Chapter 1

1. Chapter 1 Hong Kong’s Business Environment

2. Introduction Fishing village Entrepôt International trading and financial centre Manufacturing centre

3. Structure of the Hong Kong Economy • The economic activities of a country or a territory can be classified into three types: Primary production Secondary production Tertiary production

4. Structure of the Hong Kong Economy • What kind of production does each of the following industries belong to? Pilots Lumber industry Garment industry Primary production Secondary production Tertiary production

5. Structure of the Hong Kong Economy Interdependence of sectors Primary sector Resources Products Services Secondary sector Products Resources Services Tertiary sector

6. Structure of the Hong Kong Economy • Example: Interdependence of sectors Clothes Cotton Wholesalers/Retailers Clothing factory Cotton farm Tools Funds and banking services Banks Farm tools factory

7. Contribution of the Three Sectors to the Hong Kong Economy • The indicators used to measure the relative importance or contribution of the three economic sectors to an economy are: • The percentage share of gross domestic product produced by the sector • The percentage share of employment by the sector Gross domestic product measures the total output value or total income produced within a country or territory in a given period of time.

8. Contribution of the Three Sectors to the Hong Kong Economy • Since Hong Kong lacks arable land and natural resources, its _______ sector is insignificant. • Since the industrialisation in Hong Kong in the early 1950s, the employment share of the _________ sector increased rapidly and reached its maximum in the early 1980s. • The secondary sector’s significance has declined as more and more factories were relocated to the __________. • Since the early 1980s, Hong Kong economy has transformed from a manufacturing centre into a ______________ economy. primary secondary Mainland service-oriented

9. Development of the Hong Kong Economy • Hong Kong has gone through three transformations after the Second World War: • First transformation (1950 to 1978) • From an entrepôt into a manufacturing centre • Second transformation (1978 to 1997) • From a manufacturing centre into an international financial and services centre • Third transformation (from 1997 onwards) • Evolving into a knowledge-based economy

10. Role and Importance of the Business Sector • Many factory owners relocated their factories to the _________ in order to reduce production costs. • The employment of the manufacturing sector dropped significantly. • Fortunately, the firms in the ________ sector have created new employment ____________. • Therefore, the factory workers who lost their jobs might be able to find new jobs. Providing employment opportunities Mainland tertiary opportunities

11. Role and Importance of the Business Sector • The _______ sector contributed more than 90% to HK’s GDP in 2006. • This reflects that the people of Hong Kong earn most of their income by providing services to local and foreign customers. • Besides, many of the services provided by HK people are of ________________ types, enabling some of them to earn high incomes. • Hence, the business sector promotes HK’s economic growth and raises the ______ standards of HK people. Producing income service high value-added living

12. Role and Importance of the Business Sector • HK lacks natural resources and arable land, so it needs to import foodstuffs and fuel from the Mainland and other countries. • It also lacks the technology and skills to produce _________ durables and _______ goods. • It depends on other countries to supply these goods. • To pay for its imports, Hong Kong earns _______________ by exporting goods and services to the Mainland and other countries. Earning foreign exchange to pay for imports consumer capital foreign exchange

13. Role and Importance of the Business Sector Earning foreign exchange to pay for imports Hong Kong The Mainland Other countries Re-export Import Import Re-export

14. Role and Importance of the Business Sector • Many foreign firms have set up ____________ and offices in HK because of its proximity to the Mainland. • Since HK is a free economy without any _______________ control, foreign investors have the confidence to do business in HK. • As a major financial centre in the world, Hong Kong helps the private and ___________ enterprises in the Mainland raise capital and manage their assets. Serving the Mainland headquarters foreign exchange state-owned

15. Role and Importance of the Business Sector • A large proportion of the HK government’s revenue comes from the ________ sector. • As the business sector prospers, private enterprises will earn more profits. • Transactions in the property market and the stock market will also increase. • As a result, government revenue from _____ sales, ______ tax and stamp _______ will rise. Raising government revenue business land profits duties

16. Role and Importance of the Business Sector • With increased income, the government can spend more money on the provision of ______ services and the development of _____________. • This helps reduce income _________and improve labour ___________ and _______________ of HK. Raising government revenue social infrastructure disparity productivity competitiveness

17. Characteristics of the Hong Kong Economy • A free market economy • An externally-oriented, open economy • Productive manpower • Upholding the rule of law • Protecting private property rights