Hong Kong Finds Its Niche in China's New Economy
Byline: Joanna Geary
EMERGING MARKETS If there is one place that understands the influence of China, it is Hong Kong.The special administrative area, home to seven million people, has not only been affected by the world's fastest-growing economy, it has been forced to join it. Business correspondent Joanna Geary visited the area to experience its draw Among the reasons Hong Kong has such a vibrant free market economy is that it has no minimum wage and income tax is set at a maximum of 15 per cent
Faced with cheap labour over the border, Hong Kong saw the start of a rapid decline of its manufacturing base over 20 years ago.
Realising it was a battle it could not win - labour costs in China are one tenth of those in Hong Kong - the region forged a reputation as a broker between its Communist neighbour and the rest of the world.
But in 1998, the first year of reunification with China, Hong Kong was hit by the Asian financial crisis, resulting in a five per cent drop in its GDP.
In 2001, its recovery was derailed by the world economic downturn and compounded in 2003 with the outbreak of the respiratory disease Sars.
It was a tough period, as Helen Chan, principal economist for the Hong Kong special administrative region, explains.
"It was a difficult time for Hong Kong, but it did force us to undertake some helpful administrative changes and to encourage businesses to downsize and reassess, ultimately placing Hong Kong on a much sounder footing economically."
But the new century also brought with it an increasingly economically powerful China and saw the start of the battle between Hong Kong and Shanghai to become the country's financial capital.
But Ms Chan remains optimistic. For her, the future is about promoting the region's specialisms - stressing its reputation for high quality, service-based business.
Hong Kong relies on services for 90 per cent of its GDP - one of the largest proportions of any country in the world. And, according to Ms Chan, its international reputation in this sector is key to the future prosperity of Hong Kong.
"We need to build a Hong Kong brand that signifies excellence in professional and financial services.
"Why list your business in Hong Kong? Because that indicates a company has gone through a rigorous process overseeing its accounting and its governance."
Ms Chan admits there is increasing competition from other Asian cities, such as Tokyo, as well as Shanghai - something the Hong Kong administration is attempting to tackle.
"Shanghai is growing very fast - at around 10 to 15 per cent a year - but Hong Kong is also doing very well too. …