The Political Economy of East Asia Essay Example

  • Category:
  • Document type:
  • Level:
  • Page:
  • Words:


Hong Kong’s Significance to Southern China Economic Growth

Development of strong economic ties between countries is the main objective in the international market. Many countries establish links so that they can benefit economically through exposing their products and accessing other products from different countries. These ties help to achieve the global village vision through trade undertakings. Furthermore, several trading arrangements and treaties have been signed in the past between countries to promote trade amongst the countries around the globe. It is important to note that trade barriers limit economic growth causing retarded development in the region. Therefore, there is a dire need to reduce these barriers for maximum benefits to be experienced and development to be realized (Greene 2000, p.12). In the recent years, there has been sustained growth and development in the Asian economies. Asian countries such as India, China, Taiwan and Middle East countries have produced some of the strongest economies globally with huge potential growth projected in the future. The evident growth started in late 1970s through establishment of Foreign Direct Investment (FDI) between China and Taiwan, and Hong Kong and Korea. Moreover, the rise of investments continued to increase in China with investors seeking bases for their operations. Hong Kong became the main entry point to the Chinese market when China opened up to the international trade operations (Randall, Jones & Klein 1993, p.4). This paper seeks to find out why Hong Kong was significant to Chinese opening up the Chinese Southern province for trade and investments during the 1980s and 1990s.

Hummels, Ishii and Yi (2003, p. 79) allege that, Hong Kong can be considered as the entry point to Chinese market that helped expose China to the international market. China developed initiative of opening up to the world market and selected the economic zones that were located in the southern part of the country. Therefore, it established business ties with Hong Kong so that it could help export China’s goods and product to the entire world. For effective trade, China had to collaborate with Hong Kong resulting to growth and development of both economies. Hence, China opened headquarters in Hong Kong for trade relations with the world while the operating companies were to be located in China. Hong Kong became the trading entry point for the Chinese major trade partners such as Japan, United States, Taiwan, and Southeast Asia. Chinese trade in the region rose from 10% in 1978 to 30% in 1991 depicting high growth rate and establishment of strong business relations (Zhang 2001, p.78). Moreover, given that Hong Kong had one of the busiest harbours facilitated China’s imports and exports especially Guangdong province. By 1990, 36 % of China’s exports were re-exported to the international markets through Hong Kong as compared to only 6% in 1977. Likewise, 60 % of United States exports passed through Hong Kong. This is a clear indication that the two countries have continued to develop a very vital trade relation (Sun, Tong & Yu 2002, p. 85).

Song and Zhang (2000, p.387) note that, China started welcoming investors from Asian region to invest in all parts of the country. This led to Hong Kong becoming the top investor in the Chinese land with investments worth over 2 billion dollars annually for the period starting 1979 to 1990. This was equivalent to 62% of the total Chines FDI. It is worth noting that Hong Kong’s investments were concentrated on the Guangdong region where approximately 3 million Chinese worked in those firms. In addition, in the Shenzhen Economic Zone that is found near the borders of the two countries, Hong Kong citizens owned more than 80% of the firms. Moreover, Taiwan was also among the top investors in Southern Chinese market.

In the period of the Cold War, Hong Kong did not experience controls on technology exports by the western countries and China was helped to advance technologically. After the war, China had to rely heavily on Hong Kong for support to advance its technological innovations. This led to increased close ties between the two countries. This boosted the Chinese industrialization. In addition, it supported the growing of investment as well as improving the strategies of producing competitive goods and products. The integration of technology in the Chinese industries helped to expand the market share due to increased production of goods and products. This is among the various significant factors that boosted the sustained economic growth and development in the southern part of China (Feenstra & Hanson 2004, p.23).

Furthermore, the intensified industrialization in China by 1990s needed more workers to work in the industries. China had to outsource some cheap workforce from Hong Kong for that purpose. On the other hand, during the post-World War II period, Hong Kong had already ventured in manufacturing industries. In scenario where China required labour, Hong Kong could offer the low-skilled labour force to assist in manufacturing industries. When Liton Company and Li & Fung opened industries to manufacture electronics in Hong Kong and later relocated to Shenzhen for expansion purposes, many workers were required for assembly labour. Likewise, it created more opportunities for marketing and distribution, requiring more workers both skilled and low-skilled (Hummels, Ishii, & Yi 2003, p.89). This led to outsourcing of Hong Kong labour force to assist in the increased labour demands. Therefore, China had to have trade partners and establish strong ties for better relationship so that they could benefit economically. China’s liberalization also boosted industrialization in the country requiring more labour force that was insufficient from its citizens (Feenstra & Hanson 2004, p.27).

In conclusion, this shows that China relied more on Hong Kong to grow and develop economically. Therefore, China had to establish strong ties with Hong Kong and reap maximally from the relation. It had to utilize Hong Kong for opening up to the international markets as well as utilization of the country’s technology. Moreover, intensified industrialization required workforce that could only be outsourced from the Hong Kong. In addition, when China opened up to international markets, it needed investors to invest in the Chinese economy. This led to Hong Kong being among the top investors in the region, strengthening the economic bond between the two countries. However, it is important to note that most of these developments happened in the southern part of China. Therefore, it can be concluded that Hong Kong was significant to Chinese opening up the Chinese Southern province for trade and investments during the 1980s and 1990s.


See Byung-Joon Ahn, ‘The rise of China and the future of the East Asian region’, Asia-Pacific Review, Vol. 11, No. 2, 2004, pp.18–33.

Randall, S K, Jones. R E & Klein, M 1993 Economic Integration Between Hong Kong, Taiwan and the Coastal Provinces of China, OECD Economic Studies No . 20, pp. 1-19.

Zhang, K H, 2001 «China’s inward FDI boom and the greater Chinese economy», The Chinese Economy, Vol.34, No.1, pp. 74-88.

Song, S & Zhang, K H 2000 «Promoting exports: The role of inward FDI in China», China Economic Review, Vol.11, pp. 385-396.

Sun, Q, Tong, W & Yu, Q, 2002, «Determinants of foreign direct investment across China», Journal of International Money and Finance, Vol.21, pp. 79-113.

Greene, W H, 2000 Ecnometrics Analysis, 4th edition, Australia, Prentice Hall

Hummels, D, Ishii, J & Yi, K 2003 “The Nature and Growth of Vertical Specialization in World Trade.” Journal of International Economics, 2001, Vol.54, no.1, pp. 75–96.

Feenstra, R C & Hanson, G H, 2004, “Intermediaries in Entrepoˆt Trade: Hong Kong Re-Exports of Chinese Goods.” Journal of Economics and Management Strategy, Vol.13, no.1, pp. 3–35.