Hong Kong: History, Economy, Political System

History of Hong Kong

The history of Hong Kong is a very interesting and unique one. However, due to the limited scope of this paper, only a brief overview will be provided. From 1842 to 1997, Hong Kong was a British colony. Firstly, Britain gained control over Hong Kong island after the first opium war (1839-1842). After the second opium war (1856-1860), also the Kowloon peninsula was added to the British territory.

In 1898, the new territories were added under a 99 year lease which ended in 1997, when Britain had to hand over Hong Kong to China. During that time, Britain briefly lost control over Hong Kong when it was occupied by Japan from 1942 to 1945. Before the handover to China in 1997, Britain introduced a Bill of rights forcing china to agree to a „One country - two systems" policy for 50 more years. The main purpose of this was, that Hong Kong would be able to keep their capitalist economic and political system. Furthermore, Hong Kong does not have to pay any taxes or fees to China which means that more money is available for investments within Hong Kong (The Daily Conversation 2017).

Political System of Hong Kong

The political system is based on the „Basic Law" which is the constitution of Hong Kong. The chief executive is the head of Hong Kong and the position is currently filled with Carry Lam who was elected in 2017. The chief executive is elected by an election committee and then the executive council is appointed by the chief executive. The purpose of the executive council is to advice the chief executive on government issues. To pass or amend laws, the chief executive also needs the approval of the legislative council which is elected by the people every 4 years.

The seats within the legislative council are divided into two parts. Half of the seats are elected per region and according to the size of the region, the number of seats is determined. The other half are functional seats, which are elected according to 28 functions that are in some way connected to the Hong Kong economy, such as transportation or construction. However, not all workers in these branches can vote for the respective functional seat. Instead, many functional seats are elected mainly by corprations which gives them more decisive power. There are five additional seats which are elected by all those who do not work in brachnches represented by the other functional seats (GovHK 1).

The number of votes is not equally represented by the number of seats in the legislative council which leads to an unequal distribution of power within the government (Pickett 2016). This results from a complicated set of rules and regulations which will not be further explained due to the limited scope of this paper. It should be noted at this point, that despite being a special administrative region, China does influence the political system in Hong Kong by suggesting appropriate candidates for the position of chief executive. Only these candidates approved in Beijing can be elected by the election committee. This lack of indipendence togther with the various rules concerning the distribution of power within the government are viewed critically by the people and have been the reason for many demonstrations (The guardian 2017). Another strong political connection to mainland China concerns the defense force. Hong Kong’s government does not have a defense department, because military issues are taken care of by China (GovHK 1).

Economic Partnerships

Hong Kong has various economic partnerships which supports their goood international relations and shows their willingness to facilitate trade with different countries. The most important partnership agreements are presented subsequently.

CEPA - Closer Economic Partnership Agreement.

The CEPA is an agreement between China and Hong Kong which regulates Hong Kong’s preferential access to the mainland Chinese markets regarding residents, products and companies. It was signed in 2003, but many further agreements have been added since then to deal with specific issues, such as investment regulations.

The objective of this agreement is to strengthen the cooperation on trade and investment between China and Hong Kong, while also supporting joint development. For that purpose, tariffs and other non-tarrif barriers are eliminated on almost all trade of goods. Furthermore, efforts are made to eliminate discriminatory measures and to generally facilitate mutual trade and investment. This agreement is especially meaningful because Hong Kong accounts for 8.3% of China’s total trade in 2016, thereby making it the second largest trading partner of the Chinese mainland after the US (Trade and Industry department 2).

FTA’s - Free trade agreements

Hong Kong has signed a variety of free trade agreements which makes it very attractive for international trade. So far, FTA‘s have been concluded with the European free trade association, New Zealand, Chile and since November 2017 also the association of southeast Asian nations (ASEAN). Additionally, there are already negotiations in order to form agreements with even more countries (Trade and Industry department 3).

DTA‘s- Double taxation agreements

Double taxation agreements are made in order to avoid that income is taxed, both in the homecountry and in the country where the profit is made, provided these differ from each other. Honk Kong has formed DTA‘s with 30 jurisdictions so far and is currently negotiating with 15 more. (Bundesfinanzministerium) Thereby, Hong Kong increases its attractiveness for foreign investors because they can be sure to pay taxes only once on their income, made in Hong Kong. Additional to the aforementioned agreements, Hong Kong is also a member of the following cooperations and organisations:

Asia Pacific economic cooperation (APEC)

The APEC is a cooperation between 21 Pacific Rim member economies, promoting free trade within the Asia-Pacific region (Trade and Industry Department 1)

Pacific Economic Cooperation Council (PECC)

The PECC is a network of committees, which are composed of institutions and individuals who are dedicated to promote cooperation in the Asia Pacific region (PECC).

United Nations Conference on Trade and Development (UNCTAD)

The „UNCTAD is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues. It is also the United Nations focal point for the least developed countries" (UNCTAD).

World Trade Organisation (WTO)

The WTO is an organisation of cooperating international governments, which regulates international trade. Hong Kong is not only a member, but is among the founding states of the WTO (WTO).

As mentioned before, the large number of agreements and participations within various organisations shows, how good Honk Kong’s international relations are, and how much is done in order to facilitate trade with countries all over the world.

Economic Situation

The overall economic situation of Hong Kong can be considered very good and even improving further. This is also evidend by the fact that it has been on rank one of the world’s freest economies for the last 23 years (Yau 2017). The positive economic development can be seen in figure 3 which shows the increase of GDP from 2006 to 2016. The GDP of 320.91 billion USD in 2016 can be considered very high especially in relation to Hong Kong’s very small size (Tradingeconomics 1, 2017). While there has been a decrease of the growth rate in the end of 2015 and the beginning of 2016, there has not been negative growth, and again strong growth rates towards the end of 2016, which can be valued very positively with 3.6% as the latest measure (Tradingeconomics 2, 2017). The large majority of Hong Kong’s GDP is generated by the service sector, which makes up a total of 93%. This shows how relatively insignificant production and agriculture are for the Hong Kong economy (GovHK3).