Hong Kong Economics

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In 2009, Hong Kong unemployment hit another high rate point of 5.5% due to the global economic crisis. To assist with the recovery of cyclical unemployment due to the crisis, the government created over 60,000 jobs opportunities by hiring civil servants, speeding up projects and launching temporary jobs (Cheung, 2009).

From 2010 onward, the unemployment rate in Hong Kong have since decreased greatly and stabilized because of its strong and healthy GDP.

There are 3 typical types of unemployment. They are frictional, structural and cyclical. Cyclical unemployment usually happens during the duration of recession such as the global economic crisis.

The structural unemployment is unemployment caused by the constant advancement in technology and competition from the foreign that alter the skills needed to carry out jobs, making it unsuitable for the skills some workers have and the unoccupied jobs. Upgrading of skills are necessary to reduce these problems. The Hong Kong’s government have set up Employees Retraining Board (ERB) to provide people who only have up to secondary school education or below, and are 30 years old or above, with upgrading of skills and employment services (Lee, 2000). To further encourage them, these re-trainees will be given an allowance of up to $4000 every month if they take up full-time courses that are more than 1 week long.

The frictional unemployment happens because the steps taken to match jobs with workers takes time hence, it will continuously be around in the economy. The Hong Kong’s government have set up The Active Employment Assistance Programme to help reduce the frictional unemployment. The programme was initiated by Social Welfare Development (SWD) together with ERB and Labour Department. It helps to fasten the process of matching jobs by adopting a one-to-one service relationship that will guide and provide relevant information for one’s job searching.

- Price Level Analysis

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Figure 4.1

Referencing from figure 4.1, Hong Kong’s inflation rate varies drastically between the year 2006 and the year 2015. The inflation rate reaches the highest point within 10 years, in the year 2011 with approximately 8% and fell to the lowest in the year 2009 with approximately -1.8%.

Inflation resulted when there is an increase in rate of the general level of goods & services within the economy. When the inflation rate is high, it causes a negative impact to the economic cost such as, the fall in currency value and it also discourages long term economic growth (Pettinger, 2014). There will be an increase in the cost of living and a slow growth of the economy as the value of money drop, thus reducing the available amount of credit as well. (creditors lose & debtors gain)

In 2009, the descend in oil prices that affected the global economy and the high unemployment rate in Hong Kong could be the factors that contributed to the low inflation as seen in figure 4.1. With a downward trend of the unemployment, there is lesser spending power, therefore bringing down the demand for goods and services in Hong Kong, thus helping to reduce the impact of demand-pull inflation.

In 2011, there are a few factors that could possibly contribute to the high inflation in Hong Kong, as seen in figure 4.1. One of these factor is the rise in China’s economy that have contributed to Hong Kong’s thriving economy. There has been an increase in the price of food in China, where 90% of the food in Hong Kong comes from, thus causing the inflation rate to rise.

Another factor for the high inflation rate could be due to Hong Kong currency that is peg to the US dollars. Due to this factor, Hong Kong is unable to adjust its interest rates to keep its inflation rate under control. The currency link means that if the US dollar appreciates against other country’s currency, the HK dollar will also appreciate against other country’s currency (Cookson, 2011). In 2011, the US dollar exchange value have rose, therefore bringing HK dollar exchange value to rise as well.

To aid with the high inflation rate, Hong Kong’s government have produced a list of measures such as omitting the public housing one month’s rental to manipulate the consumer price index. Considering that approximately 40% of the people in Hong Kong are living in the public housing, this measure should be able to reduce the CPI rate by up to 1%.

- Conclusion

Hong Kong’s economy can achieve a rate of almost 5% in its yearly growth, regardless of the number of global recession the region had faced, in the past 10 years. This proved the positive effect of high level of economic freedom that Hong Kong have successfully maintained. Hong Kong could react to changing circumstances fast due to factors such as its powerful legal systems and large foreign exchange reserve.

Hong Kong’s labour market rate have also sustained a steady growth ever since the aftermath of the global financial crisis. The government contribution of measures such as adopting the one-on-one service relationship will allow its employment to moderately grow even further.

Hong Kong’s government implemented in February 2015 that buyers must pay a higher down payment for a property that cost below HK$7,000,000, to control the rising of price of its property. These cooling measures can control the rising of property prices only to a certain extent, as Hong Kong faces a shortage of land. With the lack of land available, property prices surely remain high, therefore the government should take into consideration of other measures.

The current regulations in Hong Kong over the business capital gains and absence of discrimination in its export and import policies have benefited Hong Kong’s economy a great deal. It will further attract Hong Kong-owned company and foreign investor to continue growing their business in Hong Kong thus helping the economy to improve.

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Bibliography

(2009). 2008 Economic Background and 2009 Prospects. Hong Kong: Government of the Hong Kong Special Administrative Region.

Cheung, M. (9 December, 2009). Press Release. Retrieved from Labour and Welfare Bureau: http://www.lwb.gov.hk/eng/legco/09122009_15.htm

Cookson, R. (9 September, 2011). Hong Kong faces dollar peg inflation dilemma. Retrieved from Finanicial Times: