Wednesday, November 23, 2005

Hong Kong: a free trade country

I'm doing some research here in chilly Hong Kong. I was asking some government officials (who were very open and accommodating)about importation of fish into Hong Kong. They reminded me something I'd known but forgotten: Hong Kong is about the closest thing to a free trade economy in the world. Information on imports is collected from bills of lading; the declared values are probably accurate, because importation is duty-free, and the incentive to underdeclare (to avoid import taxes) is missing. Yep, the surest way to eliminate smuggling is to repeal tariffs and quotas.

Hong Kong has gotten prosperous without a development policy based on protecting domestic industry. It is living proof that rapid economic development is possible within a free trade regime. In fact, it is likely that free trade was one of the pillars of Hong Kong's economic boom. Perhaps its example may inspire some of our unimaginative policymakers that yes, a world without tariffs and quotas is possible, even dare I say, desirable?


jemy said...

hi. i'm not an economist but isn't hong kong (like singapore) not necessarily overflowing with natural resources? hence, the reason for not wanting to focus on producing or manufacturing but rather to act as "middlemen" for the region (or the world)?

which is not to say that they shouldn't be commended for competently finding their niche in the global economy. obviously they should. but still, different strokes for different folks.


Econblogger said...

Hi blur. Definitely Hong Kong is barren when it comes to natural resources. However manufacturing was a significant component of GDP right up until the 1980s. They were global leaders in textiles, then garments, toy manufacturing, plastics, and timepieces. These days however, the tertiary sector (mostly services and property ownership) accounts for nearly 90% of the economy. I dare say they developed their niche trade and financial niche mainly because of their farsighted, liberal trade and foreign exchange policies.

Simon said...

It's fair to say that HK exercises free trade, but in some ways this is not a free economy. Land, for example, is owned by the Government, which real exercises control over supply to the market, keeping prices high. Revenues from leases are a large part of overall Government income. As a result property prices are high, rents are high....but half the population lives in subsidised housing. Nevertheless other tax rates (notably on salaries) are very low, maintaining incentives.

newsjunkie said...

Of course, there is the other commodity that is strictly controlled: the USD.


Econblogger said...

The Central Bank actively intervenes to stabilize the exchange rate through forex transactions. However exchange rate transactions of the private sector has few regulations.