Chapter 1Hong Kong S Business Environment

Chapter 1Hong Kong’s Business Environment

Short Questions

B1C01T2Q001eng

Explain what ‘big market, small government’ is as described by the Hong Kong government. (3 marks)

Answer:

The followingare descriptions:

market leads and government facilitates(1 mark)

government plays the role of proactive market enabler in facilitating the functioning of the market and enabling the free market to allocate resources efficiently. (1 mark)

government minimises its intervention in the market.(1 mark)

B1C01T2Q002eng

What has the Hong Kong governmentdone to develop Hong Kong into a knowledge-based economy? (3 marks)

Answer:

It promotes the Four Pillar Industries. i.e.,financial services, trading and logistics, tourism, and producer and professional services. (1 mark)

It provides education and training opportunities.(1 mark)

It introduced the Quality Migrant Admission Scheme (QMAS) to attract talentand professionals from the Mainland and overseas. (1 mark)

B1C01T2Q003eng

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? (4 marks)

Answer:

This is becauseHong Kong has the following advantages over the Mainland:

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

(Any four of the above, 1 mark each)

B1C01T2Q004eng

How does Hong Kongserve as an intermediary between the Mainland and the outside world? (4 marks)

Answer:

Many private and state-owned enterprises in the Mainland raise capital by listing on Hong Kong’s stock exchange.

As a major financial centre in the world, Hong Kong helps the private and state-owned enterprises in the Mainland raise capital and manage their assets.

Hong Kong serves as an entrepôt for trade between the Mainland and the outside world.

Hong Kong enterprises import technology and knowledge to Chinawhile setting up production bases in China.

Hong Kong is often regarded as a stepping-stone to the Mainland market.

Hong Kong provides many financial and business services to firms in the Mainland, e.g., banking and finance, insurance, transport, accounting, marketing and sales promotion. This helps Mainland enterprises do business with overseas enterprises.

(Any four of the above, 1 mark each)

B1C01T2Q005eng

How does the Hong Kong government promote the free flow of information to help develop the economy? (3 marks)

Answer:

It allows freedom of press. Information can be obtained easily for business decisions.(1.5 marks)

It encourages international trade shows, fairs, seminars and exhibitions to be held in Hong Kong.(1.5 marks)

B1C01T2Q006eng

Hong Kong Basic Law Article 5 reads:

The socialist system and policies shall not be practised in the HKSAR, and the previous capitalist system and way of life shall remain unchanged for 50 years.

(a)Distinguish between a capitalist economy and a socialist economy.(4 marks)

(b)Explain why Hong Kong is a mixed economy. (2 marks)

(c)How do the characteristics of amixed economy contribute to Hong Kong’s economic success?(3 marks)

Answer:

(a)

(b)

In Hong Kong,the market prices of some services are under the regulation of the government,e.g. taxi fares and bus fares. (1 mark)

Most of the goods in Hong Kong are allocated by the market mechanism, e.g. property prices.(1 mark)

(c)

The market mechanism ensures an efficient allocation of goods and services in Hong Kong. (1 mark)

A free market economy and free trade with little government intervention giveinvestors confidenceabout investing in Hong Kong. (1 mark)

The government plays an active role in facilitating the functioning of the market and developing a favourable business environment (provides infrastructure, education and training). (1 mark)

B1C01T2Q007eng

ABC Co is an international broadcasting company with its headquarters in the US and many representative offices around the world. It has been known for fast and accurate news reporting for many years.

ABC provides news and information in 20 languages worldwideon TV, radio and online. To better coordinate itsnews reporting in South-East Asia, the CEO is thinking of setting up a regional office in Hong Kong. However, he is quite worried about the high wages and rents in Hong Kong.

(a)Give threereasons explaining why Hong Kong isa suitable location for the regional office of ABC. (3 marks)

(b)Do you think that it is in the long-term interests of the company to set up a regional office in Hong Kong? Why? (3 marks)

Answer:

(a)

Hong Kong allows a free flow of information.

The media can enjoy a high degree of freedom in Hong Kong.

It has a well-developed infrastructure (roads and ports).

It has a good communications network.

(Any three of the above, 1 mark each)

(b)Yes. Reasons:

Free flow of information: increase in news coverage

Global network (transport and communication): quick access to information and timely delivery of news

Skillful and productive workforce: high quality and more professional news reporting and analysis

Better coordination of news reporting in South-East Asia

(Any three of the above, 1 mark each)

B1C01T2Q008eng

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?(3 marks)

(b)Group the above business sectors into primary, secondary and tertiary sectors.(6 marks)

(c)How do the three sectors cooperate with each otherto ensure smooth business functioning? Illustrate with the above example. (4 marks)

Answer:

(a)

Primary production refers to the economic activities of extracting natural resources. (1 mark)

Secondary production refers to the economic activities of turning raw materials into semi-finished or finished products. (1 mark)

Tertiary production refers to the economic activities of providing services to customers.(1 mark)

(b)

(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 supplies pork (semi-finished products) to restaurant (secondary / tertiary sector)

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 (4 marks)

B1C01T2Q009eng

The following shows unemployment rates in Hong Kong from 1997 to 2006.

(a)Describe the trends in Hong Kong’s unemployment rate as shown in the above data.(2 marks)

(b)Account for the changes in terms of historical events and the economy in Hong Kong.(3 marks)

(c)Hong Kong experienceda high unemployment rate in the 1980s and in the years since 1997. What accounted for this? Are there any differences between the causes of unemployment in these two periods. Explain this in terms of the economic transformation in Hong Kong. (5 marks)

(d)How can a firm take advantage of the economic transformation mentioned in part (c) to make more profit?(3 marks)

Answer:

(a)

increasing trend from 1997

slightdrop in 2000

up again in 2001

reached a climax in 2003

decreasing trend from 2004(2 marks)

(b)

1997 – Asian Financial Crisis

1998-1999 – Economic recession and deflation continues

2001 – September 11 terrorist attacks

2003 – SARS epidemic: economy was badly hit

2004 – economy gradually recovered(3 marks)

(c)1980:

Unemployed persons mostly come from manufacturing sectors, e.g. factory workers, blue collar workers and low-skilled workers. (1 mark)

Hong Kong was transformed from a manufacturing centre into a services centre. (factories relocated to China)(1 mark)

1997 onwards:

Unemployed persons include those from service sectors, e.g. middle class, white collar workers, middle managers. (1 mark)

Hong Kong was transformed from a services centre into a knowledge-based economy. (1 mark)

Local workers were laid off because some companies had to cut costs due to the economic recession and deflation, and high-value added industries evolvedwith advances in IT technology; or

With rapid economic development in China and a closer business relationship between Hong Kong andChina, many tertiary industrial processes have been relocated to the Mainland (1 mark)

(d)A firm can:

further cut costs by making use of IT technology.

attract capable employees.

change its management team.

lower labour costs by cutting wages / use lower wages to employ workers.

open the China market.

attract talentfrom China.

merge its Hong Kong and China offices.

(Any three of the above, 1 mark each)

B1C01T2Q010eng

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

(a)Describe the economic structure of Hong Kong as reflected by the above data.(2 marks)

(b)Account for changes in the relative importance of the primary, secondary and tertiary sectors to Hong Kong from 1980 to 2006. (3 marks)

(c)With reference to the above trends, what difficulties would a factory worker in Hong Kong face? How can he adapt to the change? (3 marks)

(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? (1 mark)

Answer:

(a)

The contribution of the primary sector to Hong Kong’s GDP is insignificant.(0.5 mark)

The relative importance of the secondary sector to the Hong Kong economy is declining.(0.5 mark)

The relative importance of the tertiary sector to the Hong Kong economy continues to grow.(0.5 mark)

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. (0.5 mark)

(b)

Hong Kong lacks arable land and natural resources. The primary sector had almost no change in contribution to GDP. (1 mark)

After 1980, more factories moved to China. There wasa structural change in the Hong Kong economy.(1 mark)

Hong Kong’s economy has been transformed from a manufacturing centre into a service-oriented economy (financial, services, trading and business centre). (1 mark)

(c)Difficulties include:

Threat of being laid off as many factories havemoved to the Mainland(1 mark)

Difficult to find jobs in manufacturing industries(1 mark)

To adapt to the change, factory workers have to undergo retraining in the service industry.(1 mark)

(d)The percentage share of employment by sector (1 mark)