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The Economy of Hong Kong is Characterized as the Freest in the World

1. Briefly describe Hong Kong’s economy (background, GDP, growth rate, etc.)

The economy of Hong Kong is characterized as the freest in the world (in the sense of laissez-faire economy), according to the Index of Economic Freedom (IMF, 2010). Hong Kong is the financial centre of Asia, and its currency is 9th most traded in the world. Such economic measures as free trade, low taxation, strong anti-corruption policy and favorable links with mainland China have made Hong Kong economy one of the strongest in the world. The country’s GDP has grown by 180 times during the 1961-1997 period. Although the country has become more involved into international economic system recently and experienced certain a reduction of GDP by 2.8% in 2009, in 2010 strong recovery was already witnessed (Hong Kong Data and Country Report, 2011). The GDP of Hong Kong in 2010 has grown by 6.7% compared to 2009 level, and constituted US $244.531 bn (Hong Kong Data and Country Report, 2011)

2. Briefly identify and explain three methods intended to encourage economic growth for the typical firm in Hong Kong.

The key strength of Hong Kong economy is financial sector; its impact of GDP has even surpassed the revenues from manufacturing (26% and 25%, correspondingly) (IMF, 2010). Domestic market of Hong Kong is rather limited, and the country is becoming a strong exporter. Machinery and transport equipment are leaders of export in Hong Kong. Thus, the companies willing to encourage their growth might

  • attract additional investments using strong financial sector (or allocate investments in an optimal way)
  • strengthen global trade relationships with China, Western Europe and USA and make trade agreements (free economy is quite suitable for such development)
  • improve productivity using new technology and equipment, and create conditions favorable for export.

3. Explain, with appropriate economic rationale, which method would you suggest for the typical Hong Kong firm and why.

For a typical Hong Kong firm, it is recommended to use the strengths of financial sector of the country along with the benefits of free trade, since the macroeconomic policy of Hong Kong is attractive for investors, and its Stock Exchange is one of the world’s leaders (rated as 6th in the world) (IMF, 2010). Using this feature of Hong Kong economy, companies can gain significant competitive advantage even with regard to international markets.

4. Briefly describe Singapore’s economy (background, GDP, growth rate, etc.)

The economy of Singapore can be classified as mixed capitalist-state economy, which combines elements of free market with economic planning. The role of companies funded by government is very strong: commercial entities funded by Temasek (sovereign fund) account up to 60% of the GDP. Despite the elements of government planning in the economy, Singapore represents one of the most competitive and open world markets, and is rated second after Hong Kong, according to the Index of Economic Freedom (IMF, 2010). Both Singapore and Hong Kong can be classified as NIC (Newly Industrialized Countries). The economy of Singapore proved to be very resilient to economic stresses, and have showed quick growth after the recession. In 2010, GDP of Singapore has grown by 14.47% compared to 2009 level, and constituted US $309,400 million (IMF, 2010).

5. Briefly identify and explain three methods intended to encourage economic growth for the typical firm in Singapore

Singapore has a favorable economic location and skilled workforce. Government investments into research and education are stimulating technological growth. One of the features of Singapore economy is its specialization as Entrepot economy – refinement of raw goods for export, e.g. oil refinement, water fabrication, etc. Communication, transport, trade and exports are the most rapidly developing sectors of economy.

Basing on the above-mentioned information, it is possible to outline the following ways of growth for Singapore companies:

  • creating and improving new value-added technologies and increasing performance using R&D potential of the country and availability of skilled workforce;
  • establishing business contacts with government-funded entities and/or attracting state investments;
  • reaching international markets and establishing trade relationships with international businesses.

6. Explain, with appropriate economic rationale, which method would you suggest for the typical Singapore firm and why

Optimal method to achieve growth in Singapore is to integrate into the state investment system and to work with other Temasek-related business agents. The reason of such choice is tight correlation of Singapore economic development with state financing and the relative closeness of Singapore economy compared to Hong Kong and other Asian competitors. In addition to this, fixed exchange rates might affect international trade (IMF, 2010) and can have a possible impact on the exporters, while these risks are significantly lower for the state funded businesses.

References

IMF. (2010). World Economic Outlook. International Monetary Fund.
Hong Kong Data and Country Report. (2011). Available from http://www.gfmag.com/gdp-data-country-reports/258-hong-kong-gdp-country-report.html#axzz1RU7fq0Dy