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.

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