The Global Legacy of Hong Kong (Episode 4)

Hong Kong is officially considered a Chinese SAR - special administrative region. Hong Kong’s history with China began 2,000 years ago, when the Qin Dynasty came to control the area. Modern-day Hong Kong is comprised of three areas: the Kowloon Peninsula, Hong Kong Island, and the New Territories. These are all adjacent and located in south-eastern China. During the Opium Wars in the mid-to-late 1800s between China and Great Britain, a series of treaties gave Hong Kong to the British, piece by piece. In 1997, as a treaty signed in 1898 mandated, Hong Kong was given back to China. China and GB negotiated the terms of the transfer, agreeing to “one country, two systems.” According to the negotiations, life in Hong Kong (including the civil liberties that residents of Hong Kong have, but that are not present on the mainland) would remain the same for 50 years. Notably, the people of Hong Kong were not consulted in these negotiations.

Today, despite technically having two separate economic, legal, and political systems, China has increasingly exerted influence and control over Hong Kong. China has been working towards integrating Hong Kong more completely with greater China, and this has led to multiple large and brutal protests within the past decade. The last protests, from 2019-2020, were started by the introduction of an extradition bill that many feared would allow China to extradite and punish those in Hong Kong without due process. Overall, the protests have been aimed at the protection of civil liberties and a separate system in Hong Kong. The fight for a true democracy is also at the heart of the protest movements. Currently, Hong Kong is a limited democracy that is heavily influenced and controlled by China. Protestors have overwhelmingly been made up of native Hong Kongers and younger citizens, with 87% of those aged 18-29 supporting the protests and 63% having participated (according to a Reuters survey).

To understand the role that Hong Kong has in the world economy, we need to understand how its economy evolved over time to become the global financial center that it is today. Prior to Britain taking control of the area, Hong Kong was relatively developed. It had productive agricultural, salt, transportation, education, and cultural industries, to name a few. It also became an important harbor for opium dealers looking to get access into China. However, it was after the British took control of Hong Kong that the area truly blossomed economically due to British investment and its natural geographic position along maritime trading routes.

In the late 1800s, Hong Kong’s economy primarily consisted of banking, shipping, and merchant companies. Concurrently, Hong Kong also saw a strong population growth in the second half of the nineteenth century. During the first half of the twentieth century, Mainland China endured both civil and international war, as well as great political instability. As a result, Hong Kong suffered economically as trade with China decreased and world trade slowed. However, Hong Kong also benefited because, as a British colony located right on the edge of China, it became the “safe” place for investors and traders that wanted access to the Chinese markets. This role as a bridge or access point for Western capital and industry into greater China was pivotal. In the decades following the establishment of the People’s Republic of China in 1949, Hong Kong’s role as a stable financial access point to China for the international community was cemented.

Beginning in the 1950s, the PRC entered a new period of economic isolation driven partly by ideology and partly by Western trade legislation. While China was under the rule of former Chinese Communist Party leader Mao Zedong, Hong Kong was heavily utilized by China for imports of grain, food, and water as the mainland industrialized. Industrialization in Hong Kong accelerated during this time as well, especially due to the influx of people and money fleeing China’s civil war in the 1940s . In fact, it was immigrants from Shanghai that started Hong Kong’s cotton spinning industry, which grew into a booming textile sector by the end of the 1950s and marked the establishment of manufacturing in Hong Kong. Throughout the 1960’s, Hong Kong manufacturing diversified to include electronics, plastic, clothing, etc. The majority of products produced in Hong Kong were exported. Industry and the economy in Hong Kong only continued to grow and expand in the following years. Of course, while the Hong Kong economy was not immune to world events, the overall trend was almost entirely positive.

Following the death of Mao Zedong in 1976, Hong Kong businesses moved much of their manufacturing to mainland China. Chinese foreign and economic policy completely changed under Deng Xiaoping, Mao’s successor. China opened itself up to international trade and investment, becoming a global center of manufacturing. Naturally, these new policies greatly increased trade between Hong Kong and China. According to the Economic History Association, visible trade between the two entities grew 28% every year from 1978-1997. The other impact of this was that Hong Kong reverted more completely back to its historic role as a center for and provider to China of financial and commercial support. It transitioned almost entirely from a manufacturing economy to a service-based one. Incredibly, this occurred while continuing positive GDP growth rates and with unemployment rates only at 2.5% from 1982 to 1997.

In 1997, Hong Kong shifted from a British colony to a Chinese SAR and great care was taken to preserve its economy, which had been greatly beneficial for China. Unfortunately, in mid-1997, Hong Kong suffered from the Asian Financial Crisis. However, China and Hong Kong (as its SAR) managed to sustain their currencies’ exchange rates. Then, in 2002, the SARS epidemic struck and also hit the economy hard. Together, SARS and the Asian Financial Crisis forced Hong Kong’s economy into recession. Since the massive Chinese economy was not as overwhelmed by these disasters, Hong Kong’s economy became even more intertwined and dependent on its trade and dealings with mainland China.

From the beginning of China’s renewed control over Hong Kong, Beijing ensured that Hong Kong’s economy would be preserved. Hong Kong has its own currency - the Hong Kong dollar - and autonomy over economic matters, such as trade, finance, foreign exchange, customs, etc. Today, Hong Kong’s economy is even more dependent and interlinked with the mainland, though it is still considered a global financial center in its own right and one of the freest economies in the world. Currently, services compose a huge 93.5% of Hong Kong’s GDP. Annual bilateral trade between China (Hong Kong’s biggest trading partner) and Hong Kong was more than $547 B in 2020, a COVID year. Around 90% of Hong Kong’s re-export value accounts for goods re-exported to China. In comparison, in 2018, Hong Kong’s GDP was equivalent to 2.8% of China’s!

It is important to note that Hong Kong’s economic development greatly differed from the other dominant Asian economies, such as Japan, South Korea, Taiwan, Singapore, etc. because there was relatively little government planning and guidance that went into industrialization and development. In the 1950s and 60s, the British government was more concerned with creating social infrastructure for a burgeoning population. The government only became involved in actual industrial planning in the late 1960s.