Economic Dimension

1. Economic Dimension Society and the Engineers The Hong Kong Polytechnic University

2. Economic Dimension Why economic dimension for engineers? Engineers are wealth builders. • Engineers design the products that are the lifeblood of many companies directly or indirectly. • marketing and sales people are just closer to the money, but they are less important to the economy than engineers because they do not produce anything of lasting value. Reference: TechnoZeal The Hong Kong Polytechnic University

3. Why economic dimension for engineers? • Economics affects Engineers • Most real engineers are somewhat well-paid???, however, the cyclical nature of the industries they work in can cause their immediate jobs to be in peril at times in their career. • engineers need to be in tune with what is happening in their industry and in the economy in general so they can position themselves for things to come. • Keep your skills relevant to the economy, but never abandon the unchanging core knowledge that you, as an engineer, have acquired.” • What else? The Hong Kong Polytechnic University

4. Case example: Apple Inc. • Launch of its first iPhone in June 2007, the Apple shares closed at $95 (USD). They rose to $122 after the launch, and ended the year a tick under $200. • After hitting a low of $78.20 in early 2009, Apple shares rebounded strongly and traded at $139.48 by the time the iPhone 3GS hit stores.  The Hong Kong Polytechnic University

5. More able Apple • Apple's iPhone 5 sales have not been able to keep the pace with projections and estimates and as a result Apple's share price has fallen 2.5%! • Chart The Hong Kong Polytechnic University

6. Case example • The European Aeronautic Defence and Space Company (EADS), builder of Airbus jets, plunged into a stock market vortex on Wednesday, losing about €7-billion in the first few hours of trading on further production delays to its super-jumbo A380 flagship and a profit warning. The Hong Kong Polytechnic University

7. Case example • The Research in Motion Ltd (RIM) is having a tough time. After they unveiled the new BlackBerry Torch today, expectations were very high. The phone was hyped as the iPhone “killer”. But early reports suggest that the phone will not be able to offer the same functionality and “ease of use” that Apple prides itself for. After the disappointing early reviews the shares of RIM fell down to $56.77.  • What will happen if you are the BlackBerry Torch designer????? The Hong Kong Polytechnic University

8. More cases • Kodak • Polariod • Netscape • Palm The Hong Kong Polytechnic University

9. Economic Dimension • From previous examples, a successful product has great impact to a company’s survival • What kind of economic awareness should an engineer possess? The Hong Kong Polytechnic University

10. Theory The Hong Kong Polytechnic University

11. Economic Dimension – What is Economics? • Economics is the study of the production and distribution of goods and services, it is the study of human efforts to satisfy unlimited wants with limited resources • It studies how agents allocate scarce resources amongst alternatives to meet unlimited human wants 11 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

12. Positive Economics: • - Examines how decisions are made and the consequences of such decisions • - Descriptive process exploring the process of decision making and its impacts • Positiveeconomics • The branch of economics that concerns the description and explanation of economic phenomena and their causalrelationships An analysis limited to statements that are verifiable Approaches to Economics The Hong Kong Polytechnic University

13. Defintion • Normative economics • economic thought in which one applies moral beliefs, or judgment, claiming that an outcome is "good" or "bad". For example "this tax on cigarettes will be good because it will reduce smoking." Normative Economics: • Examines how resources should be allocated • Prescriptive process analyzing what should be done An analysis based on value judgments The Hong Kong Polytechnic University

14. Examples • http://www.youtube.com/watch?v=AV_p_QntywA&NR=1&feature=endscreen 原業主07年11月斥資230萬元購入，持貨近5年，獲利205萬元離場，升值89.1%。 The Hong Kong Polytechnic University

15. Process occurs at many levels Consumers Firms Government Market System Allocation decisions impact natural environment Want decisions to be based upon incentives that reflect “true” value to society Unfortunately decision makers do not consider “true” value in choices Need for policy intervention to overcome such market failure Allocation of resources 15 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

16. Scarce resources and production Resources are the basic categories of inputs organised by entrepreneurship (a special type of labour) to produce goods and services. Economists divide resources into the three categories of land, labour and capital. Labour Land Capital Resources Entrepreneurship organises resources to produce goods and services Reference: A. Layton, R. Robinson and I.B. Tucker, ‘Economics for today’, Thomson 2002 The Hong Kong Polytechnic University

17. Macroeconomics – Aggregated analysis John Maynard Keynes in 1936 and 1940 Choices of government Monetary Policy - Federal Reserve Fiscal Policy – Taxes and Spending Macroeconomic targets Income Levels Inflation Employment Contemporary Economics 17 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

18. Microeconomics – Disaggregated analysis Adam Smith’s Wealth of Nations in 1776 Choices of consumers (households) and producers (firms) Two types of Markets Factor Markets 生產– Consumers sell inputs used in production to firms Product Markets – Firms sell final output to consumers Three types of analysis Partial Equilibrium – Focus on single factor or good Multi-Market – Interrelationships amongst key fundamental markets General Equilibrium – Economy as a whole Contemporary Economics 18 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

19. Macroeconomics • The study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. The Hong Kong Polytechnic University

20. Microeconomics • That field of economics that deals with the small-scaleeconomicactivities such as that of the individual or company. The Hong Kong Polytechnic University

21. Micro Vs Macro • http://www.youtube.com/watch?v=DJG-liA19eY The Hong Kong Polytechnic University

22. Microeconomics Examining individual trees rather than the wood Studies decision making by single individual, household, firm or industry Focus on behaviour of small economic units E.g. egg industry, will suppliers decide to supply more less or the same amount of eggs to the market in response to price changes? Will individual consumers decide to buy more, less or the same amount of eggs at new price? Macroeconomics Surveys the wood Studies decision-making for the economy as a whole Examines economy-wide variables, e.g. inflation, unemployment, money supply, flows of experts/imports and international financial capital Macroeconomic decision makings considers ‘big picture’ policies as the effect of balancing the federal budget on unemployment, the effect of changing the money supply on prices and the effect of strong economic growth on the value of the currency. Macro vs micro-economics The Hong Kong Polytechnic University

23. Value is reflected in prices determined through interaction of supply and demand Supply (demand) reflects trade-offs firms (consumers) make when producing (buying) goods and services Abundance implies lower prices Scarcity implies higher prices Conceptually market forces reflect “true” value to society, but there are reasons why markets may fail Externalities Public Goods Property Rights Economic Theory of Value 23 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

24. Case examples • Market forces reflect “true” value to society but markets fail? • Property market in Hong Kong • Parallel export market (水货) for IPhone6 The Hong Kong Polytechnic University

25. Keynesian Economics • An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability. John Maynard Keynes (1883 – 1946) The Hong Kong Polytechnic University

26. Keynesian Economics • Can it or should it be applied in Hong Kong? The Hong Kong Polytechnic University

27. Basic economics: supply and demand • A competitive market is a market in which there are many buyers and sellers of the same good or service. • The supply and demand model is a model of how a competitive market works. The Hong Kong Polytechnic University

28. Supply and demand • Five key elements in this model: • The demand curve • The supply curve • The set of factors that cause the demand curve to shift, and the set of factors that cause the supply curve to shift • The equilibrium price • The way the equilibrium price changes when the supply and demand curves shift The Hong Kong Polytechnic University

29. Demand Schedule • A demand schedule shows how much of a • good or service consumers will want to buy • at different prices. The Hong Kong Polytechnic University

30. A demand curve • A demand curve is the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price. • Example The Hong Kong Polytechnic University

31. Opportunities in China and Hong Kong Discuss economic opportunities available to HK, e.g. those provided through • WTO • PPRD development (泛珠三角合作) • CEPA • FDI (Foreign direct investment ) [Please refer to notes given]. 31 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

32. WTO • The World Trade Organization (WTO) • “is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.” - WTO • Hong Kong joined WTO on 1 Jan 1995 • http://www.wto.org/english/thewto_e/countries_e/hong_kong_china_e.htm • Mainland China joined WTO on 11 December 2001 • http://www.wto.org/english/thewto_e/countries_e/china_e.htm The Hong Kong Polytechnic University

33. WTO Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations (1986–94) Membership: 150 countries (since 11 January 2007) Budget: 175 million Swiss francs for 2006 Secretariat staff: 635 Head: Pascal Lamy (director-general) Functions: • Administering WTO trade agreements • Forum for trade negotiations • Handling trade disputes • Monitoring national trade policies • Technical assistance and training for developing countries • Cooperation with other international organizations The Hong Kong Polytechnic University

34. What is WTO? • http://www.wto.org/english/res_e/webcas_e/webcas_grid_e.htm?video_type=subject&bookmark=intro The Hong Kong Polytechnic University

35. WTO • Challenges for Hong KongDespite all the opportunities, a more open mainland China market will not automatically benefit Hong Kong. Hong Kong businesses need to overcome the challenges that lie ahead. For example, foreign banks must currently fulfill the asset requirement of US$20 billion and various other funding requirements for setting up a branch in China. To set up a joint venture commercial retail business in China, foreign enterprises need to have an annual turnover of more than US$2 billion and assets of no less than US$200 million. The asset requirement for joint venture wholesale business is as high as US$300 million. 35 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

36. WTO Increased CompetitionMarket liberalization will bring in more outside players, and thus increase competition, not only from multinationals but also from the Mainland's own developing indigenous (本地的)business sector. Diminishing Gateway Function With a more transparent trade regime in the Mainland, Hong Kong's gateway function will diminish gradually as more foreign companies may try to go to mainland directly, as mainland itself catches up through, among other things, advancement in telecommunications and information technology. Hong Kong trading firms that match sellers and buyers without adding any significant value to the process will be faced with a trend toward more direct dealing between customers and manufacturers in the future. 36 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

37. WTO Hong Kong's CompetitivenessBesides external factors, Hong Kong businesses are facing internal challenges and weaknesses as well. • A major factor that can erode Hong Kong's competitiveness is our high operating cost. • High salaries and property prices are the two biggest cost items for many Hong Kong businesses -- the textiles sector being an obvious example. • Costs for professional services are also high. • In addition, there are concerns over the inherent weakness of Hong Kong's education system. 37 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

38. WTO What Hong Kong Businesses Can DoWhether Hong Kong can remain competitive and take advantage of the liberalization in the Mainland will depend on how Hong Kong positions itself. • Hong Kong businesses should rethink their role, and this will call for restructuring, diversification and upgrading. • Although Hong Kong is now part of China, it is extremely important for the business community to maintain its international character. • We must play up our role as the "Value-added, Two-way Bridge" to and from mainland China. 38 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

39. MTR • MTR is more than a railway operatior • Property development • China and international business • building and operations of the Beijing Metro Line 4 and Shenzhen Metro Longhua Line and in the operating of the London Overground system in the United Kingdom, the Melbourne Train System in Australia and Stockholm Metro in Sweden. The Hong Kong Polytechnic University

40. With the implementation of CEPA What are the opportunities offer to you? The Hong Kong Polytechnic University

41. 63,000 Hong Kong Manufacturing & Trading firms active in PRD employing around 11 million workers Department of Industrial and Systems Engineering The Hong Kong Polytechnic University The Hong Kong Polytechnic University

42. CEPA • http://www.youtube.com/watch?v=ekiSpk7XC98 • http://www.tid.gov.hk/tc_chi/cepa/index.html • http://www.youtube.com/watch?v=4CShKVTA8fs&feature=related The Hong Kong Polytechnic University

43. CEPA Update The Hong Kong Special Administrative Region Government and the Central People's Government on May 9, 2009 agreed on further services liberalisation and trade co-operation under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA).  43 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

44. CEPA The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is the first free trade agreement ever concluded by the Mainland of China and Hong Kong. The main text of CEPA was signed on 29 June 2003. CEPA opens up huge markets for Hong Kong goods and services, greatly enhancing the already close economic cooperation and integration between the Mainland and Hong Kong. 44 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

45. CEPA For Hong Kong, CEPA provides a window of opportunity for Hong Kong businesses to gain greater access to the Mainland market. CEPA also benefits the Mainland as Hong Kong serves as a perfect "springboard" for Mainland enterprises to reach out to the global market and accelerating the Mainland's full integration with the world economy. Foreign investors are also welcome to establish businesses in Hong Kong to leverage on the CEPA benefits and join hands in tapping the vast opportunities of the Mainland market.  45 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

46. CEPA Implementation CEPA covers 3 broad areas:  • Trade in goods - All goods of Hong Kong origin importing into the Mainland enjoy tariff free treatment, upon applications by local manufacturers and upon the CEPA rules of origin (ROOs) being agreed and met.  • Trade in services - Hong Kong service suppliers enjoy preferential treatment in entering into the Mainland market in various service areas. Professional bodies of Hong Kong and the regulatory authorities in the Mainland have also signed a number of agreements or arrangements on mutual recognition of professional qualification.  • Trade and investment facilitation - Both sides agreed to enhance co-operation in various trade and investment facilitation areas to improve the overall business environment. 46 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

47. CEPA專業人員資格的相互承認 • 建築領域 • 1. 雙方同意開展內地監理工程師與香港建造工程師的專業人員資格（監理）相互承認工作；開展香港建築師取得內地監理工程師資格的認可工作。 The Hong Kong Polytechnic University

48. CEPA Further Liberalization Measures In 2012 • Construction –Hong Kong professionals, who have obtained the qualifications of Mainland's supervision engineer, registered architect, structural engineer, registered civil engineer (harbour and waterway), registered public facility engineer, registered chemical engineer, registered electrical engineer are recognized as registered practitioners for the purpose of declaration of engineering enterprise qualifications within Guangdong Province in accordance with the relevant Mainland regulations, regardless of whether they are registered practitioners in Hong Kong. The Hong Kong Polytechnic University

49. CEPA Update Under Supplement VI to the CEPA, the Mainland will introduce 29 liberalisation measures covering 20 service sectors, including two new sectors (research and development, and rail transport).  Thus, the total number of service sectors covered by CEPA will be expanded from 40 to 42. Among them, the noteworthy liberalisation measures are: On tourism, Mainland travel agents authorised to operate group tours to Taiwan can organise group tours for Mainland residents, who hold a valid exit/entry permit for travelling to and from Taiwan and travel endorsement, to enter and remain in Hong Kong in transit. This measure aims to facilitate the travel trade in the Mainland and Hong Kong to develop multi-destination tour products.  49 The Hong Kong Polytechnic University The Hong Kong Polytechnic University

50. CEPA Update On telecommunications services, HK Service Suppliers (HKSS) can distribute in Guangdong Province fixed/mobile telephone service cards which can only be used in Hong Kong. On audio-visual services, Hong Kong service suppliers (HKSS) can provide videos and sound recording (including motion picture products) distribution services on the Mainland in the form of wholly-owned operations. Regarding research and development services, which is also a newly added sector, HKSS can set up wholly-owned enterprises on the Mainland to provide research and experimental development services in the natural sciences and engineering. 50 The Hong Kong Polytechnic University The Hong Kong Polytechnic University