Hong Kong

1
Chapter 1

• Hong Kongs
• Business Environment

2
Introduction
Fishing village
Entrepôt
International trading and financial centre
Manufacturing centre
3
Structure of the Hong Kong Economy

• The economic activities of a country or a
  territory can be classified into three types
• Primary production
• Secondary production
• Tertiary production

4
Primary Production

• Primary production refers to the economic
  activities of extracting ________ resources.
• Examples
• Agriculture
• Fishing
• Mining
• Quarrying

natural
5
Secondary Production

• Secondary production refers to the economic
  activities of turning _____ materials into
  ___________ or ________ products.
• Examples
• Manufacturing
• Construction
• The supply of electricity,
• gas and water

raw
semi-finished
finished
6
Tertiary Production

• Tertiary production refers to the economic
  activities of producing ________ to customers.
• Examples
• Wholesale and retail trades
• Import and export trades
• Restaurant and hotel services
• Transport
• Financing

services
The tertiary sector is also known as the service
sector.
7
Structure of the Hong Kong Economy

• What kind of production does each of the
  following industries belong to?

Pilots
Lumber industry
Garment industry
Primary production
Secondary production
Tertiary production
8
Structure of the Hong Kong Economy
Interdependence of sectors
Primary sector
Resources
Products
Services
Secondary sector
Products
Resources
Services
Tertiary sector
9
Structure of the Hong Kong Economy
Interdependence of sectors

• Example

Clothes
Cotton
Wholesalers/Retailers
Clothing factory
Cotton farm
Tools
Funds and banking services
Banks
Farm tools factory
10
Contribution of the Three Sectors to the Hong
Kong Economy

• The indicators used to measure the relative
  importance or contribution of the three economic
  sectors to an economy are
• The percentage share of gross domestic product
  produced by the sector
• The percentage share of employment by the sector

Gross domestic product measures the total output
value or total income produced within a country
or territory in a given period of time.
11
Contribution of the Three Sectors to the Hong
Kong Economy

• Since Hong Kong lacks arable land and natural
  resources, its _______ sector is insignificant.
• Since the industrialisation in Hong Kong in the
  early 1950s, the employment share of the
  _________ sector increased rapidly and reached
  its maximum in the early 1980s.
• The secondary sectors significance has declined
  as more and more factories were relocated to the
  __________.
• Since the early 1980s, Hong Kong economy has
  transformed from a manufacturing centre into a
  ______________ economy.

primary
secondary
Mainland
service-oriented
12
Development of the Hong Kong Economy

• Hong Kong has gone through three transformations
  after the Second World War
• First transformation (1950 to 1978)
• From an entrepôt into a manufacturing centre
• Second transformation (1978 to 1997)
• From a manufacturing centre into an international
  financial and services centre
• Third transformation (from 1997 onwards)
• Evolving into a knowledge-based economy

13
First Transformation

• Triggered by the outbreak of the _______ War in
  1950.
• ? The embargo imposed by the United Nations on
  ______
• The transformation process was facilitated by the
  inflow of _______, ________ and _____________
  from the Mainland after the Chinese Communist
  Party takeover.

Korean
China
labour
capital
entrepreneurs
14
First Transformation

• From the 1950s to the 1970s, HKs ______________
  industry expanded quickly.
• HK exported a lot of products to other countries.
• The major exported products were textiles and
  clothing products, __________ products and
  _______ products.
• Despite the ________crisis in the early 1960s,
  the social unrest in 1966 and 1967, and the two
  ____ crises in the 1970s, the HK economy still
  enjoyed sustained economic growth.

manufacturing
electronics
plastics
banking
oil
15
Second Transformation

• After the announcement of the __________ policy
  in 1978, the Chinese government implemented
  measures to attract foreign investment.
• ? the production costs of manufacturing products
  
• were much ______ in HK than other
  countries,
• Factory owners in Hong Kong started to relocate
  their production bases to the Zhujiang Delta to
  save production costs.

open-door
higher
16
Second Transformation

• The relocation of factories transformed the HK
  economy from a manufacturing centre into an
  important ________ and ________ centre in
  Southeast Asia.

financial
services
17
Second Transformation

• HK served as a vital ____________ between the
  Mainland and the outside world by helping the
  Mainland raise ________ and import ___________.
• The large-scale relocation of production bases
  also helped maintain the competitiveness of HK
  products in the world market.
• During this period, there was widespread
  __________ in the property and _______ markets.
• e.g. one of the biggest stock
• market crashes in history in 1987

intermediary
capital
technology
speculation
stock
18
Third Transformation
From 1997 to 2004

• Soon after the handover in 1997, the
  _____________ ______ spread to HK.
• The economy suffered a severe _________ in 1998
  and 1999 and a prolonged period of deflation from
  1999 to 2004.

Asian Financial
Crisis
recession
19
Third Transformation
From 1997 to 2004

• To find a way out, the HK government decided to
  develop high __________ industries and adopted a
  policy to develop HK into a _________-based
  economy.
• HK experienced another ________ after the 911
  terrorist attacks in the United States in 2001.
• The outbreak of the SARS
• epidemic in February 2003
• also hit the economy very
• hard.

value-added
knowledge
recession
20
Third Transformation
From 1997 to 2004

• With the implementation of the Mainland and Hong
  Kong Closer _________ Partnership Arrangement
  (CEPA),
• HKs business relationship with the Mainland has
  become even closer.

Economic
21
Third Transformation
Recent development

• The Four Pillar Industries
• Financial services
• Trading and logistics
• Tourism
• Producer and professional services

22
Third Transformation
Recent development

• In addition to facilitating the development of
  the Four Pillar Industries, the government has
  provided more education and ________
  opportunities.
• Schemes are also implemented to attract talents
  and professionals from the Mainland and overseas.
• These measures are designed to improve the
  quality and productivity of the _____________ and
  maintain the ______________ of HK in the global
  market.

training
labour force
competitiveness
23
Role and Importance of the Business Sector
Providing employment opportunities

• Many factory owners relocated their factories to
  the _________ in order to reduce production
  costs.
• The employment of the manufacturing sector
  dropped significantly.
• Fortunately, the firms in the ________ sector
  have created new employment ____________.
• Therefore, the factory workers who lost their
  jobs might be able to find new jobs.

Mainland
tertiary
opportunities
24
Role and Importance of the Business Sector
Producing income

• The _______ sector contributed more than 90 to
  HKs GDP in 2006.
• This reflects that the people of Hong Kong earn
  most of their income by providing services to
  local and foreign customers.
• Besides, many of the services provided by HK
  people are of ________________ types, enabling
  some of them to earn high incomes.
• Hence, the business sector promotes HKs economic
  growth and raises the ______ standards of HK
  people.

service
high value-added
living
25
Role and Importance of the Business Sector
Earning foreign exchange to pay for imports

• HK lacks natural resources and arable land, so it
  needs to import foodstuffs and fuel from the
  Mainland and other countries.
• It also lacks the technology and skills to
  produce _________ durables and _______ goods.
• It depends on other countries to supply these
  goods.
• To pay for its imports, Hong Kong earns
  _______________ by exporting goods and services
  to the Mainland and other countries.

consumer
capital
foreign exchange
26
Role and Importance of the Business Sector
Earning foreign exchange to pay for imports
Hong Kong
The Mainland
Other countries
Re-export
Import
Import
Re-export
27
Role and Importance of the Business Sector
Serving the Mainland

• Many foreign firms have set up ____________ and
  offices in HK because of its proximity to the
  Mainland.
• Since HK is a free economy without any
  _______________ control, foreign investors have
  the confidence to do business in HK.
• As a major financial centre in the world, Hong
  Kong helps the private and ___________
  enterprises in the Mainland raise capital and
  manage their assets.

headquarters
foreign exchange
state-owned
28
Role and Importance of the Business Sector
Raising government revenue

• A large proportion of the HK governments revenue
  comes from the ________ sector.
• As the business sector prospers, private
  enterprises will earn more profits.
• Transactions in the property market and the stock
  market will also increase.
• As a result, government revenue from _____ sales,
  ______ tax and stamp _______ will rise.

business
land
profits
duties
29
Role and Importance of the Business Sector
Raising government revenue

• With increased income, the government can spend
  more money on the provision of ______ services
  and the development of _____________.
• This helps reduce income _________and improve
  labour ___________ and _______________ of HK.

social
infrastructure
disparity
productivity
competitiveness
30
Characteristics of the Hong Kong Economy

• A free market economy
• An externally-oriented, open economy
• Productive manpower
• Upholding the rule of law
• Protecting private property rights

31
A Free Market Economy
Laissez-faire policy

• A laissez-faire policy promotes the free _______
  and free ________.
• Except for some industries such as the provision
  of public transport services, everyone can start
  his business in HK.
• People can also exchange ________ and ________
  freely in the market.

market
trade
goods
services
32
A Free Market Economy
Principle of Big market, small government

• The HK government believes in the principle of
  market leads and government ________ and plays
  a role as a proactive market enabler.
• This means that the government plays an ______
  role in
• facilitating the functioning of the _______
• enabling the free market to allocate
• _________ efficiently.
• The government _________ its
• intervention in the market.

facilitates
active
market
resources
minimises
33
A Free Market Economy
Roles of the government

• Maintaining _____ and order
• Maintaining fiscal __________, and a simple and
  low _____ system
• Maintaining open and fair ___________ in the
  market
• Providing _____________ like the airport and
  transport facilities
• Providing _________ and ________ to the people of
  HK so as to improve their ___________ and
  ______________

law
prudence
tax
competition
infrastructure
education
training
productivity
competitiveness
34
An Externally-Oriented, Open Economy
No trade barriers and free flow of capital

• The government does not impose any trade
  barriers, such as tariffs or quotas on ________
  goods.
• There is no foreign exchange control.
• The HK government does not control capital
  _______ and _______.
• It encourages _______ from the Mainland
• and other countries to study and work here.

imported
inflow
outflow
talents
35
An Externally-Oriented, Open Economy
Free flow of information

• The media enjoy a high degree of ________.
• Firms can quickly obtain information about
  changes in the _________ environment which is
  useful for making timely business decisions.
• A free flow of information helps HK become and
  remain a global centre for trade, finance,
  business and communications.

freedom
business
36
Productive Manpower

• HK has a skilled and hardworking labour force
  which can adapt to changes.
• Labour _________ in HK are good and serious
  labour disputes between employers and employees
  are rare.
• Businessmen are __________ to market changes.
  They are willing to take risks to introduce new
  products and explore new ________.

relations
responsive
markets
37
Upholding the Rule of Law

• After the handover in 1997, HK continues to
  uphold the rule of ______ and ________
  independence.
• Under the principle of one country, two
  ________, HKs legal system is different from
  the one used in the Mainland, and is based on
  ________ law.
• The ______ Law aims at
• maintaining the prosperity
• and stability of HK.
• Business contracts are protected and ________ by
  the legal system.
• This enhances the confidence of _________ and
  ____________ in HK.

law
judicial
systems
common
Basic
enforced
investors
businessmen
38
Protecting Private Property Rights

• Private property rights refer to the exclusive
  rights to _____, to earn ________ from, and to
  ________ the property.
• A private property rights system provides
  _________ to the owners of private property to
  make the best use of their property and earn the
  _________ income.
• In Hong Kong
• People can freely buy or sell property in the
  market.
• Private property rights are _________ and
  protected by law.
• The respect for and protection of private
  property rights facilitate business activities
  and promote economic ___________ in HK.

use
income
transfer
incentives
highest
respected
development