The world's freest economy
Hong Kong maintains a highly capitalist economy built on a policy of free market, low taxation and government non-intervention. It is an important centre for international finance and trade, with the greatest concentration of corporate headquarters in the Asia-Pacific region. In terms of gross domestic product per capita and gross metropolitan product, Hong Kong is the wealthiest urban centre in the People's Republic of China.
Continuing the practice established under the British administration, the Government of Hong Kong mostly leaves the direction of the economy to market forces and the private sector.
Since 1980, the government has generally played a passive role under the official policy of positive non-interventionism. One exception, however, is the Hong Kong dollar, that since 1983 has been pegged at a fixed exchange rate to the United States dollar. The currency allows trade within a range between 7.75 and 7.85 Hong Kong dollars to one United States dollar.
Although the government usually keeps its hands off the economy, the Hong Kong Dollar has always been an exception... The local currency has been pegged at a fixed exchange rate to the United States dollar since 1983, and is trading within a range of 7.75 and 7.85 Hong Kong dollars to one United States Dollar.
The Economy of Hong Kong is widely believed to be the freest in the world. It has often been cited by economists such as Nobel prize winner Milton Friedman and the Cato Institute as an example of the benefits of laissez-faire capitalism. While the government, both under British and Chinese rule, has occasionally intervened in the economy, the free market policy of Positive non-interventionism still largely drives economic policy today.
It has ranked as the world's freest economy in the Index of Economic Freedom for 15 consecutive years, since the inception of the index in 1995. It also places first in the Economic Freedom of the World Report.
Income tax in Hong Kong, both personal and corporate, is among the lowest in the world.
Hong Kong's economy is dominated by services, which accounts for over 90 percent of its gross domestic product. In the past, manufacturing had been the most important sector of the economy, as Hong Kong industrialized following the UN ban on trade with China. Driven by exports, the economy grew at an average annual rate of 8.9 percent in the 1970s. Hong Kong underwent a rapid transition to a service-based economy in the 1980s, when growth averaged 7.2 percent annually. Much of the manufacturing operations moved to mainland China during this period, and industry now constitutes just 9 percent of the economy. As Hong Kong matured to become a financial centre, growth slowed to an average of 2.7 percent annually in the 1990s.
Nowadays, Hong Kong is the world's 11th largest trading entity, with the total value of imports and exports exceeding its gross domestic product. Much of Hong Kong's exports consists of re-exports, which are products made outside of the territory, especially in mainland China, and distributed through Hong Kong.
The territory's autonomous status enables it to serve as a point of entry for investments and resources flowing into the mainland.
Together with Singapore, South Korea, and Taiwan, Hong Kong is known as one of the Four Asian Tigers for its high growth rates and rapid industrialisation between the 1960s and the 1990s.
Post-handover years brought some instability (not necessarily related to the transition itself): The economy suffered a 5.3 percent decline during 1998, in the aftermath of the Asian financial crisis. A period of recovery followed, with growth rate reaching 10 percent in 2000, although deflation persisted.
The dot-com bubble in the second half of 2000, the 9/11 terrorist attacks upon the United States in 2001 and the SARS outbreak in 2003 had severely damaged the economy of Hong Kong. In 2003 the economic growth reduced to 2.3 percent.
A revival of external and domestic demand led to a strong recovery the following year, as cost declines strengthened Hong Kong export competitiveness. The 68-month-long deflationary period ended in mid-2004, with consumer price inflation hovering at near zero levels.
Beginning in 2003, the Individual Visit Scheme has allowed travelers from some cities in mainland China to visit Hong Kong without an accompanying tour group. As a result, the tourism industry of Hong Kong has benefited from an increase in mainland visitors, further aided by the opening of Hong Kong Disneyland Resort in 2005. The economy continues to grow strongly with the return of consumer confidence and rising trade.
Hong Kong's per-capita GDP ranked as the world's 14th highest at US$36,500, notably ahead of countries such as Canada, Japan, Switzerland, and the United Kingdom, and still well ahead of the People's Republic of China.
The Hong Kong Stock Exchange is the 6th largest in the world, with a market capitalization of about US$1.71 trillion. In 2006, the value of initial public offerings conducted in Hong Kong was second highest in the world after London.
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