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Hong Kong is a leading global financial center that exemplifies laissez-faire capitalism to its greatest extent. The government hardly plays any role in economic affairs and institutes very little in terms of industrial policy. As an example, Hong Kong has virtually no import or export controls. This economic model based on trade and re-export has brought wealth to the region, making Hong Kong Dollar one of the most traded currencies in the world. The question is, is this trading and investment destination becoming more regulated, with recent local government intervention, and will China’s central government policies endanger its competitive edge in the future? The first factor that questions the longevity of Honk Kong’s economic freedom was the adoption of minimum wage in 2010. This policy has long been practiced in many other countries but resulted to be a novelty in Hong Kong. The attitude among the general public is that the local government does too little to secure employee welfare. The ideology of the government was to make the former British colony a prime investment destination, but perhaps that strategy comes at a high cost to blue collar workers. Further amendments to industrial policies include export credit guarantees and mandatory pension schemes. The latter means more bureaucracy for businesses and more resources spent by the government to inspect firms and collect data. In terms of FDI received throughout the years, Hong Kong has accumulated 5th largest FDI stock in the world. Its proximity to the Asian market, little regulation compared to other Asian countries and very high development level has made it the investment destination it is today. However, this level of economic development, free-market opportunities, and in fact the very high standard of life is under possible threat from the central government in Beijing. When Britain transferred the region’s sovereignty to China in 1997 the latter agreed to administer Hong Kong separately from the mainland for 50 years. But for how long will the ‘’One country, two systems’’ policy be in place given Beijing’s notoriety for controlling and autocratic ways? The region’s economic and political stability is also under threat from little political transparency, corruption and censorship rampant in mainland China. The basic premise of the argument that Hong Kong may be losing its free trade competitive edge and is running out of steam, is that companies, put off by China’s bureaucratic and restrictive presence, may consider to transfer their operations to Singapore, Bangkok, Jakarta or Manila as these cities also offer access to the growing Asian economies. Moreover, China already has an eminently growing financial center – Shanghai. So is Hong Kong going to become less prosperous and a second class city with reference to Shanghai? Perhaps it is too soon to answer that question owing to uncertainty of the region’s economic future in the unified Chinese state, but what seems likely is that it is not going to continue to be so economically vital and important as before as an investment destination. References: ‘’End of an experiment’’, Jul. 15th 2010. The Economist [online] http://www.economist.com/node/16591088
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