II.
Events affecting the Hong Kong
economy
A. Characteristics of Hong Kong’s
economy
● Lack of natural resources, reliance
on external trade
● Allow free capital inflow and outflow
as a free economy
● Easily affected by the external
environment
B. Events affecting the Hong Kong
Economy
1. SARS in 2003, CEPA and Individual
Visit Scheme
● In 2003, Severe Acute Respiratory
Syndrome(SARS) broke out in HK
● The number of tourists visiting Hong
KOng decreased significantly
● Retail and the tourism industry bore
the brunt
● Confidence of foreign investors in
Hong Kong’s future was severely
undermined
● GDP decrease, unemployment rate
increase
Measures to boost economy of Hong
Kong after SARS
● In July 2003, the Central
Government introduced the Closer
Economic Partnership
Arrangement (CEPA) to promote
trade between the mainland and
Hong Kong
● The agreement increased the trade
in goods and services between the
mainland and Hong Kong
- Individual Visit Scheme
● The Individual Visit Scheme under
CEPA allowed mainland residents of
some cities to visit Hong Kong more
easily
● These helped the Hong Kong economy
recover gradually from the SARS
outbreak
● GDP increased, unemployment rate
decrease
2. Global financial tsunami in 2008
● In 2008, large financial institutions in the
United States went bankrupt and large
banks in Europe and the US also fell into
financial crisis
● Many foreign investors allocated capital
from Hong Kong back to their countries
● Trading partners of Hong Kong also fell
into recession
● It reduced the demand for Hong Kong
goods and services, causing negative
effects to its export trade
● GDP decrease, unemployment rate
increase
3. European debt crisis since 2009
● The European debt crisis decreased the
foreign demand for goods and services
from Hong Kong, reducing total exports of
Hong Kong
● GDP increase, unemployment rate
decrease
4. US-China Trade War since 2018
● The US imposed extra tariffs on China’s
goods, and China also imposed higher
tariffs on the US’s goods
● The export trade of Hong Kong, which
acts as an important entrepot between
China and the US, is also affected as a
result
● GDP increased, unemployment rate
decrease
 5. COVID-19 pandemic 2019- present
3. Upgrading the competitiveness of Hong Kong
● Social activities were reduced and
restricted during pandemic
● The revenue of catering industries
decreased
● Tourists was greatly reduced
● Tourism and retail industries also suffered
from loss in revenue
● GDP decrease, unemployment rate
increase
C. Roles of the Hong Kong Government in the
Economy
1. Adopting a positive non-intervention
policy
● The Hong Kong Government has adopted
a positive non-intervention policy, trying
not to intervene with the free operation of
the market
2. Maintaining superiority and
competitiveness
● The HKSAR Government has provided
Hong Kong with an attractive business
and investment environment:
- A simple taxation system
- A comprehensive and mature
legal system
Disadvantages of government intervention in
economic activities
1. Affecting the image of free market
● Having a free market is an important factor
in attracting foreign investment
● If there is more government intervention
in the market, Hong Kong’s free market will
be undermined
● The confidence of investors in Hong Kong
may be affected
2. Increasing the government’s burden by
some of the intervention policies
● Some government intervention will increase
financial burden of the government
- Providing social welfare to residents
who are in need
3. Lowering market efficiency
● While formulating policies, the HKSAR
Government has to go through consultations
or legislative procedures
● This could be complicated and
time-consuming

3. Formulating economic policies to stabilize

the economy

Advantages of government intervention in

economic activities
1. Maintaining the quality of life of residents
● The HKSAR Government provides
residents with welfare in forms of subsides o
allowances, mostly in:
- Education
- Housing
- Healthcare

2. Safeguarding social stability

● The HKSAR Government provides
residents with fair competitive opportunities to reduc
social conflicts through formulating policies and
strengthening supervision
● The statutory minimum wage was
implemented in 2011