Hong Kong's Foreign Trade And Investment Barriers example essay topic

Why Hong Kong? ABSTRACT The objective of this research is to show and explain the comparative country risk analysis between the nations of Hong Kong and Chile. The findings of this research are to compare and evaluate the economic and political factors that affect the business environment of these two counties. The main purpose of this document is to illustrate why Hong Kong is better place to invest, compared to another country. Hong Kong Hong Kong: Country Profile Hong Kong became a Special Administrative Region (SAR) of the People's Republic of China (PRC) on July 1, 1997.

Five years later, it remains the world's freest economy, tenth-largest trading entity, and ninth-largest banking center. Hong Kong's standard of living exceeds that of Great Britain ($24,506 vs. $22,241). The economy has been built on Hong Kong's status as a major trading port and financial center for East Asia. In particular, Hong Kong is renowned for its rule of law, lack of trade barriers, and low taxes. Despite a robust 10.5 percent GDP growth rate in 2000, a drop in U.S. economic growth affected Hong Kong seriously and a concomitant fall-off in U.S. imports, with GDP growth collapsing to 0.1 percent in 2001. The SAR was hit hard by the regional downturn of 1997-98 and the US-led slowdown of 2001-02.

GDP growth will pick up again when external demand recovers, but the last five years have exposed economic shortcomings. The first is an over-reliance on the property sector for official revenue. This issue has attracted attention since the property price bubble burst in 1997, leaving the government with a structural fiscal deficit. The second is rapid infrastructure development in China, which some fear risks sidelining the SAR. In response, officials are seeking to strengthen Hong Kong's role as an entre p^ot, focusing on financial services, logistics, tourism, and producer and professional services.

Hong Kong: Country Risk COUNTRY VIEW FROM THE ECONOMIST INTELLIGENCE UNIT Overall Overall Political Economic Economic Liquidity rating score risk policy risk structure risk Risk March B 23 B A B A February B 23 B B B A Short-term risk event Failure to bring about an improvement in the fiscal position? the deficit rose to the equivalent of 5.5% of GDP in 2002/03? could prompt renewed speculation over the future of the fixed link between the Hong Kong and US dollars. Political risk The passing of laws that prohibit acts of? treason, secession, sedition and subversion? against the Chinese state, even if less draconian than initially feared, will impinge upon the freedom of expression in Hong Kong. The creeping erosion of Hong Kong's autonomy could damage investor confidence. Foreign trade Hong Kong levies virtually no import tariffs or duties and is considered a duty-free port. It also does not maintain anti-dumping or countervailing duties legislation or import quotas. According to the Economist Intelligence Unit, "some excise duties are charged on four groups of commodities [including] hydrocarbon oil, liquors, methyl alcohol and tobacco".

Overall, there are very few barriers to imports in Hong Kong, which has one of the world's most accessible markets. It is an important market for U.S. exports and consumes U.S. manufactured and agricultural goods at a higher rate per capita than most of the world's other economies. Out of 60 countries. Out of 16 countries: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam. Economic outlook Strong growth in re-exports will drive GDP growth of 2.7% in 2003 and 4% in 2004. However, consumer price deflation will persist in 2003-04, as consumer and business confidence remains fragile.

The current-account surplus will remain large in 2003 (equivalent to 8.7% of GDP) because import growth is held back by weak domestic demand, but it is expected to narrow in 2004 as stronger domestic demand boosts imports. Debt outlook Hong Kong's total external debt is forecast to grow from around US$49.5 bn (30.3% of GDP) in 2002 to US$60. bn (34.2% of GDP) in 2004, as private companies borrow in order to finance expanded operations in mainland China. The debt-service ratio will be low in 2003-04, averaging just over 2.5%. Economic forecast summary (Table 1) 2002 2003 2004 Real GDP (% change) 2.3 2.7 4.0 Consumer prices (% change; av) -3.0 -1.5 -0.8 Exchange rate HK$: US$ (av) 7.80 7.80 7.80 Current account (US$ m) Goods: exports fob 201,719 227,787 246,606 Goods: imports fob -207,100-232,120-254,347 Trade balance -5,382 -4,334 -7,741 Current-account balance 13,966 14,064 13,143 Current-account balance (% of GDP) 8.6 8.7 7.4 External financing (US$ m) Financing balance 9,724 9,443 7,886 Total debt 49,447 56,404 60,449 Total debt service 7,457 8,083 9,205 Debt-service ratio, paid (%) 2.6 2.5 2.6 Chile Chile: Country Profile Chile has been a model of economic reform for Latin America since the beginning of the 1980 sa record of success that is due in large measure to a trade policy of unilateral liberalization coupled with an almost uniform tariff rate. Yet President Ricardo Lagos, who took office in March 2000, has promoted a reversal of labor deregulation and spending restraint.

Recently, Chile's government approved long-promised labor legislation in September 2001, adding significantly to the burden of doing business in Chile. Also, the tax on reinvested corporate profits rose from 15 percent to 16 percent, and will increase to 17 percent in 2004. The tax increase will finance a cut in personal taxes to stimulate consumption. These two measures raise the cost of investment in Chile and will undermine prospects for lower unemployment, currently at 9 percent; they also cast doubt on whether Chile will remain a model of reform for the rest of Latin America. The Lagos administration has committed to imposing a structural budget surplus rule of 1 percent of GDP but is struggling to keep its commitment. Chile recently signed a free trade agreement with the European Union, which now awaits ratification in Congress, and is engaged in trade negotiations with the United States.

In addition, the low economic growth of the past five years, averaging 2.5 percent per year, prompted a meeting between representatives of the public and private sectors to elaborate a pro-growth agenda, which has yet to be introduced in Congress. Chile's fiscal burden of government score is 0.5 point better this year; however, both its government intervention and regulation scores are 1 point worse. As a result, Chile's overall score is 0.15 point worse this year, causing Chile to be classified as a mostly free economy. Chile: Country Risk COUNTRY VIEW FROM THE ECONOMIST INTELLIGENCE UNIT Overall Overall Political Economic Economic Liquidity rating score risk policy risk structure risk Risk September B 21 A A C A June B 22 A A C A Short-term risk event A deterioration in crisis-hit Mercosur would have a negative impact on Chile's already volatile currency.

Political Risk Although the ruling Concertacion and the opposition Alianza por Chile (the Alianza) coalitions have reverted to traditional consensus politics, the president, Ricardo Lagos, will use political polarisation in an attempt to stem the rise of Joaquin Lavin, the likely presidential candidate for the Alianza in 2005. Nevertheless, the Partido Democrat a Cristiano (PDC) constituent of Concertacion will maintain a moderating influence on government political strategy. Despite a wider than previously forecast fiscal deficit for 2002, fiscal policy remains cautious. Foreign trade On January 1, 2002, according to the U.S. Trade Representative, the government reduced the flat tariff rate of 8 percent on most products to 7 percent.

Chile has by far the best tariff regime in its region; however, its tariffs are still high by global standards. On some agricultural goods, such as wheat, vegetable oils, and sugar, Chile applies duties on top of the existing tariff rate, and this can increase the effective tariff rate dramatically. The U.S. Trade Representative reports that "due to low international wheat prices in 1999 and 2000, this system led to applied import duties as high as 90 percent, well above Chile's WTO bound rate". In May 2001, the price band was temporarily lowered until March 2003. Since agriculture is one of the most important export sectors, barriers on agricultural products distort trade significantly. If the price band increases after March 2003, Chile's trade policy score could worsen in future editions of the Index.

Out of 60 countries. Out of 8 countries: Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Venezuela Economic outlook GDP growth will weaken to 2.4% in 2002, but should recover in 2003 as confidence in both the domestic and global economies improves. Inflation is expected to remain within the 2-4% range set by the Central Bank. The current-account deficit will be manageable in the forecast period. Debt outlook The expansion of the debt stock is slowing and Chile's debt profile remains healthy.

The debt-service ratio will decline in the forecast period on the back of higher export earnings and lower debt repayments. Economic forecast summary (Table 2) 2002 2003 2004 Real GDP (% change) 2.8 2.4 4.9 Consumer prices (% change; av) 3.6 2.1 2.9 Exchange rate Ps: US$ (av) 636.39 685.47 690.54 Current account (US$ m) Goods: exports fob 17,440 18,322 20,837 Goods: imports fob -15,877 -16,209 -18,601 Trade balance 1,563 2,113 2,236 Current-account balance -903-909 -565 Current-account balance (% of GDP) -1.4 -1.4 -0.8 External financing (US$ m) Financing balance -5,732 -4,384 -4,103 Total debt 37,325 39,317 41,247 Total debt service 6,486 4,430 4,716 Debt-service ratio, paid (%) 27.8 19.1 18.1 Gross Domestic Product (GDP) The GDP is measures the value of a nation's output of goods and services for some period of time, usually a year. GDP can increase for two distinct reasons. It can increase because more goods and services are being produced, or it can increase because prices of goods and services have risen. The economic forecast summary tables (tables 1 and 2), revel in recent data that Hong Kong's is much stronger in its GDP than is Chile. Chile's GDP is clearly poor compared to Hong Kong?'s.

Hong Kong's GDP is definitively very high, compared to Chile's and to other nation's and this fact is really proven through both, recent and historical economic data. Conclusion According to the findings of this research, both nations have advantages and disadvantages over their economic, political and business environment factors. Hence, it is very hard to say that these two nations (Hong Kong and Chile) are similar in their country risk structure. What is a fact is that Chile and Hong Kong are very different in most ideologies of economic expansion and development. Political and economic risks of both countries are definitively the driven forces that control and expand the business environment of each, but at the same time these forces are the power that removes barriers of foreign trade and investment of both nations. Chile's foreign trade status is low, limited and pessimistic.

During many years, Chile has been struggling a lot in improving and expanding its foreign trade rank, even nowadays. During the time, Chile's trade barriers have been fixed and improved, but they still high by global standards. In other hand, Hong Kong's foreign trade and investment barriers are highly much lower than Chile's in terms of import tariffs, quotas, duties etc. In short, Hong Kong is better place to invest, relatively to Chile, because of its low level of protectionism.