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Economics Freedom of Hong Kong: Lessons and Challenges Kui-Wai Li City University of Hong Kong

Seminar organizer Richard Charles Lee Canada – Hong Kong Library University of Toronto February 11, 2013. Economics Freedom of Hong Kong: Lessons and Challenges Kui-Wai Li City University of Hong Kong. Organizer : Richard Charles Lee Canada – Hong Kong Library. Sponsors :

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Economics Freedom of Hong Kong: Lessons and Challenges Kui-Wai Li City University of Hong Kong

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  1. Seminar organizer Richard Charles Lee Canada – Hong Kong Library University of Toronto February 11, 2013 Economics Freedom of Hong Kong:Lessons and ChallengesKui-Wai LiCity University of Hong Kong

  2. Organizer: Richard Charles Lee Canada – Hong Kong Library. • Sponsors: • Hong Kong Economic & Trade Office, Toronto • Hong Kong Canada Business Association (HKCBA) • Asian Institute, Munk School of Global Affairs, University of Toronto • In Depth Conference: student organization. Gratitude Conveys To

  3. Externally: Absolute picture of the freest economy. As a reference to emerging/Asian economies. Is there a Hong Kong model? World opportunities given to HK. Internally: Falling skill to analyze economic issues in HK. Reiterate the appropriate use of economics as a solution. HK people’s ingenuity, enterprising, dynamism. Why on HK’s economic freedom?

  4. Ten indicators grouped under 3 pillars: System: trade, financial, investment, and adherence to property right. Policy: fiscal, monetary, and size of government. Ethics: business, freedom from corruption, and labor. Index of Economic Freedom

  5. Laissez faire: supply-driven strategy, pro-growth policies. Govt: provides “needed positive assistance”, taking a “back seat”, supportive approach. Promote civic freedom between ruler and ruled. Colonial govt acted as a referee in politics. Economic relativity: economic activities produce relative outcomes, absolute outcome activities become personal choices. The Hong Kong Model

  6. Percentage 20 Economic 15 Recovery US$ Depreciation / Visit Free Travel Scheme Stock Market Crash Beijing Iraq-US War Olympic / 10 China 's Entry US Financial Deng's Southern to WTO Crisis Tour Water Supply China's Reform Transfer of Restriction Nixon's China Sovereignty Riots in Visit 1967 5 SARS / Iraq-US War / Political Turmoil CEPA in China 0 1980 1984 1986 1988 1990 2000 2002 2004 2006 2008 1976 1978 1982 1992 1994 1996 1998 1962 1964 1966 1968 1970 1972 1974 911 Attack Afghanistan-US War 1973 Stock Crisis Sino-British Oil Crisis Property Boom -5 Negotiations Mainland Asian Financial Crisis Economic Integration Revitalization of Re-Exports Growth in Services Industrialization Development as a Financial Centre -10 Year Figure 2.2 Hong Kong’s GDP Growth Rates: 1962-2009

  7. GDP volatility is asymmetric: volatility is low when GDP rises. Investment drives growth. Govt. spending not growth promoting. Volatility is high in housing and stocks. Financial market more in line with Tokyo and Singapore. Trade and consumption more in line with Taiwan. Overall GDP performance

  8. Measureable inputs: capital, labor, land. TFP indicates the sum of non-measureable input contributions: human capital, technology, efficiency, economies of scale, etc. Most convenient is to use the accounting approach. Can be calculated on both the aggregate and disaggregate basis. Economic freedom: allow openness and opportunities, should facilitate TFP growth. Total factor productivity

  9. Agri, fishing, mining, quarrying: 5.2 (0.2) Electricity, water & gas: -1.4 (2.34) Construction: 1.6 (4.96) Manufacturing: 5.1 (13.24) Whole/retail, im/ex, rest/hotel: 2.5 (25.75) Fin, insur, real est, bus services: 1.0 (19.84) Transport, storage & com.: 0.9 (9.52) Comm,social& personal service: 0.5 (15.56) TFP (%GDP) of Industries: 1983-2005

  10. Industry: TFP% Total/SMEs/Non-SMEs Manufacturing: 5.1/4.6/5.3. Retail: 1.5/0.7/1.4 Import/export: 2.4/2.4/1.9 Business services: 2.5/2.4/2.6 All transport: 0.4/0.6/-0.4 TFP of SMEs (1983-2005)

  11. Figure 6.1 The Mean Years of Schooling in Hong Kong: 1981-2006

  12. TVGDP = total value of shares to GDP ratio.MCGDP = market capitalization to GDP ratio.TV_MC = stock market turnover to market capitalization ratio.Sample period: 1998-2004

  13. Total public expenditure/GDP: highest in 2002 with 21.8%. Notably, social welfare has gone up from 5.4% in 1986 to 13.2% in 2009. More often with fiscal surplus than deficit, worst in 2001-2004 fiscal years. Small government, large market

  14. China/HK: absolute vs comparative advantage. HK: a reference to China’s economic reform. HK: major investor, in early stage of reform. Visa-free, CEPA, Pan-PRD, 5-Year Plan. Marginalization? Catching up / overtaking? HK:market-led(expost);China:state-led(exante) Few discussed on implication to HK economy. Economic integration with mainland

  15. Short-term investment behavior. Wealth promoting, rise in income. Inflation, negative interest rate, wage increase De-industrialization, fall in real economy. Speculations in stocks and real property. 1998 financial crisis: real economy could not sustain the collapse of the nominal economy. Pre-1997 Features

  16. Young government: leadership challenged. Periodic crises: Asian financial crisis, health hazards, terrorist attacks and war, oil crisis, natural disasters, 2008 crisis, etc. Economic recession (1998-2005): prolonged economic weakness, fiscal deficit, collapse of property market. Stability and prosperity: challenged? Post-1997 Features

  17. Internal: Demand-driven vs supply-led strategy? Short-term, ad hoc solutions vs long-term insights? Property dominates: cart in front of the horse? Fiscal policy: welfare vs growth? Intervention vs assistance (private cost vs social cost)? Challenges to HK’s economic freedom

  18. External: External-led vs domestic-led economy? Or a dependent economy? Integration with mainland: win-win vs marginalization? Count the cost? Political Economy: System-driven vspersonality-driven? Result-led vs public opinion-led? Formalization vs informal economy? Conflicts in “two systems”: 2047 comes earlier? More challenges

  19. Economic diversification & expansion: re-industrialization through CEPA (over 1,700 export items to mainland tariff free). Encourage physical investments, target CEPA. High cost: not a problem when consider the huge mainland market. Challenge: property price getting out of context, speculation=wealth increase, the most distorted sector. Stability in question! Economic Opportunities, but……

  20. HK’s economic freedom is a built-in, is an infrastructure. Creation of economic opportunities has to be sustainable. Relative outcomes preferable to absolute outcomes. Aim for comparative advantage, avoid absolute disadvantage. Freedom is an Evergreen

  21. Together with a reliable civic and economic system, the path of economic freedom in Hong Kong is the ability to generate new economic opportunities to help others to prosper. Summarize in Last sentence in the book

  22. Wishing You All a Healthy and Prosperous Year of the Snake 2013 Thank you! Kung Hei Fat Choi!

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