What is Hong Kong?
Photo: Robster1983. Source: Wikimedia. CC0.
Hong Kong is a former British Colony founded in 1840 as a trading station. It has a free market economy with almost no tariffs or duties, highly dependent on international trade and finance. In fact, the value of imports and exports, $1.2 trillion, is approximately four time the size of Hong Kong’s economy. It has very little arable land and no significant natural resources. All it has is a decent harbor, an advantageous location, and gorgeous views.
Source: CIA Factbook
These basic elements, however – location and a free economy – enable Hong Kong’s 7.5 million residents to enjoy one of the highest standards of living anywhere. Hong Kong’s median household income is ranked 12th in the world, just behind Holland and New Zealand and just ahead of Austria, Finland, and Japan. It’s the second wealthiest Asian nation in the world. It’s currency is pegged to the US dollar, a fact that facilitates its massive trade and finance sector.
So what happens in Hong Kong is important to the world economy. The protests there over an extradition bill to mainland China that have been simmering and boiling this summer (and into the fall) have involved millions of residents. One protest in June reportedly attracted over a quarter of the city’s population. The protests weren’t always peaceful, and protests of this size were naturally disruptive of everyday life.
Photo: Studio Incendo. Source: Flikr. CC-BY 2.0.
The extradition bill isn’t really the issue. The motivating issue is the legitimate fear by Hong Kong’s residents that Beijing will end its policy of “One country, two systems” formulated by Deng Xioping in the 1980s. And given Hong Kong’s wealth, sophistication (most children are in school for 16 years), and strategic location – both physically and economically – it’s unlikely that Chinese leaders struggling to find sources of economic growth will be able to leave Hong Kong alone.
That’s why global markets are so interested in what happens in this strategic trading hub. The world has gotten smaller, due in large part to global trade. What happens in Hong Kong won’t stay in Hong Kong.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”