Return to: Index of "1993 Country Reports on Economic Practice and Trade Reports" ||
Index of "Economic and Business Issues" || Electronic Research Collections Index || ERC Homepage


TITLE:  HONG KONG ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE




                            HONG KONG

                     Key Economic Indicators
         (Millions of HK dollars, unless otherwise noted)


                                  1991 /1   1992 /2   1993 /3
Income, Production,
 and Employment

Real GDP (1980 prices)            273,524   287,941   303,202
Real GDP Growth (pct.)              4.1       5.3       5.3
GDP (current price)               643,728   747,432   857,561
GDP by Sector (pct. of total)
  Agriculture                       0.2       n/a       n/a
  Energy and Water                  2.2       n/a       n/a
  Manufacturing                    15.5       n/a       n/a
  Construction                      5.3       n/a       n/a
  Rents                             3.6       n/a       n/a
  Finance /4                       23.0       n/a       n/a
  Other Services /5                35.1       n/a       n/a
  Government, Health
   and Education                   15.4       n/a       n/a
Net Exports of Goods
 and Services (in current prices)  19,128    12,774   17,935
Real Per Capita GDP (1980 prices)  47,558    49,453   51,197
Labor Force (000's) /7              2,826     2,820    2,848
Unemployment Rate (pct.) /6         1.8       2.0       2.0


Money and Prices
 (pct. growth unless stated)

Money Supply (M-2) /7              13.3      10.8      11.2
Base Interest Rate (pct.) /7/8      8.5       6.5       6.5
Personal Sav. Rate (pct.) /7/9      3.5       1.5       1.5
Consumer Price Index (A) /10          114.5     125.2     138.4
Official Exchange Rate (HKD/US$)    7.781     7.741     7.736


Trade and Balance of Payments

Total Exports (FOB)               765,886   924,952   1,067,394
 Exports to U.S. (FOB)            173,672   213,099     241,867
Total Imports (CIF)               778,982   958,462   1,103,189
 Imports from U.S. (CIF)           58,837    70,594      78,289
Aid from U.S.                           0         0           0
Aid from Other Countries                0         0           0
External Public Debt
(millions of US$)                       0         0           0
Annual Debt Service                     0         0           0
Foreign Exchange Reserves /11      30,369    37,075     n/a
Trade Balance                     -13,096   -33,510   -35,795
 Balance with U.S.                114,835   142,505   163,578 3/


Notes:

1/   Revised August 1993 estimate.
2/   Revised August 1993 estimate.
3/   Consulate projection based on first three quarters
     statistics.
4/   Includes finance, insurance, real estate and business
     services.
5/   Includes wholesale, retail, import/export trade, 
     restaurants, hotels, transport, storage and communications.
6/   Average figures, seasonally adjusted.
7/   End of period.
8/   Prime lending rate.
9/   Savings deposit rate.
10/  Oct. 1989-Sept. 1990 equals 100; CPI (a) covers urban 
     households with monthly expenditure of HKD 2,500-9,999
     (approximately 50 percent of households)
11/  Foreign currency assets of Exchange Fund (US$).
n/a = not available



1.  General Policy Framework

    The Hong Kong government pursues economic policies of
non-interference in commercial decisions, low and predictable
taxation, government spending increases within the bounds of
real economic growth, and competition subject to transparent
regulations and consistent application of the rule of law. 
Market forces determine wages and prices in Hong Kong, with
price controls limited only to certain government-sanctioned
monopolies in the service sector.  There are no restrictions on
foreign ownership of capital (except for some limitations in
the media sector) nor are there export performance or local
content requirements.  Profits may be freely repatriated. 
There are, however, some barriers to entry in certain service
sectors, in particular medicine, law, and telecommunications.

    Hong Kong's generally free market, laissez-faire policies
have spurred high rates of real growth, low unemployment,
rising wages, a steady increase in standard-of-living, and one
of the highest per-capita GDP levels in the world (US $16,400
in 1992).  The constantly growing economy has produced
additional tax revenues independent of modest increases in
excise, real estate and business profits taxes.  Currently, the
corporate profits tax stands at 17.5 percent, and personal
income is taxed at a maximum rate of 15 percent.  Property is
taxed; interest, royalties, dividends, capital gains and sales
are not taxed.  As such, in spite of the growth of government
spending from approximately 14 percent of gross domestic
product in the mid 1980s to about 19 percent by the early
1990s, the Hong Kong government has still run surpluses and
amassed large fiscal reserves.

    The Hong Kong government maintains a strict link between
the Hong Kong and U.S. dollar at a ratio of 7.8 to 1.  This
forces Hong Kong monetary authorities to track U.S. interest
rates.  In practical effect, because of Hong Kong's current 8.5
percent inflation rate, Hong Kongers faced negative real 
interest rates in 1993.  This in turn has led individuals to
put their money in the stock and property markets, driving up
the values of each.

    The Hong Kong government levies no import tariffs. 
However, domestic consumption taxes (sometimes referred to as
duties in Hong Kong) are imposed on certain goods, including
tobacco, alcoholic beverages, methyl alcohol and some fuels, to
the detriment of exporters and sellers of those products (see
under Barriers to Trade).

    Hong Kong is an entrepot for Chinese and regional trade. 
One third of all of China's exports flow through Hong Kong on
their way elsewhere, and 25 percent of China's imports come via
Hong Kong.  The opening of China, and especially the
development of Guangdong province as a low-cost manufacturing
base, has encouraged Hong Kong to shift from a manufacturing to
a services-based economy; 80 percent of Hong Kong's GDP now
derives from the service sector.

    Hong Kong is an active Contracting Party to the GATT and
strongly supports an open multilateral trading system. 
Notwithstanding its status as a colony of the United Kingdom,
Hong Kong is a member of a number of other multilateral
organizations, including the Asia Pacific Economic Cooperation
(APEC) forum.  On July 1, 1997, Hong Kong will revert to
People's Republic of China sovereignty.  However, as guaranteed
by the 1984 Sino-UK Joint Declaration and the 1990 PRC Basic
Law, Hong Kong will become a Special Administrative Region of
the PRC; while China will take over responsibility for foreign
affairs and defense, Hong Kong will retain authority to manage
its economic, social, legal, budget and other internal
systems.  Hong Kong will remain a separate customs territory
with all of its current border arrangements, and it will retain
its independent membership in such economic organizations as
the GATT.


2.  Exchange Rate Policies

    As noted, the Hong Kong dollar is linked to the U.S. dollar
at the rate of HK $7.8 = US $1.  This link has existed since
October 1983.  The Hong Kong government remains firmly
committed to ensuring currency stability through the linked
exchange rate as the cornerstone of its monetary policy,
despite some systemic inflation.  Authority for maintaining the
exchange value of the Hong Kong dollar as well as the stability
and integrity of the financial and monetary systems rests with
the Hong Kong Monetary Authority, which was established in
April 1993 through the consolidation of the Office of the
Exchange Fund and the Commissioner of Banking.  There are no
multiple exchange rates and no foreign exchange controls of any
sort.

    Under the linked exchange rate, the overall exchange value
of the Hong Kong dollar is influenced predominantly by the
movement of the U.S. dollar against other major currencies. 
The price competitiveness of U.S. exports is affected in part
by the value of the U.S. dollar in relation to third country
currencies.  While the proportion of Hong Kong's imports from
the U.S. has declined slightly as a percentage of its total 
imports in recent years, Hong Kong still consumes more U.S.
goods per capita than almost any other economy.  U.S. firms
have increased exports to Hong Kong by well over US $1 billion
each year in the 1990s.


3.  Structural Policies

    Hong Kong is committed to free trade, free enterprise, and
free markets.  Its non-interventionist policies have brought
rising prosperity and low unemployment to the colony and have
created an attractive barrier-free market for U.S. goods
exporters and most services providers.  There are virtually no
controls on trade and industry other than to meet international
obligations associated with health, safety and security. 
Procurement is conducted on an open basis; while in the past
British firms have seemed to enjoy an advantage in bidding for
major contracts, U.S. firms have more recently been quite
successful in both the design and supply stages of major
projects.  Other factors often cited for Hong Kong's dynamic
economic success include a simple, low-rate tax structure, a
well-educated and industrious work force, and an extremely
efficient transportation and communications infrastructure.

    The Hong Kong government takes justified pride in its port
and airport efficiency, but increasingly the airport at Kai Tak
and Hong Kong's port system are under strain.  Major new
infrastructure is being developed and U.S. contractors and
suppliers have already successfully competed for some
contracts.  However, both the replacement airport and the new
container port projects risk being substantially delayed
because they have been linked by China to progress in
constitutional talks with the United Kingdom.


4.  Debt Management Policies

    The Hong Kong government has minuscule public debt. 
Prudent fiscal management and strong fiscal reserves have
obviated the need to borrow.  To promote the development of
Hong Kong's debt market, the HKG in mid-1991 launched a
short-term government bond program through the issuance of
two-year bonds.  However, the bonds are being phased out and
replaced with two-year exchange fund notes.  The program was
expanded in October 1993 to include notes of three-year
maturity.  In March 1990, the monetary authorities began
issuing exchange fund bills, which carry maturities of up to
364 days.  These provide an instrument for conducting money
market operations, not to finance government expenditures.

    Infrastructure spending related to implementation of the
port and airport development strategy will result in the
statutory corporations involved in the construction of the
airport and related projects incurring debt once the UK and PRC
reach agreement on a final financing plan for construction of a
new airport.  Construction is well underway on those airport
core projects that the HKG can fund itself.


5.  Significant Barriers to U.S. Exports

    High Alcohol Taxes:  As noted, Hong Kong levies high taxes
(both specific and ad valorem) on "Western-style" spirits and
wines.  While these taxes are levied equally on local
manufacturers and imports of, e.g., brandy, U.S. exporters of
wine and distilled spirits argue that it is unfair that
"Chinese-style" wine -- actually a distilled product -- is
taxed at a much lower rate.  The Hong Kong government replies
that Chinese spirits are different products (although no
distinction other than geographic has yet been written into the
tax codes) and that it is equitable to charge less tax on a
product consumed principally by poorer individuals.  The
government also insists it needs the tax revenue.  However,
U.S. exporters note that the increasing taxes have led to
decreased consumption and in fact lowered net tax revenues over
the last two years.

    Airport Aviation Services:  At Hong Kong's present airport
(Kai Tak), maintenance, cargo handling, catering and other
aviation services are provided either by a UK-affiliated
monopoly or duopoly.  This has prevented U.S. service providers
from competing, and has denied U.S. carriers adequate
competitive choice.  However, the Provisional Airport
Authorities of Hong Kong have committed to having multiple
service providers at the new, larger airport.  Current plans
are for two licenses for base maintenance, three or four for
catering, and two for cargo handling (one for express cargo
handling).  Apart from the existing operators, three other
groups have applied for licenses for cargo handling, including
a U.S. company.

    Civil Aviation Agreement:  The U.S.-Hong Kong civil
aviation market is ruled by the restrictive provisions of the
U.S.-UK Bermuda II Agreement.  Since this agreement will become
invalid when sovereignty over Hong Kong shifts from the UK to
the PRC in 1997, U.S. and Hong Kong negotiators have met on
several occasions to strike an independent bilateral
agreement.  The U.S. continues to press for a substantially
more open civil aviation market, including "fifth freedoms" for
cargo and more fifth freedoms and additional gateways for
passenger traffic.

    Telecommunications/Basic Voice:  In late 1992 the Hong Kong
government announced it would open local wired-voice telephone
services to competing network(s) by July 1994.  Data will be
allowed immediately and voice in July 1995.  The government
invited bids in September 1992 and there are now five local and
foreign applicants for the license(s) including U.S. firms.  A
UK-affiliated company will retain the monopoly contract for
international basic voice service until 2006.  Cable
Television: A Hong Kong-based company has been granted an
exclusive three year license to distribute cable television in
Hong Kong.

    Professional Services:  Physicians/Nurses -- UK-trained
physicians may practice in Hong Kong with pro forma
certification, and some Commonwealth nationals receive
expedited certification, but North American doctors are
forbidden from practicing without going through a lengthy
retraining program.  Discussions have been held with the Hong
Kong government; there are indications the training period
might be shortened but not done away with.  Lawyers -- Since 
1971 Hong Kong has permitted foreign law firms to operate in
the territory to advise on foreign law, but not on local law;
foreign law firms have also been prevented from hiring local
lawyers to advise on local law.  Draft legislation would
liberalize the legal profession, but foreign law firms remain
concerned that the draft bill grants too much regulatory
oversight to the Hong Kong Law Society ("Bar" equivalent).

    Fuel Supply Policy:  At present, the Hong Kong government
grants a monopoly to a local company to supply fuel to public
housing estates.  Recently the housing authorities agreed to
review the fuel supply policy and will consider seeking tenders
from multiple companies.

6.  Export Subsidies Policies

    The government neither protects nor subsidizes
manufacturers, although local legislators have repeatedly
called for more government support to local industries.  The
quasi-governmental Hong Kong Trade Development Council engages
in export and import promotion activities with a budget of
approximately US $122 million.  Its budget is financed by a tax
on exports and imports of 0.05 percent.  Starting in 1994, the
charge will be lowered to 0.03 percent.


7.  Protection of U.S. Intellectual Property

    Hong Kong has acceded to the Paris Convention for the
Protection of Industrial Property, the Berne Convention for the
Protection of Literary and Artistic Works, the Geneva
Phonograms Convention and the Universal Copyright Convention. 
Hong Kong has enacted laws covering trademarks, copyright for
trade descriptions (including counterfeiting), industrial
designs and patents.

    Hong Kong's patent law is currently dependent on the United
Kingdom Patent Law; patent protection is obtained by
registering a UK or European patent with the Hong Kong
Registrar of Patents.  The Hong Kong patent's life lasts as
long as the original patent in the UK.

    In January 1993, the Patent Steering Committee released a
report outlining an independent patent system for Hong Kong
(part of the mammoth "legal localization" that must occur as
Hong Kong shifts from British to Chinese sovereignty).  The
Committee proposed a new system which provides for the granting
of independent patents in Hong Kong based on the patents
granted by the European Patent Office in the first phase and,
in the second phase, by the Chinese Patent Office.  The
proposal contains a "petty patent" concept -- designed to be
fast and easy but with a short life -- designed for products
such as toys, watches and electronic products.  In 1992 a total
of 1,069 patents were registered in Hong Kong.

    Unlike the Patent law, all trademark registrations in Hong
Kong are original: they are valid for seven years and renewable
for 14 year periods.  Proprietors of trademarks registered
elsewhere must apply anew and satisfy all requirements of the
Hong Kong Trademarks Ordinance, the provisions of which are
similar to trademarks legislation in the United Kingdom.  In 
March, 1992, the Trademark Ordinance was enacted to include the
registration of service marks.  A total of 5,500 trademarks
were registered in 1992, of which 1,355 were from U.S.
corporations.

    Copyright protection in Hong Kong derives from United
Kingdom law extended to Hong Kong and from the Hong Kong
Copyright Ordinance.  The Law Reform Commission is conducting a
review to "localize" and to consider updating copyright
protection.  Protection under the Copyright Ordinance is
automatic; no registration is necessary.

    In April 1993, a bill was drafted for the protection of
layout-designs (topographies) of integrated circuits.  Most of
the provisions of the bill are based on similar legislation in
the UK and Australia.  The Bill also meets standards set out in
the Treaty on Intellectual Property in Respect of Integrated
Circuits (the 1989 Washington Treaty) and the agreement on
Trade Related Aspects of Intellectual Property Rights in the
GATT Uruguay Round.

    Penalties:  Patent violations carry civil penalties;
trademark and copyright infringements carry criminal
penalties.  Counterfeiting and trademark infringement carry
maximum penalties of US $13,000 and imprisonment for two years
on summary offenses and US $65,000 and imprisonment for five
years on indictable offenses.  Copyright infringement carries a
penalty of US $130 for each copy and imprisonment for one year.

    Enforcement:  The Customs and Excise Department is
responsible for enforcing the criminal aspects of intellectual
property rights.  The Department has a special IPR unit with
over 100 employees; in addition to conducting raids on local
establishments and street vendors, this unit works closely with
the anti-smuggling task force to combat suspected smuggling
operations.  In the first eight months of 1993, there were 298
seizures of copyright infringing products with a total value of
HKD 19 million (US $2.5 million) and 614 seizures of goods
violating trademarks and trade descriptions with a total value
of HKD 385 million (US $50 million).

    Most of the pirate manufacturers have been driven out of
Hong Kong in the last several years.  However, many more have
established operations across the border in south China. 
Despite numerous seizures this year in Hong Kong and at the
PRC-Hong Kong border, Customs officials are fighting an uphill
battle.  Absent effective enforcement at the point of
manufacture in China, Hong Kong's market -- and other markets
in Asia -- will confront a growing number of pirated
entertainment products and counterfeit trademarked goods.


8.  Worker Rights

    In general, the protection afforded under Hong Kong
ordinances extends to all workers, both local and foreign, in
all sectors.  Injuries and occupational diseases qualifying for
compensation, while normally not specified by industry, cover
injuries resulting from use of industrial machinery as well as
disease caused by exposure to physical, biological or chemical
agents.
 
    a.   Right of Association

    The right of association and the right of workers to
establish and join organizations of their own choosing are
guaranteed under local law.  Unions are defined as corporate
bodies and enjoy immunity from civil suits arising from
breaking of contingent contracts or interference with trade by
work stoppages on the part of their members.  The Hong Kong
government does not discourage or impede union formation or
discriminate against union members.  Workers who allege
anti-union discrimination have the right to have their cases
heard by a government labor relations body.

    b.   Right to Organize and Bargain Collectively

    The right to organize and bargain collectively is
guaranteed under local law.  However, the right is not widely
excercised and there are no mechanisms to specifically
encourage it.  Instead, a dispute-settlement system
administered by the government is generally resorted to in the
case of disagreements.  In the case of a labor dispute, should
initial conciliation efforts prove unsuccessful, the matter may
be referred to arbitration with the consent of the parties or a
board of inquiry may be established to investigate and make
suitable recommendations.

    c.   Prohibition of Forced or Compulsory Labor

    Compulsory labor is prohibited under existing legislation.

    d.   Minimum Age of Employment of Children

    Under regulations governing the minimum age for employment
of children, minors are allowed to do limited part-time work
beginning at age 13 and to engage in full-time work at age 15. 
Employment of females under age 18 in establishments subject to
liquor regulations is prohibited.  The Labor Inspectorate
conducts work place inspections to ensure that these
regulations are being honored.

    e.   Acceptable Conditions of Work

    Wage rates are determined by supply and demand.  There is
no legislated minimum wage.  Hours and conditions of work for
women and young persons aged 15 to 17 in industry are
regulated.  There are no legal restrictions on hours of work
for men.  Overtime is restricted in the case of women and
prohibited for all persons under age 18 in industrial
establishments.  In extending basic protection to its work
force, the Hong Kong government has enacted industrial safety
and compensation legislation.  The Hong Kong government Labor
Department carries out inspections to enforce legislated
standards and also carries out environmental testing and
conducts medical examinations for complaints related to
occupational hazards.

    f.   Rights in Sectors with U.S. Investment

    U.S. direct investment in manufacturing is concentrated in
the electronics and electrical products industries.  Aside from
hazards common to such operations, working conditions do not 
differ materially from those in other sectors of the economy. 
Labor market tightness and high job turnover in the
manufacturing sector have spurred continuing improvements in
working conditions as employers compete for available workers.


         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (Millions of U.S. dollars)

Category                                    Amount

Petroleum                                               385
Total Manufacturing                                   2,243
    Food & Kindred Products                     D
    Chemicals and Allied Products             153
    Metals, Primary & Fabricated                D
    Machinery, except Electrical              242
    Electric & Electronic Equipment         1,381
    Transportation Equipment                    D
    Other Manufacturing                       369
Wholesale Trade                                       2,914
Banking                                                 932
Finance and Insurance                                 1,291
Services                                                349
Other Industries                                        430

TOTAL ALL INDUSTRIES                                  8,544


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

(###)
To the top of this page