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The Evilving of Hong Kong from a Labor Intensive Economy to a Capital Intensive One

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Hong Kong has clearly moved from a labor intensive economy to a capital intensive one. There are various reasons behind this change.

First, due to action of certain factors there is creation of “natural” barriers to the growth of the manufacturing sector and have forced a peculiar pattern of development on it. Scarcity of land, the absence of mineral resources, the high cost of labor, and the close proximity to China have ruled out the establishment of heavy industry or other land-and labor-intensive industries in Hong Kong. Prior to the 1980s, Hong Kong produced mainly labor-intensive consumer products, like food, beverages, textile, metal etc. Being a resource-and land-rich country with a very low-wage labor force, China became a “natural” place for Hong Kong’s manufacturing in the 1980s. In 1990, China accepted the consolidated mini constitution of Hong Kong however retained all monetary policies and laws. However, post 1997 handover, there were 2 major impacts.

First, the large, labor intensive industry shifted to mainland China where there wasn’t any scarcity of land and cheap labor availability. The migration of many large and labor-intensive industries to mainland China resulted in the loss of more than 500,000 industrial jobs in the 1990s. The result was a re-structuring of Hong Kong’s manufacturing sector. Labor-intensive and sophisticated industries were moved to China, while light and capital-intensive industries were kept in Hong Kong. This trend is continuing which is very evident from the change in the exports of Hong Kong over the years. The exports of Machinery and Electronics, a capital-intensive industry has increased by 10.74%. Second, Hong Kong’s service sector grew significantly to absorb the job loss. There was development of high tech and information technology and broadening of the service sector.

Hence, political and natural factors facilitated the transformation. Hong Kong was only able to recover from the financial crisis in 1900s in 1999. The service sector is the reason behind its constant balance of payment since 1997. Geography and the size have led to certain restrictions on Hong Kong. The extensive ties with China have helped the country to survive. This is because, Hong Kong lacks food, water, minerals and agriculture to meet private and commercial needs. Due to territory limitations, service sector dominates the economy. The industry sector is small due to the lack of minerals (export of Chemicals have fallen- by 13.113%) there is no mining industry (export of Metals have fallen- by 1.67) of any significance. Also, Hong Kong cannot support and heavy industry due to lack of land.

Along with this, the population growth rate from 1975-1998 was just 1.8%. In the year 2000, the estimated birth rate was 11.29 births per 1000 births. The population of Hong Kong is old with 13.57% of its population over 65 years old. Along with that, Hong Kong is an urbanized society. About 95.4% of its population lived in urban areas in 1998 and estimated to reach 96.7% in 2015. Thus, there has been shift from labor centric to capital centric techniques due to demographic changes. Thus, Hong Kong has adopted technology and other capital based measures to support itself and cater to the rising demand and nation requirements.

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