American and European competitors

When China market first started to develop and become open to opportunities in the early 1980s, (9)(Chai, J, 1997) Hong Kong investors were some of the first through to invest in China. In the process, they helped build China’s Pearl River Delta into a powerhouse of assembly and export-oriented manufacturing. (10) Today, Hong Kong’s economic influence penetrates deep into southern China, with around 10-12million workers released every year from Mainland to work in Hong Kong. (EO306 lecture notes + FT, 28th Nov, 2003)

Despite the advent of American and European competitors, Hong Kong still accounts for nearly half of outside investment in China and still accounts for more than 40% of China’s foreign trade. (Story, J., 2003) Changes in the Mainland or/and in Hong Kong directly can affect each other’s economical balance and growth visibly as they are their largest trading partners. The mainland of China is also one of the leading investors in Hong Kong, with total investment reaching US$25 billion in 2002. At the same time, Hong Kong has also contributed greatly to the mainland of China’s reform and modernisation, both in terms of investment and know-how.

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One determinant of China’s success in attracting Foreign Direct Investment (FDI) is the large Chinese investors in overseas, with Hong Kong, Singapore and Taiwan being the prime traditional sources. Basically, overseas Chinese investors hold about 80% of the stock of FDI on the mainland, often with investment registered as originating from Hong Kong. As a result Hong Kong is the main source, with Taiwan the second biggest investor. (11) (Story, J., 2003)

The total direct investment from Hong Kong has currently reached US$78.6 billion, accounting for 58% of total foreign direct investment. Also, for the 23 Chinese companies listed on overseas stock markets, the trading of such overseas stocks is most active in Hong Kong. Out of the 23 companies, 21 had their primary listing in Hong Kong. (12) Hong Kong’s economy bounced back in late 1999, and enjoyed one of the world’s fastest growth rates during 2000, (13) To a greater degree, Hong Kong’s prosperity depends on trade between China and the West and in particular, the United States. As Hong Kong is the world capital of the toy business; Hong Kong is also a key player in consumer categories like clothing, home electronics and holiday accessories. (EO309 Lecture)

Moreover geographic proximity combined with cultural and linguistic ties plays an important role in Hong Kong’s relations with China, especially to the Pearl River Delta in neighbouring Guangdong Province, means that Hong Kong traders and distributors are uniquely positioned to help American businesses access the rapidly increasing China market. Seeing that China is Hong Kong’s largest trading partner, now Hong Kong can be highlighted as the principal transhipment point for Mainland Chinese exports. (14) Relationship with United States Five years into the arrangement, the development of Hong Kong’s “One Country, Two Systems” “is still very much a work in progress,” U.S. Consul General Michael. Klosson said. Klosson stressed the importance of maintaining “the balance inherent in the arrangement,” noting that the United States has “a significant stake in Hong Kong’s autonomy and distinctiveness.” (15) (April 9, 2002)

“Hong Kong is America’s 13th largest export market and 15th largest trading partner, Klosson” said. The U.S. trade surplus with Hong Kong was $4.2 billion ($4,200 million) in 2001. Approximately 1,100 American companies have set up shop in Hong Kong. The United States has $23.3 billion ($23,300 million) dollars worth of direct investment in Hong Kong, and much more in funds and portfolios. (16)

Once more, according to Klosson and Hong Kong University Hong Kong is expected to remain an important platform for U.S. business operating in the region. An extensive study (17) by academic drew on responses from over 1,000 companies; found that Hong Kong has a dominant position as a regional business centre. Thirty-five percent of the companies have put their Asian regional headquarters in Hong Kong, more than any other location, and over half of these operations have responsibilities that extend beyond China and Taiwan to Japan and even as far field as Australia.

Although the focus these days is mainly on China, Hong Kong itself remains a place where the United States has important economic interests at stake. The SAR is U.S.’s 13th largest export market, and 15th largest trading partner, and the U.S. trade surplus with Hong Kong was $4.2 billion in 2001. In addition approximately 1,100 American companies have shops in Hong Kong. (6+11+13) The U.S. has $23.3 billion dollars worth of direct investment in Hong Kong, and much more in funds and portfolios.

With the second highest per capita income in Asia, Hong Kong offers good opportunities for U.S. exporters and service companies. Telecommunications products and services are a promising area as the SAR continues to liberalise its telecommunications market. Interest in computers and other information technology products also might grow over the next few years as Hong Kong companies started to find ways to use high technology to do better quality products.

Conclusion

Few nations have changed as fast or as dramatically as China has since the 1970s. The world’s most populous nation (EO309-lecture notes) has radically liberalised its economy and gone from producing low-quality and simple exports to sophisticated high-technology goods, while developing a vibrant private sector and attracting nearly $500 billion in foreign direct investment. (Foreign Affairs Organisation, 2003)

The country has turned into a alarming exporting machine among its Asian neighbours, (6+11) China’s total exports grew over $380 billion between 1990 and 2003; and its exports in the electronics industry now account for 30 percent of Asia’s total in that sector. China’s share of global exports is expected to reach 6 percent by the end of 2003, compared to 3.9 percent in 2000. In 2002, China accounted for 16 percent of the growth in the world economy, ranking second only to the United States.

As China continues with its financial and economical reforms, Hong Kong’s role as a key financial centre for China will be crucial and as seen throughout the essay its likely that this close relationship will become even more important. It is therefore one can say that Hong Kong has played an significant role in boosting China’s economic growth and smoothing China’s relations with its heavily trading neighbours as well as managing to keep its economic system in balance.

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