1. Briefly describe Hong Kong’s economy (background, GDP, growth rate, etc.), (20 points) Everything about Hong Kong tells the story of trade. With beginnings as a small rocky island full of fishing villages, Hong Kong has grown to become one of the largest cities of trade and finance in the world. Hong Kong had a GDP of $325.8 billion USD in 2010, which represents a 6.8% growth from the previous year (“Economy: Hong Kong”, 2011). This growth is a nice change from the 2.7% loss in GDP the previous year from the world financial crisis (“Economy: Hong Kong”, 2011). With exports totaling $388.6 billion, and imports totaling $431.4 in 2010, Hong Kong ranks as one of the top 20 countries in the world in both categories (“Economy: Hong Kong”, 2011). With only 3.7 million people in Hong Kong’s labor force and such a large GDP, it’s not a surprise that its unemployment rate is only 4.3%.
2. Briefly identify and explain three methods intended to encourage economic growth for the typical firm in Hong Kong. (25 points)
In July of 1997 Hong Kong was handed over from the British rule to the People’s Republic of China. Although Hong Kong is officially part of the PRC it is still very autonomous, and considered a special administrative zone until July 2047 when it will fully become part of the Chinese state (Jenkins, 2008). This merger between Hong Kong and Mainland China led to the passing of the Closer Economic Partnership Agreement in 2003. This agreement allowed imports of Hong Kong origin to enter into Mainland China tariff free, as well as vice versa (Commerce People's, 2003). The strategy to closer align Hong Kong to Mainland China has been a huge boon for both nations. Another method used to promote economic growth is keeping too much government intervention out of the markets, sometimes called laissez-faire. Many changes have taken place over the past decade, yet Hong Kong is still considered the freest market in the world. With little government intervention, low taxes, virtually no import or export taxes on goods, and transparent regulations, Hong Kong is an ideal place for firms to operate.
Another major strategy by Hong Kong is to keep to continually improving their infrastructure and education, with a focus on moving from an industrial to service economy (Wingrove, 1998). This strategy helps the typical firm by providing them the necessities to do business in the world’s evolving economy. It also allows firms to prepare for the lower cost imports that have steadily been streaming in from Mainland China over the past decade.
2. Explain, with appropriate economic rationale, which method would you suggest for the typical Hong Kong firm and why (20 points) Many firms can thrive from trade with Mainland China. Covering 423 sq miles Hong Kong is severely limited by its small area and lack of resources. Mainland China on the other hand is the second largest country in the world, is endowed with an abundance of natural resources, and has the largest labor force on Earth. Because there’s not import tariffs from products received from mainland China, they benefit greatly receiving goods from the mainland. The labor costs alone help add up to some pretty significant savings. The minimum wage in Hong Kong is about $460 USD per month for a full time employee (“Labor Costs”, 2010), compared to $160-200 minimum monthly wage of Mainland China. The trade between the island and mainland also brings with it great amounts of investment and tourism. Because of Hong Kong’s short distance from China’s megacity of Shenzhen, many firms will continue to benefit from the relationship between the two regions for the foreseeable future.
3. Briefly describe Singapore’s economy (background, GDP, growth rate, etc.). (20 points) Singapore has a highly successful free market economy. Like Hong Kong, Singapore has very small landmass, few natural resources, and depends mainly on...
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