Hong Kong And China: Cohabiting Already

BEIJING: "One China, two systems": so said Deng Xiaoping as China and Britain debated the return to Chinese control of the crown colony. In a few months time, Deng’s catchy phrase will be put to the test. What difference will reintegration of Hong Kong within China mean for both economies? To answer this question, let us examine some key statistics.

Since economic reform began in the late 1970s, about 60% of China's foreign trade has been conducted through Hong Kong and 75% of China's international financing raised through Hong Kong. Indeed, in the commercial banking sector, 41% of Hong Kong dollar claims on banks outside Hong Kong are to banks located on the Chinese mainland. While Hong Kong remains the largest investor in the mainland and reallocated 90% of its labor-intensive manufacturing to factories in China, the mainland is the second largest "foreign" investor in Hong Kong. By June 1995, mainland China had invested more than $25 billion in Hong Kong, which represents about 80% of China's total overseas investment.

By the end of 1995, China had officially established about 1,800 companies, with total assets over $42.5 billion, in Hong Kong. So today mainland companies handle about 25% of Hong Kong's foreign trade and own a large portfolio of Hong Kong's commercial buildings. These companies take in 25% of Hong Kong dollar bank deposits and 21% of insurance fees, and control the largest shipping business in the territory. While mainland China has its comparative advantage of lower-cost labor, Hong Kong, as one of the largest free ports and financial centers in the world, registered in 1996 the world highest proportion -- 81% -- of GDP derived from services. The two economies are highly complementary, not competitive, and transactions between the two are already a matter of daily routine.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.


Log in

  1. Sean Gallup/Getty Images

    Angela Merkel’s Endgame?

    The collapse of coalition negotiations has left German Chancellor Angela Merkel facing a stark choice between forming a minority government or calling for a new election. But would a minority government necessarily be as bad as Germans have traditionally thought?

  2. Trump Trade speech Bill Pugliano/Getty Images .

    Preparing for the Trump Trade Wars

    In the first 11 months of his presidency, Donald Trump has failed to back up his words – or tweets – with action on a variety of fronts. But the rest of the world's governments, and particularly those in Asia and Europe, would be mistaken to assume that he won't follow through on his promised "America First" trade agenda.

  3. A GrabBike rider uses his mobile phone Bay Ismoyo/Getty Images

    The Platform Economy

    While developed countries in Europe, North America, and Asia are rapidly aging, emerging economies are predominantly youthful. Nigerian, Indonesian, and Vietnamese young people will shape global work trends at an increasingly rapid pace, bringing to bear their experience in dynamic informal markets on a tech-enabled gig economy.

  4. Trump Mario Tama/Getty Images

    Profiles in Discouragement

    One day, the United States will turn the page on Donald Trump. But, as Americans prepare to observe their Thanksgiving holiday, they should reflect that their country's culture and global standing will never recover fully from the wounds that his presidency is inflicting on them.

  5. Mugabe kisses Grace JEKESAI NJIKIZANA/AFP/Getty Images

    How Women Shape Coups

    In Zimbabwe, as in all coups, much behind-the-scenes plotting continues to take place in the aftermath of the military's overthrow of President Robert Mugabe. But who the eventual winners and losers are may depend, among other things, on the gender of the plotters.

  6. Oil barrels Ahmad Al-Rubaye/Getty Images

    The Abnormality of Oil

    At the 2017 Abu Dhabi Petroleum Exhibition and Conference, the consensus among industry executives was that oil prices will still be around $60 per barrel in November 2018. But there is evidence to suggest that the uptick in global growth and developments in Saudi Arabia will push the price as high as $80 in the meantime.

  7. Israeli soldier Menahem Kahana/Getty Images

    The Saudi Prince’s Dangerous War Games

    Saudi Arabia’s Crown Prince Mohammed bin Salman is working hard to consolidate power and establish his country as the Middle East’s only hegemon. But his efforts – which include an attempt to trigger a war between Israel and Hezbollah in Lebanon – increasingly look like the work of an immature gambler.