Chapter 1Hong Kong’s Business Environment

1.2Structure of the Hong Kong economy

1.Study the following data showing the percentage contributions to Hong Kong’s GDP of the three economic sectors.

1980 / 1985 / 1990 / 1995 / 2000 / 2006
Primary sector / 1.0% / 0.6% / 0.2% / 0.1% / 0.1% / 0.1%
Secondary sector / 30.8% / 28.9% / 24.3% / 15.2% / 13.4% / 8.6%
Tertiary sector / 68.3% / 70.5% / 75.4% / 84.7% / 86.5% / 91.3%
Total / 100.0% / 100.0% / 100.0% / 100.0% / 100.0% / 100.0%

(a)Describe the economic structure of Hong Kong as reflected by the above data.

(b)Account for changes in the relative importance of the primary, secondary and tertiary sectors to Hong Kong from 1980 to 2006.

(c)With reference to the above trends, what difficulties would a factory worker in Hong Kong face? How can he adapt to the change?

(d)Besides gross domestic product (GDP), what indicator can be used to measure the relative importance of the three economic sectors to Hong Kong’s economy?

Answer:

(a) / The contribution of the primary sector to Hong Kong’s GDP is insignificant.
The relative importance of the secondary sector to the Hong Kong economy is declining.
The relative importance of the tertiary sector to the Hong Kong economy continues to grow.
The tertiary sector accounts for 91.3% of the GDP (much larger than the primary and
secondary sectors.) Hong Kong’s economy depends mostly on the tertiary sector.
(b) / Hong Kong lacks arable land and natural resources. The primary sector had almost no change
in contribution to GDP.
After 1980, more factories moved to China. There was a structural change in the Hong Kong
economy.
Hong Kong’s economy has been transformed from a manufacturing centre into a
service-oriented economy (financial, services, trading and business centre).
(c) / Threat of being laid off as many factories have moved to the Mainland
Difficult to find jobs in manufacturing industries
To adapt to the change, factory workers have to undergo retraining in the service industry.
(d) / The percentage share of employment by sector

13 marks

2.Study the following diagram showing the inter-relationship between different business sectors in an economy and answer the following questions.

(a)What is primary, secondary and tertiary production?

(b)Group the above business sectors into primary, secondary and tertiary sectors.

(c)How do the three sectors cooperate with each other to ensure smooth business functioning? Illustrate with the above example.

(a) / Primary production refers to the economic activities of extracting natural resources.
Secondary production refers to the economic activities of turning raw materials into
semi-finished or finished products.
Tertiary production refers to the economic activities of providing services to customers.
(b) / Primary sector / Secondary sector / Tertiary sector
Corn farm
Pig farm / Field corn manufacturer
Butchery
Restaurant / Restaurant
Supermarket
Wet market
Bank
(c) / Corn farm: provides corn (resource) to field corn manufacturer (secondary sector)
Field corn manufacturer: provides fodder (finished product) to pig farm (primary sector)
Pig farm: provides pigs (resource) to butchery (secondary sector)
Butchery: provides pork (product) to supermarket (tertiary sector) and wet market (tertiary
sector). Also Supermarket and wet market: sell pork (service) to customers
Supermarket and wet market: sell pork (service) to customers
Restaurant: cooks pork (products) and serves customers (service)
Bank provides funds and banking services (services) to all sectors. i.e., corn farm, field corn
manufacturer, pig farm, butchery, supermarket, wet market and restaurant.

19 marks

1.3Development of the Hong Kong economy

3.List the three economic transformations that Hong Kong has gone through.

1st : From an entrepot into a manufacturing centre
2nd : From a manufacturing centre into an international financial and service centre.
3rd : Evolving into a knowledge-based economy.

3 marks

4.Name the four core industries of Hong Kong identified by the government for development.

Financial services
Trading and Logistics
Tourism
Producer and Professional services.

4 marks

5.Why has the Hong Kong government adopted a policy of developing Hong Kong into a knowledge-based economy?

After the Asian Financial Crisis, the Hong Kong economy suffered a severe recession in 1998 and 1999
and a prolonged period of deflation from 1999 to 2004. During this period, the prices were falling
while the unemployment rate was rising. Due to the economic downturn, Hong Kong had to find a
way out. It could no longer rely on the property and stock markets to create wealth. The Hong Kong
government therefore decided to develop high value-added industries and adopted a policy of
developing Hong Kong into a knowledge-based economy.

6 marks

1.4Role and importance of the business sector in Hong Kong

6.In what ways does the business sector contribute to the Hong Kong economy?

Provides employment opportunities: The business sector provides a lot of employment
opportunities for Hong Kong people.
Earns foreign exchange: Hong Kong earns foreign exchange to pay for imports by exporting goods
and services.
Serves the Mainland: The service sector helps Mainland enterprises raise capital and the Hong
Kong economy can benefit from the provision of services.
Raises government revenue: As private enterprises earn profits and transactions in the property
market and the stock market increase, government revenue from these business activities also
increases.

8 marks

1.5Characteristics of the Hong Kong economy

7.List the characteristics of the Hong Kong economy.

Hong Kong is regarded as a free market economy with little government intervention; the
government has adopted a laissez-faire policy, which promotes a free market and free trade.
Hong Kong is an externally-oriented economy, which relies on external trade and foreign
investment; there are no foreign exchange controls; the government also allows a free flow of
information.
It upholds the rule of law, respects and protects private property rights.
Hong Kong has a labour pool of skilled and adaptable workers.

8 marks

8.How can the HKSAR government develop a favourable business environment?

maintaining law and order;
maintaining fiscal prudence, and a simple and low tax system;
maintaining open and fair competition in the market;
providing infrastructure like the airport and transport facilities; and
providing education and training to the people of Hong Kong so as to improve their productivity
and competitiveness.

5 marks

9.Many foreign firms that want to penetrate the Mainland market set up their headquarters and offices in Hong Kong. Why have they set up their headquarters and offices in Hong Kong instead of China?

A free economy without any foreign exchange controls
Upholds the rule of law and judicial independence
Business contracts as well as private property rights are protected and enforced by the legal
system
A free flow of information, goods and services
Productive manpower

5 marks