This densely populated territory of a little over 7 million people has become one of the world’s leading business, financial, and trade hubs by combining a high level of market openness with low taxation, fiscal discipline, regulatory efficiency, rule of law, and limited government interference in the free market.
On June 14, the Bush Institute had the pleasure to welcome two senior economists from the Hong Kong government, Helen Chan and Eric Shum, for a discussion about the structure and condition of the Hong Kong economy. During the course of our visit, we came to realize that the main ingredient necessary to create a highly competitive economy might simply be economic freedom.
Despite lacking natural resources or a robust manufacturing sector, Hong Kong has achieved one of the world’s ten highest levels of GDP per capita. Even though the economy is 93% service-based, it has grown at a 3.7% compound annual rate over the past 5 years, and the current unemployment rate rests at just 3.4%. This densely populated territory of a little over 7 million people has become one of the world’s leading business, financial, and trade hubs by combining a high level of market openness with low taxation, fiscal discipline, regulatory efficiency, rule of law, and limited government interference in the free market.
Hong Kong levies no tariffs on imported goods, and neither corporations nor individuals pay tax rates higher than 17%. Public debt is virtually nonexistent, and the government consistently maintains budget surpluses despite providing subsidized healthcare, education, and public housing for its people. Even though government spending as a percentage of GDP is relatively small in Hong Kong, the regulation that does exist is sufficient and highly effective. Corruption is prosecuted fiercely, and private property rights are well defined and protected. Not a single bank failed or called upon government support in Hong Kong as a result of the worldwide financial crisis of 2007-2009, due in large part to careful oversight that had already been enacted before the crisis.
Hong Kong’s ranking in the Bush Institute Competitiveness Scorecard solidifies its status as one of the world’s most free and competitive economies. Since 2007, Hong Kong has received the highest grade of A+ in each of the annual Scorecard rankings. Hong Kong particularly shines in measures of business environment, investment environment, and trade environment, with average percentiles scores in 2015 of 95.6, 94.1, and 99 respectively. Two of the four indices that contribute to the Bush Institute Competitiveness Scorecard, the Fraser Institute Economic Freedom of the World index and the Wall Street Journal/Heritage Index of Economic Freedom, currently rank Hong Kong as the world’s freest economy.
Undoubtedly, one of Hong Kong’s principal economic advantages is its close proximity to Mainland China. However, above all else, Hong Kong has become one of the most developed and competitive economies in the world because of its commitment to preserving an economy where labor, capital, and goods move freely, and individuals and businesses are free to choose, work, consume, trade, invest, and compete in any way they see fit.
Hong Kong’s prosperity serves as a reminder to North America and the rest of the world that fiscal discipline, regulatory efficiency, and freedom to trade internationally are the pillars of a resilient and competitive economy.
