Hong Kong is the premier financial and business center in China and a regional financial leader. Hong Kong is one of China’s special administrative regions (SARs). An SAR is a relatively autonomous region within the People’s Republic of China that maintains separate legal, administrative, and judicial systems from the rest of the country.
Key Takeaways
- Hong Kong is an Asian financial hub that was formerly a British colony and is now a semi-autonomous part of China.
- Special Administrative Regions (SARs) are areas that maintain some degree of political and economic independence from their parent country.
- Due to its history of independence and colonization, Hong Kong may occasionally find itself at odds with China’s political authority.
Understanding Hong Kong SAR, China
Hong Kong operates under the “One Country, Two Systems” principle, which was put in place as part of the Sino-British Joint Declaration, signed in 1984 and implemented in 1997.
The principle states that the socialist system and policies maintained by the People’s Republic of China would not be practiced in Hong Kong, which would retain its political and economic systems for 50 years, until 2047.
Since July 1, 1997, when the United Kingdom transferred the sovereignty of Hong Kong to China, Hong Kong has maintained distinct political and economic systems, alongside its own currency—the Hong Kong Dollar (HKD$).
Hong Kong retains independent executive, legislative, and judiciary powers, except in matters related to military defense and foreign affairs. Both English and Chinese are official languages.
Hong Kong’s Economy
Hong Kong was considered the world’s freest economy by the Heritage Foundation’s Index of Economic Freedom until 2020 when it was overtaken by Singapore. In 2021, Hong Kong was removed from the index due to increasing influence from China.
The region has exemplified a free market economy, where low taxation, near-free port trade, and a robust international financial market are prominent features. Service industries—particularly finance, IT, healthcare, and hospitality—dominate the Hong Kong economy.
Leveraging its political and economic autonomy, Hong Kong serves as a pivotal area where international and Chinese businesses intersect. In 2023, over 9,000 companies with foreign parent firms operated in Hong Kong.
Though Hong Kong’s government and free market system have faced challenges, the city’s economy is the world’s 43rd largest, with a GDP of $359.8 billion in 2022 and one of the highest GDP per capita globally at $48,983.
Hong Kong and China’s Tensions
China once had economic incentives not to interfere with Hong Kong’s affairs. When sovereignty was transferred in 1997, Hong Kong’s economy was relatively close in size to China’s. However, over the last two decades, while Hong Kong’s economy has plateaued with growing inequality, China has surged to become an economic powerhouse. Consequently, Hong Kong constitutes just 2% of China’s GDP as of 2022.
Ironically, the push to eliminate political tensions by aligning more closely with China’s Liaison Office may compromise the attributes that previously distinguished Hong Kong, including its dynamic business environment and administrative practices.
Recent moves by China’s Liaison Office, including the acquisition of major media assets and involvement in local leadership elections, exemplify increased influence and potentially forebode further encroachments on Hong Kong’s autonomy.
What Is the Financial System of Hong Kong?
Hong Kong is a global financial center encompassing numerous banks and financial institutions. With favorable tax laws and a strong, independent financial market—including its stock market—Hong Kong remains a crucial player. The Hong Kong Dollar is pegged to the U.S. Dollar.
What Is Hong Kong Ranked in the Financial Market?
As of September 2023, Hong Kong ranks fourth on the Global Financial Centres Index, trailing behind New York, London, and Singapore.
Is Hong Kong Financially Stable?
Yes, Hong Kong remains financially stable despite political protests and China’s augmented oversight. The region’s financial market continues to be robust.
The Bottom Line
Hong Kong stands out as a significant financial center, not just in Asia, but globally. Once a British colony, it now functions semi-autonomously under Chinese sovereignty. While Beijing’s increasing influence poses challenges, Hong Kong remains a critical financial hub characterized by its unique blend of Eastern and Western systems.
Related Terms: special administrative region, financial systems, economic autonomy, One Country Two Systems
References
- Congressional Research Service. “Hong Kong: Recent Developments and U.S. Relations”.
- The CIA World Factbook. “Hong Kong”.
- The Heritage Foundation. “2020 Index of Economic Freedom: Global Economic Freedom Hits All-Time High”.
- The Heritage Foundation. “2021 Index Of Economic Freedom: Global Economic Freedom Remains At All-Time High, U.S. Drops To An All-Time Low”.
- Hoover Institution. “The Hong Kong Experiment”.
- The Government of the Hong Kong Special Administrative Region. “2023 Annual Survey of Companies in Hong Kong with Parent Companies Located Outside Hong Kong”.
- Macrotrends. “Tokyo, Japan Metro Area Population 1950-2024”.
- The World Bank. “Population, Total - Hong Kong SAR, China”.
- The World Bank. “GDP (Current US$) - Hong Kong SAR, China”.
- The World Bank. “GDP Per Capita (Current US$) - Hong Kong SAR, China”.
- The World Bank. “GDP (Current US$) - Hong Kong SAR, China, China”.
- The World Bank. “Population, Total - China, Hong Kong SAR, China”.
- The Heritage Foundation. “Hong Kong Is No Longer What It Was”.
- South China Morning Post. “Carrie Lam Admits Lobbying by Beijing Liaison Office in Hong Kong Leadership Race ‘May Not Work in Her Favour’”.
- Bloomberg. “The Publishing Empire Helping China Silence Dissent in Hong Kong”.
- Long Finance. “GFCI 34 Rank”.
