Hong Kong Economic Development
The history of Hong Kong’s economy is replete with examples of major restructuring and transformation, especially in the face of unanticipated challenges. The last 10 years are yet another example of Hong Kong’s ability to recreate itself following severe economic shocks. As a result, Hong Kong’s economy in 2007 is significantly different than it was in 1997. While most of the changes appear to be for the better, there are some developments that may portend future problems.
External Shocks and Recovery
In the months prior to the Handover, most analysts anticipated that the greatest challenges facing the new HKSAR were political, not economic. It seemed that no one foresaw the impending external economic shock, the Asian Financial Crisis,29 which would push Hong Kong into an extended recession. Nor could anyone predict the arrival of Severe Acute Respiratory Syndrome (SARS) and its ability to derail
Hong Kong’s economic recovery.
Asian Financial Crisis and SARS.
Almost simultaneously with the Handover ceremony held in the Hong Kong Convention and Exhibition Centre, the Asian Financial Crisis struck many of the economies of Southeast Asia. The crisis quickly spread across most of East Asia and by the end of 1997, most of the Asian currencies had experienced significant losses in value with respect to the U.S. dollar, ranging from a 13% decline for the Japanese yen to a 55% decline for the Indonesian rupiah. However, two Asian currencies — the Chinese renminbi and the Hong Kong dollar — did not experience the same decline in value due to their link to the U.S.dollar.30
The Hong Kong dollar’s linked exchange rate did not completely insulate the Hong Kong economy from the effects of the Asian Financial Crisis. A speculative attack on the Hong Kong dollar in August 1998 to force a de-linking was successfully fought off to a large part by the $15 billion intervention of the Hong Kong government in the Hong Kong stock market,...