1. Hong Kong’s Business Environment
Chapter 1
Hong Kong’s
Business Environment

2. Introduction Fishing village Entrepôt
International trading and financial centre
Manufacturing centre

3. Structure of the Hong Kong Economy
The economic activities of a country or a territory can be classified into three types:
Primary production
Secondary production
Tertiary production

4. Structure of the Hong Kong Economy
What kind of production does each of the following industries belong to?
Pilots
Lumber industry
Garment industry
Primary production
Secondary production
Tertiary production

5. Structure of the Hong Kong Economy
Interdependence of sectors
Primary sector
Resources
Products
Services
Secondary sector
Products
Resources
Services
Tertiary sector

6. Structure of the Hong Kong Economy
Interdependence of sectors
Example:
Clothes
Cotton
Wholesalers/Retailers
Clothing factory
Cotton farm
Tools
Funds and banking services
Banks
Farm tools factory

7. Contribution of the Three Sectors to the Hong Kong Economy
The indicators used to measure the relative importance or contribution of the three economic sectors to an economy are:
The percentage share of gross domestic product produced by the sector
The percentage share of employment by the sector
Gross domestic product measures the total output value or total income produced within a country or territory in a given period of time.

8. Contribution of the Three Sectors to the Hong Kong Economy
Since Hong Kong lacks arable land and natural resources, its _______ sector is insignificant.
Since the industrialisation in Hong Kong in the early 1950s, the employment share of the _________ sector increased rapidly and reached its maximum in the early 1980s.
The secondary sector’s significance has declined as more and more factories were relocated to the __________.
Since the early 1980s, Hong Kong economy has transformed from a manufacturing centre into a ______________ economy.
primary
secondary
Mainland
service-oriented

9. Development of the Hong Kong Economy
Hong Kong has gone through three transformations after the Second World War:
First transformation (1950 to 1978)
From an entrepôt into a manufacturing centre
Second transformation (1978 to 1997)
From a manufacturing centre into an international financial and services centre
Third transformation (from 1997 onwards)
Evolving into a knowledge-based economy

10. Role and Importance of the Business Sector
Providing employment opportunities
Many factory owners relocated their factories to the _________ in order to reduce production costs.
The employment of the manufacturing sector dropped significantly.
Fortunately, the firms in the ________ sector have created new employment ____________.
Therefore, the factory workers who lost their jobs might be able to find new jobs.
Mainland
tertiary
opportunities

11. Role and Importance of the Business Sector
Producing income
The _______ sector contributed more than 90% to HK’s GDP in 2006.
This reflects that the people of Hong Kong earn most of their income by providing services to local and foreign customers.
Besides, many of the services provided by HK people are of ________________ types, enabling some of them to earn high incomes.
Hence, the business sector promotes HK’s economic growth and raises the ______ standards of HK people.
service
high value-added
living

12. Role and Importance of the Business Sector
Earning foreign exchange to pay for imports
HK lacks natural resources and arable land, so it needs to import foodstuffs and fuel from the Mainland and other countries.
It also lacks the technology and skills to produce _________ durables and _______ goods.
It depends on other countries to supply these goods.
To pay for its imports, Hong Kong earns _______________ by exporting goods and services to the Mainland and other countries.
consumer
capital
foreign exchange

13. Role and Importance of the Business Sector
Earning foreign exchange to pay for imports
Hong Kong
The Mainland
Other countries
Re-export
Import
Import
Re-export

14. Role and Importance of the Business Sector
Serving the Mainland
Many foreign firms have set up ____________ and offices in HK because of its proximity to the Mainland.
Since HK is a free economy without any _______________ control, foreign investors have the confidence to do business in HK.
As a major financial centre in the world, Hong Kong helps the private and ___________ enterprises in the Mainland raise capital and manage their assets.
headquarters
foreign exchange
state-owned

15. Role and Importance of the Business Sector
Raising government revenue
A large proportion of the HK government’s revenue comes from the ________ sector.
As the business sector prospers, private enterprises will earn more profits.
Transactions in the property market and the stock market will also increase.
As a result, government revenue from _____ sales, ______ tax and stamp _______ will rise.
business
land
profits
duties

16. Role and Importance of the Business Sector
Raising government revenue
With increased income, the government can spend more money on the provision of ______ services and the development of _____________.
This helps reduce income _________and improve labour ___________ and _______________ of HK.
social
infrastructure
disparity
productivity
competitiveness

17. Characteristics of the Hong Kong Economy
A free market economy
An externally-oriented, open economy
Productive manpower
Upholding the rule of law
Protecting private property rights