xia

men

Dal

ian

Lian

yung

ang

Zhon

gsha

n

TEUs (million)

1997 2001 2006

Re-exports accounted for 95% of total exports in 2006

0

500

1,000

1,500

2,000

2,500

1971 1976 1981 1986 1991 1996 2001 2006

(HK$ billion)

Re-exports Domestic Exports

From manufacturing to logistics

Growth driver: Exports to the MainlandMainland: destination for about half of Hong Kong's re-exports

US

Others

Mainland

0

20

40

60

80

100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

(Share of re-exports %)

Offshore trade increasingly importantStrong momentum in offshore trade

0

500

1,000

1,500

2,000

2,500

1999 2000 2001 2002 2003 2004 2005

Offshore Trade (Merchanting) Re-exports of goods

(Value of goods involved, HK$ billion)

Direct contribution of trading and logistics to GDP (%)

Trading Freight, transport and storage services Land Water Air Total 1997 18.1 0.5 1.6 1.1 3.4 1999 18.3 0.5 1.9 1.2 3.8 2001 20.0 0.5 2.0 1.3 3.9 2003 2005

21.5 23.4

0.5 0.4

2.3 2.4

1.5 1.9

4.5 4.8

2006/2003(3 year annual growth)

(%)8.9

Wholesale and retail trades 6.7Import and export trade 14.0Restaurants and hotels 12.3Transport and storage 9.6Communications 11.9Financial and insurance 18.2Real estate and business services 2.2Community, social and personal services 1.8

Services

Financial services, trading and logistics led economic growth in recent years

Premier financing centre for Mainland companies

* As of July 2007

Platform for global investors to invest in Mainland enterprises

0

10

20

30

40

50

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*

Red chips H shares

(As % of market cap. on main board)

High-end services serving headquartersMeeting point of Mainland and overseas enterprises

0

1,000

2,000

3,000

4,000

5,000

6,000

2001 2002 2003 2004 2005

Overseas enterprises (LHS) Mainland enterprises (RHS)

(Total # of regional / local HQs & offices)

0

100

200

300

400

500

600

700

800

The road ahead

• Continue to integrate itself further into the global economy– Many companies in HK are already global or

regional companies; so are a lot of individuals– Closer economic collaboration with Mainland

• Go up the value chain– Quality of institutional framework and workforce– Nurture a creativity-friendly environment

Thank you