Competitive Advantage of Hong Kong Economy Structural transformation after 1997 [Research Note]

Abstract

Hong Kong is ranked as one of the most competitive economies in the world. Since the 1950s, Hong Kong has successfully transformed its economic structure several times and captured the opportunities created by the rapid growth of the Chinese economy to become an international financial hub in Asia. However, following the return of sovereignty to China in 1997, Hong Kong failed to transform into a high value-added economy as expected. The Close Economic Partnership Agreement also facilitated the integration of the business activities of China and Hong Kong. Launched in 2004, the Individual Visit Scheme also rebuilt the momentum of Hong Kong’s economic growth. Nevertheless, fast growth of tourism and related service businesses increased the factor costs of Hong Kong and discouraged the development of high technology and high value-added industries. With limited scale and lack of policy support, many Hong Kong firms retained labor-intensive business processes. After 20 years of swift economic growth in China, the original mode of cooperation between Hong Kong and Chinese firms has also become outdated. Among different industries, Chinese firms have become one of the strongest competitors of Hong Kong businesses. Additionally, the considerable differences between the market scales of China and Hong Kong has led to brain drain in local industries. As an international metropolis, Hong Kong requires innovative measures to enhance its growth. It must leverage the immense resources of China to develop its competitive advantage and position in the rapidly globalized economy.

Keywords: China-Hong Kong Integration, Structural Transformation, Competitive Advantage, Innovation