U.S. and Hong Kong (1997)

U.S. Department of State

Hong Kong Country Commercial Guide for FY 95-96

Office of the Coordinator for Business Affairs

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CHAPTER I. EXECUTIVE SUMMARY

Hong Kong is a place U.S. business cannot afford to ignore. Perhaps the world's best example of free enterprise, Hong Kong's dynamism, free- market philosophy, entrepreneurial drive, absence of trade barriers, well established rule of law, low and predictable taxes, transparent regulations, and complete freedom of capital movement have made it one of the most desirable places for business. U.S. exports to Hong Kong totaled US$11.5 billion in 1994. According to U.S. statistics, two-way trade totaled US$21.2 billion, making Hong Kong the United States' thirteenth largest trading partner.

In 1994, the territory's open, services-dominated economy continued its trend growth rate of 5.5%. Inflation was 8.5% and foreign currency reserves totaled US$49 billion, the world's seventh largest. The Hong Kong dollar is linked to the U.S. dollar at a rate of HK$7.8 = US$1; as a result, Hong Kong interest rates tend to follow those in the U.S. A track record of prudent fiscal management has enabled Hong Kong consistently to realize budget surpluses.

The tremendous attractiveness of Hong Kong as a commercial and financial center has pushed up property and rental costs, and kept the labor market tight. Recent data indicate those pressures have moderated, although rental costs remain among the world's highest. Demand has stretched Hong Kong's modern air and port facilities to capacity. Hong Kong boasts the world's busiest container port and the third-busiest airport. The government and private sector plan to spend some US$44.9 billion over the next decade to upgrade transportation links and environmental facilities. A centerpiece is the US$21 billion Chek Lap Kok airport and related airport core projects. The airport is now expected to be operational in April 1998.

On July 1, 1997, Hong Kong will revert to Chinese sovereignty after over 150 years under British rule. The Sino-British Joint Declaration, signed in 1984, and the Basic Law, passed by China's National People's Congress in 1990, form the legal basis for China's "One Country, Two Systems" guarantees for Hong Kong when it becomes a "Special Administrative Region" (SAR) of China in 1997. These documents guarantee a high degree of autonomy for the HKSAR except in matters relating to foreign affairs and defense. Beijing has pledged that the social and economic systems, life-style, and rights and freedoms that Hong Kong people now enjoy will remain unchanged for 50 years. The HKSAR will also enjoy executive, legislative and independent judicial power.

Around 1000 U.S. companies maintain offices in the territory and 34,000 Americans reside there. U.S. direct investment in Hong Kong totaled US$12 billion at year-end 1994, making the United States one of Hong Kong's largest investors, along with China and Japan. Over 80 of the world's top 100 banks have operations in Hong Kong; and more than 40 U.S. financial institutions have offices in the territory.

Geographic proximity and cultural and linguistic ties, particularly to adjacent Guangdong province, have greatly accelerated Hong Kong's economic integration with China. Trade and investment with the PRC have surged as China's economy continues its fast-track growth. China is Hong Kong's largest trading partner; the PRC absorbs one-third of the territory's total exports of US$151 billion. Hong Kong serves as the principal transshipment point for Chinese exports. An estimated two- thirds of cumulative foreign investment in China is from Hong Kong; some 4 million PRC workers are employed by Hong Kong-invested enterprises in Guangdong alone.

With a per-capita GDP of US$21,750, Hong Kong's sophisticated, bilingual consumer population offers outstanding opportunities for sales of a full range of U.S. products and services. The government's ongoing heavy investment in infrastructure provides abundant prospects for export of construction services and equipment, telecommunications services and equipment, electric power systems, and environmental services and equipment. Medical equipment and pharmaceuticals, aircraft and parts, scientific and analytical equipment, computers and computer software, and electronic components also offer outstanding opportunities for U.S. exporters, as do such other sectors as consumer goods, financial and other services, and agricultural products.

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