Four key industries in the Hong Kong economy
20 July, 2020
Hong Kong is a highly developed free-market economy attributed to free port trade, a low-taxation regime, and a well-established international financial market. For years, the four key pillars have been the driving force of Hong Kong's economic growth.
The Hong Kong government has been actively participating in keeping up the competitive benefit of the city. The four key industries: Trading and Logistics, Financial Services, Professional and producer services, and Tourism are providing impetus to the growth of other sectors and creating new employment.
Thinking about embarking on the boundaries of Hong Kong, but wondering which industries would be best suited for your business? Let's walk through the key industries in the economic growth of Hong Kong.
Hong Kong Economy
According to the 2020 Index of Economic Freedom Report, published by the Heritage Foundation (the Foundation), Hong Kong's economic freedom score is 89.1, making it the second freest economy in the world.
The Index of economic freedom measures 12 specific factors under four critical aspects of the economic environment, namely the rule of law, government size, regulatory efficiency, and open markets.
The overall score of Hong Kong among 42 countries in the Asia-Pacific region is well above the regional and world averages. From 1995 to 2019, the Hong Kong economy was ranked as the world's freest economy. However, social turmoil and the ongoing politics have eroded its reputation as one of the best locations for business, dampening investment inflows. Thus some risks to Hong Kong's economic freedom have grown in turn.
Open market in Hong Kong
Hong Kong's total value in exports and imports of goods/services is estimated at 376.0 percent of GDP. The tariff rate is applied at an average percentage of 0%, and 149 non tariff measures are in force. However, due to the increased uncertainties of security issues, it has impaired the economic activities in Hong Kong.
Otherwise this place has the most favorable investment climate that has sprung up numerous successful startups. With a high degree of competitiveness and openness, the territory remains a dynamic global business center.
Four Major Industries in Hong Kong Economy
Four major industries: Trading and Logistics, Financial services, Professional and Producer services, and Tourism have been driving the economy of Hong Kong. It has been reported that all the four critical industries have generated a value of over $1,547.6 billion and employed 1,789,500 persons in 2018. However, in 2019 Hong Kong has faced some unprecedented challenges that have barred new opportunities.
The principles of the free and open market have long been the cornerstone of the Hong Kong economy. The government will continue to uphold the fine tradition of the rule of law and judicial independence, as well as maintain it's low tax system, free trade regime, and build a level playing field. So, it becomes important to develop a favorable environment for businesses to thrive and enable the economy to prosper. Let's talk about the four pillars of the Hong Kong economy.
1) Trading and Logistics
The trading and logistics industry is the largest among the four pillar industries in Hong Kong. The logistics industry includes planning, executing, and regulating the movement and storage of goods and services from the origins to final consumption. The goods can be raw materials, goods in progress, and finished commodities.
Storage, freight transport, postal, freight forwarding, and courier services are all activities that fall under this type of industry. As a matter of fact, trading firms are closely associated with logistics activities. Therefore, the statistics on the employment situation and economic contribution of trading services are presented together with logistics services.
Concerning the trading and logistics fields, Hong Kong secured the position as the seventh largest trader position worldwide in 2018. The value of total merchandise trade in 2018 increased by 7.9% to $8,879.5 billion, with imports and exports rose by 8.4% and 7.3% to $4,721.4 billion and $4,158.1 billion respectively.
2) Financial Service
Hong Kong's financial services cover a wide range of services, such as asset management, banking, stock brokerage, insurance, and other financial services. Being the second-largest pillar, the financial services industry in Hong Kong enjoys a "first-mover" advantage in offshore business. Hong Kong has been nominated as the business and international financial hub in the world.
In 2018, Hong Kong was ranked third in Asia, and fifth worldwide as per market capitalization of Hong Kong's stock market. Moreover, Hong Kong was also ranked as the world's most active market for initial public offerings (IPOs) in IPOs funds raised in 2018. The stock trading activities and banking facilities render the support to the continued growth of net output in the financial services industry.
3) Professional and Producer Service
Another critical pillar in Hong Kong economy is professional and producer services. Compared with the other pillars, the outlook for the professional and producer services sector is likely to remain positive because of new business opportunities.
The professional services of Hong Kong comprise of technical testing and analysis, legal, accounting, architecture and engineering activities, scientific research and development, auditing, management, and management consultancy activities, information technology-related services, advertising, specialized design, and related services.
Similarly, the producer services include the services for use by other business entities in the local economy, as well as exports of services to companies and individuals. These two industries have also done excellent work in generating value-added of $322.8 billion (or 12.0% of GDP) and provided 551,000 jobs (or 14.2% of total employment) in 2018. And it is expected that these industries will continue to grow.
The final pillar that has been contributing to the growth of Hong Kong's economy is tourism. This industry has been divided into two categories: inbound tourism and outbound tourism. Inbound tourism includes all the accommodating services, food and beverage services, retail trade, transport, and personal services, pertaining only to the part provided to visitors.
However, outbound tourism covers reservation services and its related activities, cross-boundary passenger transport services, and travel agency, pertaining only to the part provided to Hong Kong residents traveling abroad. According to reports in 2018, the tourism industry has generated a value-added of $121.0 billion (or 4.5% of GDP), with a growth of 5.9% from $114.2 billion in 2017.
Other selected important industries in the Hong Kong economy
There are other important industries which have increased the momentum for the growth of the Hong Kong economy. In order to avoid the overlapping economic activities in the four key industries, it is necessary to compile statistics of "other producer services."
Cultural and Creative Industries
Being Asia's regional business hub and a strong presence in the city of multinational corporations, Hong Kong has fuelled the growth of these industries in both small and medium scale enterprises. The cultural and creative industries include various domains components such as advertising, architecture, art, antiques and crafts, design, film, video, and music, performing arts, publishing, software, computer games, and interactive media, and television and radio.
Hong Kong's highly developed infrastructure offers a wide range of exciting and unique options for opportunity seekers. In fact, the city's healthcare system offers business owners to enjoy the rapidly growing markets in Mainland China and other parts of Asia, which provides lucrative potential for future expansion. The medical industry comprises services provided by medical or dental practitioners, private hospitals, residential care for older adults and persons with substance abuse and disabilities, and medical-related activities.
The next industry in Hong Kong increasing the growth of the economy is educational services. It covers private primary and secondary schools, university courses, self-financed post-secondary courses, tutorial schools, and other education-related services. This sector also counts the companies' training to increase their worker's skills and productivity level for management.
Innovation and Technology
Innovation and technology embrace research and development (R&D) activities and the activities concerning the commercialization of R&D outputs. This industry holds the right to develop and present improved products, processes in the relevant organizations or technologically new products or processes for commercial purposes.
Testing and Certification Services
Over the years, the testing and certification services have been establishing new engagement in the technical industries. It is also building up a strong foundation based on a robust accreditation system. This industry covers the involvement in technical testing and analysis, sampling, weighting, cargo inspection, and medical and X-ray laboratories as their primary economic activities.
The Hong Kong government always supports green initiatives with tax incentives, public projects, and incubator schemes offered by Hong Kong Science & Technology Parks.
This place pays full attention to resolve the issues related to the environment, including environmental engineering, waste management, consultancy services, sewage, and import/export and wholesale trading of waste and scrap.
After reading this article you may have a better understanding about the four key pillars and various industries which have been driving forces for growth in the Hong Kong economy. These are the reasons why the strong Hong Kong economy has been a driving force behind investment and company incorporations in the city.
Do you want to launch a new business in any of these key Hong Kong industries? Startupr can help! We have been working with thousands of clients to incorporate their business in Hong Kong over the years. We will help you incorporate the business, manage company files, file corporate taxes, and meet all the compliances of the Hong Kong government.
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