1. Hong Kong Flexible Middleman in Uncertain Times

2. Big Trends in HK De-industrialization Economic reintegration with China Externally Oriented Economy

3. Big Picture Basic Law says Capitalist way of life persist for another 40 years Basic Law Text Basic Law Text Government pursues policy of ‘positive non-intervention’ (Tsang, S, A Modern History of Hong Kong - Google ?? ). A Modern History of Hong Kong - Google ?? –Support the economy with infrastructure if cost-benefit is positive –Let market pick economic winners

4. Government Policy and Investment Environment Common law system with a generally independent judiciary Judicial Independence and the Rule of Law in Hong Kong Judicial Independence and the Rule of Law in Hong Kong Overcome a history of public corruption Hong Kong Experience Hong Kong Experience Only tarriffs on alcohol and cigarettes No capital controls Corporate Tax Rates 16.5% EIU.com, OECD average 26.25% OECD Tax Database EIU.com OECD Tax Database

5. Human Capital Resources Well educated population Barro-Lee Database Harvard CIID http://www.cid.harvard.edu/ciddata/ciddata.html

6. Pegged Exchange Rate HK$ stable vs. US$ but against a trade weighted basket it is fairly volatile. IMF Internatio nal Financial Statistics

7. Exchange Rate Standard Deviation of growth rate vs. various currencies. (95% of months, up and down movements will be within + or – 2 standard deviations)

8. Exchange Rate Policy Keeps Inflation Stable

9. ..and Interest Rates Lows

10. De-Industrialization

11. Hong Kong Census and Statistics

12. Hong Kong Services Industries % of GDP Finance and International Trade are the most important industries and growing more so.

13. Lending dominated by the banking sector. Banking dominated by HSBC and its Hang Seng subsidiary.

14. Banks Loans vs. Bonds in Hong Kong

15. Direct vs. Indirect Finance Asia 2004 Source: Eichengreen & LuengnaruemitchaiEichengreen & Luengnaruemitchai

16. Market Dominance More than 2/3’s of deposits are held at top 4 banks including HSBC, Hang Seng, Bank of China and StanChart.

17. Hong Kong Exchange Red Chips and H -shares Red Chips and H -shares Growing importance of Red Chips (Chinese companies incorporated outside PRC) & H-share (PRC incorporated shares traded in HK).

18. Re-Export Industry China re-exports by far the biggest element of trade

19. Tourism Industry

20. Market Dominance More than 2/3’s of deposits are held at top 4 banks including HSBC, Hang Seng, Bank of China and StanChart.

21. Investment Performance

22. Volatile Financial Market Healthy external Position Troubled External Partners

23. Property Price Index

24. Large Swings in Stock Index

25. Good Average Performance, this decade, But Volatile

26. Not Reliant on Outside Financing

27. China Trade Recovering but still troubled.

28. Hong Kong Future Long term Prospects are good but economy is reliant on China growth. Free market enabled HK to fairly smoothly adjust to changing economic environment.. And should again.