The Economic Relationship between the Mainland and Hong Kong

Transcription

1 The Economic Relationship between the Mainland and Hong Kong Lawrence J. Lau, Ph. D. Ralph and Claire Landau Professor of Economics, The Chinese Univ. of Hong Kong and Kwoh-Ting Li Professor in Economic Development, Emeritus, Stanford University Friends of Hong Kong Association Limited Lecture Heep Yunn School Hong Kong, 16 May 2011 Tel: (852) ; Fax: (852) WebPages:

2 Outline An Overview of the Mainland Chinese Economy Comparison of the Economies of Hong Kong and the Mainland Mainland-Hong Kong Economic Interactions Future Trends Concluding Remarks Lawrence J. Lau 2

3 An Overview of the Mainland Chinese Economy The Mainland has made tremendous progress in its economic development since it began its economic reform and opened to the World in The Mainland has made a smooth and successful transition from a centrally planned economic system to a market economic system. The Mainland of China is currently the fastest growing economy in the World averaging 9.8% per annum over the past 33 years. It is historically unprecedented for an economy to grow at such a high rate over such a long period of time. Lawrence J. Lau 3

4 An Overview of the Mainland Chinese Economy A commonly used measure of the size of an economy is GDP, or Gross Domestic Product. It is defined as the total value of all goods and services produced within the geographical boundaries of an economy in a given period of time, for example, a year or a quarter. The value of a good or a service is defined as its price less the costs of all the intermediate goods and services used in its production, but not the costs of direct capital and labour services. Lawrence J. Lau 4

5 An Overview of the Mainland Chinese Economy Real GDP is a concept used to compare the values of GDP at different points of time that are net of the effects of the changes in the prices of goods and services. A change in the nominal value of GDP due solely to changes in prices is not real because in real terms no more goods and services have been produced. Typically, real GDP is measured in terms of the fixed constant prices of a given period. We focus on real GDP because a change in the price of a good or a service, whether up or down, does not affect its utility to consumers. Lawrence J. Lau 5

6 An Overview of the Mainland Chinese Economy Between 1978 and 2010, Mainland Chinese annual real GDP grew more than 20 times, from US$304 billion to more than US$6.04 trillion (2010 prices) to become the second largest economy in the World, after the United States. By comparison, the U.S. GDP (approximately US$14.66 trillion in 2010 prices) was 2.4 times the Mainland Chinese GDP in Hong Kong GDP in 2010 was only US$225 billion, or 3.7% of the Mainland GDP. Lawrence J. Lau 6

7 Mainland Chinese Real GDP in US$ since 1952 (2010 Prices) 6,500 Chinese Real GDP, in 2010 prices 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Lawrence J. Lau Billions US$

8 An Overview of the Mainland Chinese Economy Despite the rapid growth of the Mainland, in terms of real GDP per capita (that is, per person), it is still a developing economy. Between 1978 and 2010, Mainland Chinese real GDP per capita grew almost 15 times, from US$316 to US$4,503 (in 2010 prices). By comparison, the U.S. GDP per capita (approximately US$47,274 in 2010 prices) was 10.5 times Mainland Chinese GDP per capita in Hong Kong GDP per capita in 2010 was US$31,813, or 7 times the Mainland GDP per capita. Mainland GDP per capita ranks below 90th among all countries in the World. Lawrence J. Lau 8

9 Real Mainland Chinese GDP per Capita in US$ since 1952 (2010 Prices) 5,000 Chinese Real GDP per Capita, in 2010 prices 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Lawrence J. Lau US$

10 An Overview of the Mainland Chinese Economy While many problems have arisen in the Mainland Chinese economy within the past decade for example, increasing income disparity--both inter-regional and intra-regional-- uneven access to basic education and health care, environmental degradation, inadequate infrastructure and corruption it is fair to say that every Mainland Chinese citizen has benefitted from the economic reform and opening since 1978, albeit to varying degrees, and few want to return to the central planning days. Lawrence J. Lau 10

11 An Overview of the Mainland Chinese Economy The Central Government leaders have also demonstrated their ability to confront important challenges and solve difficult problems, as for example, in maintaining Mainland Chinese economic growth during the East Asian currency crisis and the global financial crisis. The Mainland of China is one of the very few socialist economies that have made a smooth transition from a centrally planned to a market system. It is a model for other transition economies such as Vietnam and potential transition economies such as Cuba, Laos, and North Korea. Lawrence J. Lau 11

12 Key Performance Indicators Before and After the Mainland Economic Reform Growth Rates percent per annum Period I Period II Real GDP Real GDP per Capita Exports Imports Inflation Rates (GDP deflator) Real Consumption Lawrence J. Lau Real Consumption per Capita

13 An Overview of the Mainland Chinese Economy The Mainland has consistently had a high national savings rate in excess of 30%, which is more than adequate to finance all of its domestic investment needs. It does not need to depend on foreign direct investment, foreign portfolio investment, or foreign loans. The Mainland has an almost unlimited supply of surplus labour, ensuring that there will be little or no pressure on the real wage rate of unskilled, entry-level labour for decades to come. Lawrence J. Lau 13

14 An Overview of the Mainland Chinese Economy The huge potential domestic market of 1.34 billion consumers allows the economies of scale in production and in innovation to be easily realised on the Mainland. The Mainland also has a long tradition of emphasis on education and learning (human capital) and will be increasing its investment in human capital. The enrollment rate of tertiary education has been rising rapidly and stands at 24 percent today. It is expected to rise further over the next decades as private tertiary educational institutions become more numerous in response to demand and facilitated by government policy. Lawrence J. Lau 14

15 Savings Rates of Selected Asian Economies (1952-present) China, Mainland Hong Kong India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Savings Rates of Selected East Asian Economies Lawrence J. Lau, The Lawrence Chinese J. University Lau of Hong Kong Percent

16 An Overview of the Mainland Chinese Economy The huge domestic market of the Mainland greatly enhances the productivity of intangible capital (e.g., R&D capital, goodwill). The fixed research and development costs of a new product or process can be easily amortised over a large market. The benefits of investment in goodwill, e.g., brandbuilding, are also much greater in a large market. The huge domestic market also enables active Mainland Chinese participation in the setting of product and technology standards, for example, fourth-generation (4-G) standards for telecommunication, and sharing the benefits of such standard-setting. Lawrence J. Lau 16

17 An Overview of the Mainland Chinese Economy Brand-building is a pre-requisite for Mainland Chinese enterprises to re-orient themselves to take advantage of the huge domestic market. It is true that brand-building requires resources, but it also enables the owners of brand names to have much more pricing power and higher profit margins than enterprises that do only OEM (original equipment manufacturing) business. Examples of successful brand-building in the Mainland market include Haier, Kang Shifu and Wang Wang. Lawrence J. Lau 17

18 An Overview of the Mainland Chinese Economy In addition to a high national savings rate, a large pool of surplus labour, a huge domestic market, and rising investment in intangible capital (human capital and R&D capital), The Mainland also has the advantage of relative backwardness. It has: The ability to learn from the experiences of successes and failures of other economies; The ability to leap-frog and by-pass stages of development (e.g., the telex machine, the VHS video players, the fixed landline phones); and The possibility of creation without destruction (e.g., online virtual bookstores like Amazon.com do not have to destroy brick and mortar bookstores which do not exist in the first place). The Mainland also possesses an abundance of scientific and technical manpower the cost of which is a fraction of the cost in developed economies. Lawrence J. Lau 18

19 Comparison of the Economies of Hong Kong and the Mainland It is useful to compare the economies of Hong Kong and the Mainland over time. Huge changes have occurred over the past 30 odd years. In 1980, the GDP of the Mainland economy is only 5 times that of Hong Kong. Today, it is more than 25 times. However, in terms of GDP per capita, Hong Kong still leads the Mainland at 7 times in 2010, but the gap has shrunk significantly from 45 times in Lawrence J. Lau 19

20 Comparison of the Real GDPs of Mainland and Hong Kong (2010 US$) China Hong Kong 1990 Lawrence J. Lau

21 Comparison of the Real GDPs of Four Regions (2010 US$) 4,500 Comparison of the Real GDPs of the Four Regions in the Greater Chinese Economy US$ billion, 2010 prices 4,000 Mainland Hong Kong 3,500 Macau 3,000 Taiwan 2,500 2,000 1,500 1, Lawrence J. Lau 21 USD billions

22 Comparison of the Real GDP-per-Capita s of Mainland and Hong Kong (2010 US$) Hong Kong China 1980 Lawrence J. Lau 22

23 Comparison of the Real GDP-per-Capita s of Four Regions (2010 US$) 60 Comparison of the Real GDP per Capita's of the Four Regions in the Greater Chinese Economy US$ thousand, 2010 prices Mainland 50 Hong Kong Macau 40 Taiwan Lawrence J. Lau Thousand US$

24 Comparison of the Economies of Hong Kong and the Mainland In terms of international trade, the Mainland, which started out at a very low level in 1978, overtook Hong Kong in the early 1990s and is now approximately 4 times as large as Hong Kong. The Mainland is the most important trading partner of Hong Kong. In terms of foreign direct investment (FDI), the Mainland has consistently attracted more direct investment than Hong Kong since it adopted the economic reform and opening policies. Lawrence J. Lau 24

25 Comparison of the Total International Trade of the Mainland and Hong Kong 350 Total International Trade of the Mainland and Hong Kong 300 the Mainland Hong Kong Lawrence J. Lau 25 USD billions Jan-1992 Apr-1992 Jul-1992 Oct-1992 Jan-1993 Apr-1993 Jul-1993 Oct-1993 Jan-1994 Apr-1994 Jul-1994 Oct-1994 Jan-1995 Apr-1995 Jul-1995 Oct-1995 Jan-1996 Apr-1996 Jul-1996 Oct-1996 Jan-1997 Apr-1997 Jul-1997 Oct-1997 Jan-1998 Apr-1998 Jul-1998 Oct-1998 Jan-1999 Apr-1999 Jul-1999 Oct-1999 Jan-2000 Apr-2000 Jul-2000 Oct-2000 Jan-2001 Apr-2001 Jul-2001 Oct-2001 Jan-2002 Apr-2002 Jul-2002 Oct-2002 Jan-2003 Apr-2003 Jul-2003 Oct-2003 Jan-2004 Apr-2004 Jul-2004 Oct-2004 Jan-2005 Apr-2005 Jul-2005 Oct-2005 Jan-2006 Apr-2006 Jul-2006 Oct-2006 Jan-2007 Apr-2007 Jul-2007 Oct-2007 Jan-2008 Apr-2008 Jul-2008 Oct-2008 Jan-2009 Apr-2009 Jul-2009 Oct-2009 Jan-2010 Apr-2010 Jul-2010 Oct-2010 Jan-2011

26 Comparison of the Inbound Foreign Direct Investment: Mainland and Hong Kong 120 Annual Inward Direct Investment of the Mainland and Hong Kong 100 Inward Direct Investment of Hong Kong Inward Direct Investment of the Mainland 80 US$ billions Lawrence J. Lau Year

27 Mainland-Hong Kong Economic Interactions: Direct Investment Hong Kong data on direct investment by country or region of origin are not completely reliable. On the one hand, Hong Kong direct investment can include not only investment from Hong Kong firms and residents, but also investment from Taiwan and elsewhere routed through Hong Kong subsidiaries as well as round-tripped investment, that is, investment from Mainland firms and residents camouflaged as Hong Kong firms in order to enjoy certain special tariff and tax privileges. On the other hand, there is also Hong Kong direct investment that is routed through tax havens such as the British Virgin Islands, Cayman Islands and Netherland Antilles. Hong Kong data and Mainland data on FDI do not agree. Taking into consideration all of these data problems, Hong Kong is still the most important source of foreign direct investment into the Mainland, accounting for between 20% and 40% of total FDI. Lawrence J. Lau 27

28 Annual Hong Kong Direct Investment to the Mainland (US$) 70 Hong Kong Direct Investment into the Mainland 60 Hong Kong Direct Investment (Hong Kong Data) Hong Kong Direct Investment (Chinese Data) US$ Billion Lawrence J. Lau Year

29 Hong Kong Direct Investment as a Percent of Total Inbound Direct Investment 120 Hong Kong Direct Investment as a Percent of Total Inbound Foreign Direct Investment inito China 100 Percent (Chinese Data) 80 Percent (Hong Kong Data) Percent Lawrence J. Lau 29 Year

30 Mainland-Hong Kong Economic Interactions: Direct Investment Hong Kong investors were the first to invest in the Mainland when it first opened to the World and were instrumental for the successful development of the Special Economic Zones such as Shenzhen. It is fair to say that without Hong Kong, Shenzhen would probably not have been a success. The other Special Economic Zones have not been notably successful. But today, even total foreign direct investment, from all sources, constitutes only a very small and quantitatively unimportant percentage of total gross domestic investment on the Mainland (less than 5% in 2010). Mainland investment now constitutes almost 50% of all FDI into Hong Kong. Lawrence J. Lau 30

31 Foreign Direct Investment as a Percent of Total Mainland Domestic Investment Foreign Direct Investment as a Percent of Total Mainland Gross Domestic Investment Lawrence J. Lau 31 Percent

32 Mainland Investment as a Percent of Total Inbound Direct Investment of Hong Kong 50 Mainland Investment as a Percent of Inbound Direct Investment of Hong Kong Percent Lawrence J. Lau

33 Mainland-Hong Kong Economic Interactions: International Trade Trade between Hong Kong and the Mainland has grown rapidly since The Mainland has become the most important trading partner of Hong Kong. It is the most important destination for Hong Kong exports as well as the most important source of Hong Kong imports. The Mainland has also become the most important source of visitors to Hong Kong, especially since the introduction of the Individual Visit Scheme in Mainland visitors constituted more than 60% of all visitors to Hong Kong in Mainland visitors spend on average 3 days in Hong Kong and US$750 Lawrence per J. Lau day. 33

34 Total Hong Kong Exports to and Imports from the Mainland since 1972 Hong Kong Total Exports to and Imports from the Mainland Hong Kong Total Exports to the Mainland Hong Kong Imports from the Mainland Lawrence J. Lau 34 USD billions Jan-1972 Jul-1972 Jan-1973 Jul-1973 Jan-1974 Jul-1974 Jan-1975 Jul-1975 Jan-1976 Jul-1976 Jan-1977 Jul-1977 Jan-1978 Jul-1978 Jan-1979 Jul-1979 Jan-1980 Jul-1980 Jan-1981 Jul-1981 Jan-1982 Jul-1982 Jan-1983 Jul-1983 Jan-1984 Jul-1984 Jan-1985 Jul-1985 Jan-1986 Jul-1986 Jan-1987 Jul-1987 Jan-1988 Jul-1988 Jan-1989 Jul-1989 Jan-1990 Jul-1990 Jan-1991 Jul-1991 Jan-1992 Jul-1992 Jan-1993 Jul-1993 Jan-1994 Jul-1994 Jan-1995 Jul-1995 Jan-1996 Jul-1996 Jan-1997 Jul-1997 Jan-1998 Jul-1998 Jan-1999 Jul-1999 Jan-2000 Jul-2000 Jan-2001 Jul-2001 Jan-2002 Jul-2002 Jan-2003 Jul-2003 Jan-2004 Jul-2004 Jan-2005 Jul-2005 Jan-2006 Jul-2006 Jan-2007 Jul-2007 Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010 Jan-2011

35 Hong Kong Exports to the Mainland as a Percent of Total Hong Kong Exports Hong Kong Exports to the Mainland as a Percent of Total Hong Kong Exports Lawrence J. Lau 35 Percent Jan-1972 Jul-1972 Jan-1973 Jul-1973 Jan-1974 Jul-1974 Jan-1975 Jul-1975 Jan-1976 Jul-1976 Jan-1977 Jul-1977 Jan-1978 Jul-1978 Jan-1979 Jul-1979 Jan-1980 Jul-1980 Jan-1981 Jul-1981 Jan-1982 Jul-1982 Jan-1983 Jul-1983 Jan-1984 Jul-1984 Jan-1985 Jul-1985 Jan-1986 Jul-1986 Jan-1987 Jul-1987 Jan-1988 Jul-1988 Jan-1989 Jul-1989 Jan-1990 Jul-1990 Jan-1991 Jul-1991 Jan-1992 Jul-1992 Jan-1993 Jul-1993 Jan-1994 Jul-1994 Jan-1995 Jul-1995 Jan-1996 Jul-1996 Jan-1997 Jul-1997 Jan-1998 Jul-1998 Jan-1999 Jul-1999 Jan-2000 Jul-2000 Jan-2001 Jul-2001 Jan-2002 Jul-2002 Jan-2003 Jul-2003 Jan-2004 Jul-2004 Jan-2005 Jul-2005 Jan-2006 Jul-2006 Jan-2007 Jul-2007 Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010 Jan-2011

36 Hong Kong Imports from the Mainland as a Percent of Total Hong Kong Imports Hong Kong Imports from the Mainland as a Percent of Total Hong Kong Imports Lawrence J. Lau 36 Percent Jan-1972 Jul-1972 Jan-1973 Jul-1973 Jan-1974 Jul-1974 Jan-1975 Jul-1975 Jan-1976 Jul-1976 Jan-1977 Jul-1977 Jan-1978 Jul-1978 Jan-1979 Jul-1979 Jan-1980 Jul-1980 Jan-1981 Jul-1981 Jan-1982 Jul-1982 Jan-1983 Jul-1983 Jan-1984 Jul-1984 Jan-1985 Jul-1985 Jan-1986 Jul-1986 Jan-1987 Jul-1987 Jan-1988 Jul-1988 Jan-1989 Jul-1989 Jan-1990 Jul-1990 Jan-1991 Jul-1991 Jan-1992 Jul-1992 Jan-1993 Jul-1993 Jan-1994 Jul-1994 Jan-1995 Jul-1995 Jan-1996 Jul-1996 Jan-1997 Jul-1997 Jan-1998 Jul-1998 Jan-1999 Jul-1999 Jan-2000 Jul-2000 Jan-2001 Jul-2001 Jan-2002 Jul-2002 Jan-2003 Jul-2003 Jan-2004 Jul-2004 Jan-2005 Jul-2005 Jan-2006 Jul-2006 Jan-2007 Jul-2007 Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010 Jan-2011

37 Annual Mainland and Total Visitors to Hong Kong since Annual Mainland and Total Visitors to Hong Kong Total Visitors Visitors from the Mainland 25 Billion Persons Lawrence J. Lau

38 Visitors from the Mainland as a Percent of Total Visitors to Hong Kong 70 Visitors from the Mainland as a percent of Total Visitors Percent Lawrence J. Lau

39 The Yuan-Hong Kong Dollar Exchange Rate The Yuan-Hong Kong Dollar exchange rate also reflected the relative fortunes of the Mainland and Hong Kong economies. The Hong Kong Dollar was worth less than the Yuan until 1994, when the Yuan became current accounts convertible. The Hong Kong Dollar then became worth more than the Yuan, until the Yuan began to appreciate in mid The Hong Kong Dollar is now worth approximately 0.83 Yuan. Lawrence J. Lau 39

40 The Yuan-HK$ Exchange Rate End of Month, Yuan/HK$ 1.2 Yuan per Hong Kong Dollar at the End of the Month Lawrence J. Lau 40 M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M1 2011

41 The Yuan-HK$ Exchange Rate Monthly Average, Yuan/HK$ Monthly Average Exchange Rate of Yuan per Hong Kong Dollar Lawrence J. Lau 41 Jan-93 Apr-93 Jul-93 Oct-93 Jan-94 Apr-94 Jul-94 Oct-94 Jan-95 Apr-95 Jul-95 Oct-95 Jan-96 Apr-96 Jul-96 Oct-96 Jan-97 Apr-97 Jul-97 Oct-97 Jan-98 Apr-98 Jul-98 Oct-98 Jan-99 Apr-99 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11

42 Mainland-Hong Kong Economic Interactions: The Stock Market Stock exchanges on the Mainland were first established in the early 1990s. In terms of market capitalisation the total value of all the companies listed on the stock exchange at the prevailing share prices of the market the Shanghai Stock Exchange alone now exceeds the Hong Kong Stock Exchange. Mainland firms now constitute more than 50% of the Hong Kong Stock Exchange by market capitalisation but less than 20% by the number of listed firms indicating that the Mainland firms listed on the Hong Kong Stock Exchange are on average much bigger than the other firms listed there. Lawrence J. Lau 42

43 Comparison of Market Capitalisations of Mainland and Hong Kong Stock Exchanges 4,000 End-of-Year Market Capitalisation of Selected Stock Exchanges, in US$ billions 3,500 Hong Kong Exchanges 3,000 Shanghai SE USD billions 2,500 2,000 1,500 Shenzhen SE 1, Lawrence J. Lau 43 Year

44 Year-End Market Capitalisation of Mainland and All Firms Listed on HKSE 25,000,000 Market Capitalisation of Mainland and All Companies on the Hong Kong Stock Exchange, million HK$ Total 20,000,000 Mainland Companies 15,000,000 Million HK$ 10,000,000 5,000,000 0 Lawrence J. Lau 44 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09

45 Year-End Market Capitalisation of Mainland and All Firms Listed on HKSE 60 The Proportions of Mainland Companies on the Hong Kong Stock Exchange By Market Capitalisation 50 By the Number of Listed Companies Lawrence J. Lau 45 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Percent

46 Mainland-Hong Kong Economic Interactions: The Stock Market In terms of initial public offerings (IPOs), that is, the first-time sales of shares by firms to public investors on the stock exchange, Mainland firms have been the mainstay of the Hong Kong Stock Exchange, accounting for most of the value of its IPOs, except in the global financial crisis years of 2009 and 2010 when firms from other countries came to Hong Kong to raise money because of the lack of activities in New York and London. Increasingly, however, Mainland firms find listing on the Shanghai Stock Exchange much more attractive because there is substantial domestic investor demand and the firms need to raise Renminbi rather than foreign exchange. The Mainland, with foreign exchange reserves exceeding US$3 trillion, does not need any more inflow of foreign exchange. That is why Hong Kong has to seek firms from other countries and regions to list their shares on the Hong Kong Stock Exchange. Lawrence J. Lau 46

47 Annual IPO Value of Mainland and All Firms on Hong Kong Stock Exchange 500 Annual IPO Value of Mainland and All Firms on Hong Kong Stock Exchange All Firms The Mainland Firms 350 HKD billions Lawrence J. Lau

48 Mainland-Hong Kong Economic Interactions Hong Kong and its entrepreneurs were indispensable for the success of the economic reform and open-door policy on the Mainland, and in Guangdong and Shenzhen in particular. Hong Kong may not be the only gateway to the Mainland any more, but it can be the best gateway, or at least the best gateway to southern China. Hong Kong should capitalise on its geographical position to co-operate closely with Shenzhen, Pearl River Delta, Guangdong and southern China. Hong Kong can compete effectively with Shanghai as an international financial centre only if Hong Kong becomes more closely integrated economically with Guangdong (including Shenzhen). Guangdong, Hong Kong and Macau together can potentially Lawrence J. Lau 48 become an economy as large as that of Japan today.

49 Real GDPs of Hong Kong and Its Neighbouring Economies, billion 2010US$ 600 Real GDPs of Hong Kong and Its Neighbouring Economies, billion 2010 US$ Hong Kong 500 Macao Guangdong Excluding Shenzhen 400 Shenzhen Lawrence J. Lau USD billions

50 Real GDP-per-Capita s of Hong Kong and Its Neighbouring Economies, 2010 US$ 60,000 Real GDP per Capita's of Hong Kong and Its Neighbouring Economies, 2010 US$ Hong Kong 50,000 Macao Guangdong Excluding Shenzhen Shenzhen 40,000 30,000 20,000 10,000 0 Lawrence J. Lau USD

51 Populations of Hong Kong and Its Neighbouring Economies, millions 120 Popoulations of Hong Kong and Its Neighbouring Economies, millions Lawrence J. Lau Millions 2010 Guangdong ex Shenzhen Shenzhen Macao 80 Hong Kong Year

52 Mainland-Hong Kong Economic Interactions Guangdong has a permanent population of approximately 95 million, which together with Hong Kong and Macao is as large as Japan and more than a third as large as the United States. Guangdong has a GDP in excess of US$600 billion, approximately the same size as Taiwan, and a per capita GDP in excess of US$6,500. Lawrence J. Lau 52

53 Mainland-Hong Kong Economic Interactions Guangdong has a diversified industrial base with light industry, heavy industry and high-technology industries. but is relatively weak in the higher education and research and development sectors. Hong Kong has little or no industry, especially high-technology industry, but has world-class research universities to provide scientific and technological manpower and R&D. There is therefore room for specialization and division of labour among Hong Kong, Guangdong and Shenzhen, which can be win-win for all. Lawrence J. Lau 53

54 Future Trends If current trends continue, Mainland Chinese real GDP will approach the level of U.S. real GDP in approximately 15 years time--around 2025, at which time Mainland Chinese real GDP will exceed US$20 trillion (in 2010 prices) and Mainland Chinese real GDP per capita will exceed US$ 14,000. By that time, 2025, the Mainland and the U.S. will each account for approximately 15% of World GDP. Lawrence J. Lau 54

55 Actual and Projected Mainland Chinese and U.S. Real GDP (trillion 2010 US$) 260 Actual and Projected Real GDP of China and the U.S., in 2010 prices Real GDP of the U.S. 200 Real GDP of China Lawrence J. Lau USD trillions

56 Future Trends It will take another years, between 2045 and 2050, before the Mainland reaches the same level of real GDP per capita as the United States, at US$90,000 in 2010 prices (bear in mind that in the meantime, the U.S. economy will also continue to grow, albeit at rates significantly lower than those of the Mainland Chinese economy and that the Mainland Chinese population will reach a peak around 2035 and then begin to decline slowly). By that time, Mainland Chinese GDP will be approximately 6 times the U.S. GDP, and will account for between a third and a half of World GDP (depending on the growth rates of other economies, especially the developing economies of today). Lawrence J. Lau 56

57 Actual and Projected Mainland Chinese and U.S. Real GDP per Capita (2010 US$) Actual and Projected Real GDP per capita of China and the U.S., in 2010 prices Real GDP per capita of the U.S. 110 Real GDP per capita of China Lawrence J. Lau 57 USD thousand

58 Concluding Remarks Hong Kong was indispensable to the initial success of the Mainland s economic reform and opening to the World. However, with the success of the Mainland economy, the fate of the Hong Kong economy is now inextricably intertwined with that of the Mainland. The Mainland is now critically important to the Hong Kong economy. If the Mainland economy prospers, the Hong Kong economy will prosper. If the Mainland economy slows, the Hong Kong economy will slow. Lawrence J. Lau 58

59 Concluding Remarks It is because of the strength of the Mainland economy that Hong Kong has been able to survive the global financial crisis relatively unscathed as well as the earlier East Asian currency crisis in The Individual Visit Scheme has been instrumental in lowering the unemployment rate of Hong Kong down to its current 3.2%. Hong Kong must try to take full advantage of its Mainland opportunities so that its economy can continue to grow, especially given that the United States and European economies remain mired in recession and unlikely to resume normal growth any Lawrence time J. Lau soon. 59