The Handover of Hong Kong and the Direction of the Hong Kong Economy

ABSTRACT

On July 1st, 1997, the British colony of Hong Kong will be returned to Chinese control as a "Special Administrative Region". The return brings with it various worries, however, both domestically and internationally : Will Hong Kong's economy continue to grow as it has been? Will Hong Kong be able to maintain its function as an international financial and trade center?

Over the past few decades Hong Kong has carved out a position as a center for international finance and trade through its export-oriented economic development strategy. In recent years, Hong Kong has shifted its manufacturing industry to China due to rising production costs, resulting in a growing focus on services within its industrial structure and thereby strengthening its capabilities as a center for international finance and trade. In addition to these strengths, however, the Hong Kong economy also carries various structural problems.

The existence of a free economic system and an economic environment of free competition have been key to Hong Kong's prosperity. Furthermore, the overflowing entrepreneurial spirit and work ethic of the Hong Kong people, coupled with abundant human resources for businesses, established infrastructure and other factors contribute greatly to the island's excellent business environment. Additionally, Hong Kong enjoys various merits thanks to its increasingly intimate economic relationship with fast-growing China.

Following the handover, China will most likely maintain Hong Kong's political autonomy and free economic system in order to pursue its own interests and support the prosperity of the Hong Kong economy. In addition to the nominal change of the handover, the potential changes to the Hong Kong economy following the switch include handling the structural problems of its economy and responding to changes in the external environment. There are three likely scenarios that could follow the handover: 1) Hong Kong's economy will maintain its economic role and continue to grow, 2) The economy will be integrated into China's economy, 3) The economy's vitality will be lost as a result of Chinese intervention. The first scenario is likely in the short term, and the second scenario seems very probable in the long term, but chances of the third scenario coming to fruition are unlikely.

Japan has a close economic relationship with Hong Kong, and Japanese companies make significant use of Hong Kong's capacities as a center for international finance and trade. If Hong Kong's stability and development can be maintained, Japan also stands to gain great benefits.