Economic Development

Hong Kong is characterised by its high degree of internationalisation， business-friendly environment，rule of law， free trade and free flow of information，open and fair competition， well-established and comprehensive financial networks， superb transport and communications infrastructure， sophisticated support services， and well-educated workforce complemented by a pool of efficient and energetic entrepreneurs. Coupled with these assets are substantial foreign exchange reserves， a fully convertible and stable currency， and a simple tax system with low tax rates.

A Free Economy

Hong Kong has for the 14th consecutive year retained its rating as the freest economy in the world in the 2008 Index of Economic Freedom published by The Heritage Foundation. The Cato Institute in the United States， in conjunction with more than 60 economic institutes worldwide，also ranks Hong Kong as the world's freest economy. The International Monetary Fund classifies Hong Kong as an advanced economy. Other highly regarded institutions—like the International Institute of Management Development and the Economist Intelligence Unit—also identify Hong Kong as one of the world‘s most competitive business centres. And Hong Kong was the second bestperforming host economy for foreign direct investment（FDI）in Asia， according to the World Investment Report 2007 published by the United Nations Conference on Trade and Development （UNCTAD).

Gross Domestic Product (GDP) Growth

Over the past two decades， the Hong Kong economy has more than doubled in size， with GDP growing at an average annual rate of 5.1 per cent in real terms.

This meant Hong Kong had outperformed the world economy as well as those of the Organisation for Economic Cooperation and Development. Per capita GDP in Hong Kong also more than doubled during the same period， registering an average annual growth rate of 3.9 per cent in real terms. In 2006， it reached US$27，678 at current market prices.

Economic Policy

Hong Kong has long been well known for its market-led economic policy.‘Market-led’means that the Government does not seek to direct or plan the course the economy or the markets should take， as investors and entrepreneurs are deemed to understand the markets far better than officials. Private sector initiatives seem to be a surer way to build Hong Kong‘s prosperity than government ones. Economic vitality is the key to maintaining Hong Kong’s competitiveness and prosperity.

Market Leads, Government Facilitates

Under the guiding principle of‘market leads，government facilitates’,the Government‘s primary role is to provide the most business-friendly conditions. These include the fundamental’software‘of personal liberty，the rule of law， a clean and efficient administration and a level playing field for all businesses， as well as land and infrastructural’hardware‘such as schools and roads vital to Hong Kong’s growth.

In addition， the Government has a special responsibility for removing market restrictions and promoting fair competition. It has made considerable strides in liberalising the securities， futures and banking industries，and in opening up the telecommunications， information technology （IT） and broadcasting markets.

The Government protects and promotes Hong Kong‘s commercial interests in the international arena through representation in such forums as the World Trade Organisation （WTO）and the Asia-Pacific Economic Cooperation，and by negotiating and entering into bilateral arrangements such as those for air services.

Prudent Fiscal Practice

The Government adheres to prudent fiscal practice，while maintaining a simple tax structure with low tax rates that sustain workers‘incentive to work and entrepreneurs’incentive to invest. The corporate profits tax rate and salaries tax rate， at 16.5 per cent and 15 per cent respectively， are low by international standards.

International Financial Centre

Hong Kong is an international financial centre with an integrated network of financial institutions and markets. The Government‘s policy is to maintain and develop a sound legal， regulatory， infrastructural and administrative framework to provide a level playing field for all market participants， to maintain the stability of the financial and monetary systems and to enable Hong Kong to compete effectively against other financial centres.

A favourable geographical position that bridges the time gap between North America and Europe， strong links with the Mainland and other economies in Southeast Asia and excellent communications with the rest of the world have helped Hong Kong to become an important international financial centre. The absence of restrictions on capital flows into and out of Hong Kong is another plus.

Financial Markets

Hong Kong‘s financial markets are distinguished by a high degree of liquidity. They operate under effective and transparent regulations that meet international standards. A highly educated workforce and ease of entry for overseas professional staff further contribute to the development of the financial markets.

The Banking Sector

The international financial community has a strong presence in Hong Kong. At the end of December 2007，Hong Kong had 142 licensed banks， of which 131 were foreign-owned. Of the world‘s top 100 banks， 68 had operations in the HKSAR. A further 79 foreign banks had representative offices here. The banking sector’s external assets are among the largest in the world.

Exchange Market

Hong Kong has a mature and active foreign exchange market， which is an integral part of the global market. Links with centres overseas enable foreign exchange dealing to take place 24 hours a day around the world. Hong Kong was the world‘s sixth largest centre for foreign exchange trading， according to the 2007 triennial global survey conducted by the Bank for International Settlements.

Stock and Bond Markets

Hong Kong‘s stock market is one of the world’s largest in terms of market capitalisation. At the end of December 2007，1241 public companies were listed on the Hong Kong Exchanges and Clearing Limited with a total market capitalisation of $20，698 billion（US$2，653.6 billion).

The stock market is the third largest in Asia.

The Government has boosted the development of the bond market in recent years by providing the necessary financial infrastructure，simplifying the issuance process， removing regulatory impediments，offering tax incentives and encouraging public corporations to issue bonds. Investor education on bond investment has also been strengthened. Hong Kong's debt market has developed into one of the most liquid markets in the region. In 2006， the Hong Kong dollar debt market grew further， with the total outstanding amount rising to $748 billion at year-end， a 13 per cent increase from the previous year.

Economic Links with the Mainland

Hong Kong is the premier gateway for trade with and investment in the Chinese Mainland and for Mainland trade with the rest of the world. Since the Mainland adopted its economic reform and open-door policy in 1978， economic links with Hong Kong have gone from strength to strength.

Trade with the Mainland

The Mainland is Hong Kong‘s largest trading partner，accounting for 46 per cent of Hong Kong’s total trade value in 2006. About 90 per cent of Hong Kong‘s re-export trade is related to the Mainland， making it both the largest market for and the largest source of Hong Kong’s re-exports.

Hong Kong is a major services centre for the Mainland generally and for South China in particular， providing a wide range of financial and other business support services like banking and finance， insurance， transport，accounting and sales promotion.

Investments between Hong Kong and the Mainland

Hong Kong companies are the largest external investors in the Mainland， with cumulative investments of more than US$288 billion accounting for 41 per cent of the total value of inward direct investment as at May 2007. Hong Kong's closest economic links are with Guangdong Province. Some 10 million workers in Guangdong are employed by industrial ventures with Hong Kong interests. Implementation of the Closer Economic Partnership Arrangement （CEPA） in 2004 and various policy initiatives to enhance economic cooperation between Guangdong and Hong Kong have created more business opportunities.

The Mainland is also a major investor in Hong Kong‘s economy. There were more than 2 600 Mainland-related enterprises operating in Hong Kong in mid-2006. Total direct investment from the Mainland amounted to US$164 billion， making it one of the largest sources of external direct investment.

China's Accession to the WTO

With continuing reform and liberalisation of the Mainland economy， particularly after China's entry into the WTO， Hong Kong's service hub role for the Mainland will continue to strengthen. Hong Kong is in a strong position to partner with and to provide business support services to foreign enterprises seeking to enter the Mainland market. Conversely， as more Mainland-related enterprises seek to extend their business outward，Hong Kong can help them gain access to overseas markets.

Gateway to the Mainland

Hong Kong is a key gateway to the Mainland for both business and tourism. More than 67 million trips were made by Hong Kong residents to the Mainland. The number of trips made by foreign visitors to the Mainland through Hong Kong was over 4.8 million. In 2007， there were more than 140 boat trips， about 130 flights， more than 540 train connections and 42 300 vehicle crossings between Hong Kong and the Mainland each day.