Loading the player...

What is 'Hong Kong SAR, China'

Hong Kong is the premier financial and business center in China and a regional financial leader. Finance, in one form or another, is Hong Kong's largest industry.

BREAKING DOWN 'Hong Kong SAR, China'

Hong Kong is a special administrative region (SAR) that exists as part of the People’s Republic of China under the “One Country, Two Systems” doctrine, negotiated in the Sino-British Joint Declaration, negotiated and signed in 1984, but taking effect in 1997. The "One Country, Two Systems" doctrine stipulated that the People's Republic of China's socialist system would not be practiced in Hong Kong, and Hong Kong would maintain its political and economic quasi-independence for a period of 50 years after the transfer of sovereignty, until 2047.

What does that mean? Since July 1, 1997, when the United Kingdom transferred sovereignty of Hong Kong to China, Hong Kong has maintained a separate political and economic system from China—democratic(ish), and capitalist—and a separate currency (the Hong Kong Dollar, HKD$). Hong Kong retains independent executive, legislative and judiciary powers, in all matters other than military defense and foreign affairs. English and Chinese are the two official languages.

Hong Kong's Economy

Hong Kong has been ranked as the world's freest economy in the Heritage's Index of Economic Freedom since the index's inception in 1995. In 1990, Milton Friedman wrote that it was perhaps the best example of a free market economy. The service economy in Hong Kong is characterized primarily by low taxation, near free port trade, and a well established international financial market. Service economy, here, meaning an economy that is not industrial, or manufacturing based, but is instead based in financial services, health and human services, hospitality, information technology, etc.

And using its political and economic autonomy, Hong Kong has positioned itself as the place where international and Chinese businesses find common ground. It is also considered the the principle financial center in China. As a result, more than 1,300 companies from all over the world are headquartered in Hong Kong.

This democratic government and free market has been successful, to some extent. It's the world's 33rd largest economy with a population smaller than the city of Tokyo, at 7.34 million. Hong Kong has an annual GDP of $320.9 billion, giving it the world's 17th highest GDP per capita, at $43,681.

Hong Kong and China's Tension

Historically, China has had considerable incentive to refrain from interfering in Hong Kong's political and economic systems. At the transfer of sovereignty in 1997, Hong Kong, with a population of 6.5 million at the time, had an economy one fifth the size of the Chinese economy, with its population of 1 billion.

This is no longer the case. Over the past 20 years, Hong Kong's economy has stagnated, changing very little in makeup, with GDP growth slowing, and inequality rising significantly. In that same time, China has become an economic superpower. Hong Kong now accounts for just 3% of Chinese GDP. 

Some think that the greatest risk to Hong Kong's autonomy is political and business elites in the region ceding it to the Liaison Office, in an effort to remove political tensions from the region, and return Hong Kong to an economic city. This may prove a poor decision though, as marriage of business and government has proven counterproductive in Hong Kong, leading to an increase conflicts of interest and cronyism, not to mention a non-responsive government, that refuses to broaden its tax base, or lower property taxes, and has excluded political parties from democratic participation. All of this has led to a public perception of the Hong Kong SAR government as not as legitimate as it once was.

Given these recent trends, the Liaison Office, the People's Republic of China representative in Hong Kong, has been taking steps to meaningfully increase its influence and clout in the region, interfering in both domestic affairs and elections. For example, the Liaison Office provides loans, bought Hong Kong's largest publishing house (removing titles critical of the Communist Party), and lobbied for Hong Kong's new chief executive, Carrie Lam. 

 

RELATED TERMS
  1. Hong Kong Stock Exchange (HKG) ...

    One of the world's largest securities markets by market capitalization, ...
  2. HKD (Hong Kong Dollars)

    The Hong Kong dollar (HKD) is accepted in both Hong Kong and ...
  3. Securities And Futures Commission ...

    An independent, non-governmental statutory body responsible for ...
  4. Macau SAR, China

    Definition of Macau SAR, China
  5. China Concepts Stock

    The stock of a company whose assets or earnings have significant ...
  6. Cross-Listing

    Cross-listing is the listing of a company's common shares on ...
Related Articles
  1. Investing

    How To Trade the Hong Kong Stock Exchange through ETFs (ETFC, EWH)

    The Hong Kong Stock Exchange is the eighth largest in the world and easily accessible through ETFs.
  2. Insights

    Six Economic Reasons For Hong Kong Independence Protests

    Though the protests were ignited by a political controversy, there may be economic reasons behind them as well. Here are six reasons a thirst for democracy may not be the whole story in Hong ...
  3. Insights

    What You Should Know About Hong Kong SAR

    You might know that Hong Kong is both a bastion of capitalism separate from (but also administered by) socialist China. How did it get that way?
  4. Investing

    China, Hong Kong Prepare for Market Link (YANG, YINN)

    China will soon allow a connection between Shenzhen and Hong Kong stock markets that would bring the entrepôt closer to the mainland, but new restrictions on foreign investments may be on the ...
  5. Investing

    EWH: iShares MSCI Hong Kong ETF

    Learn about the iShares MSCI Hong Kong fund, which invests in various equities of companies listed on the Hong Kong Stock Exchange.
  6. Investing

    The Top 5 ETFs to Track the Hang Seng for 2016 (EWH, FXI)

    Learn about ETFs that allow access to Hong Kong equities for investors seeking exposure to Hang Seng Index stocks traded on the Hong Kong Stock Exchange.
  7. Insights

    Top 6 Billionaires Living in Hong Kong

    Read about the six wealthiest men in Hong Kong, each of whom posted a $10+ billion net worth in Forbes' list of the richest people in Hong Kong.
  8. Investing

    This is the Cheapest Major Stock Market Globally

    Hong Kong's Hang Seng Index trades at a P/E of 9, compared with a P/E of between 15 and 20 for most major indices.
  9. Financial Advisor

    5 Cities the Ultra-Rich Are Moving to

    Learn the top five cities worldwide that are attracting the most high-net-worth individuals, and discover factors that make a city appealing to the ultra-rich.
  10. Investing

    Why China's Stock Market Is On a Roll

    Shanghai: China's stock market is surging and may outperform longterm, Morgan Stanley says
RELATED FAQS
  1. Why is Hong Kong considered a tax haven?

    Discover why Hong Kong is one of the world's leading tax havens. Low taxation on high-net-worth individuals and corporations ... Read Answer >>
  2. How can industrialization affect the national economy of less developed countries ...

    Read about how industrialization impacts economic growth in less developed countries (LDCs), using Hong Kong and Great Britain ... Read Answer >>
  3. Why have most modern nations evolved into free market economies?

    Find out why world history has been dominated by free markets since the 18th century and why that trend no longer applies ... Read Answer >>
  4. To what extent can a government intervene in a market economy?

    Find out at what point a market economy receives so much government intervention that it can no longer be considered a market ... Read Answer >>
  5. How many multinational corporations operate in China?

    Discover the importance of emerging multinational corporations. As China's urban population grows, it will continue to be ... Read Answer >>
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center