Hong Kong

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Full Report: Hong Kong


1910: With deterioration of Sino-British relations during the first Opium War, Hong Kong is ceded to Britain in perpetuity in 1842. It is proclaimed a colony and ruled by the Hong Kong Legislative Council (LEGCO). By the end of second Opium War, Kowloon is leased to Britain, also in perpetuity. Businesses flourish. In 1898 Britain obtains from China a 99-year lease for the New Territories.

1911-1918: The last dynasty falls in China in 1911 and people in Hong Kong take to the streets, attacking offices of the monarchist newspaper and the Bank of China. A new Supreme Court opens, as does Hong Kong University and the Kowloon-Canton Railway. During British occupation Hong Kong will become the largest entrepot between China and the rest of the world.

1919-1929: Emboldened by anti-imperialist demonstrations in China, Hong Kong workers launch a series of strikes and demonstrations that nearly paralyze the colony. After almost 30 percent of workers flee north to Guangzhou, the British Foreign Office says it will modify some unequal treaties. Several British concessions are handed back to China after huge local protests.

1930-1932: When Ho Chi Minh comes to Hong Kong to organize a secret Indo-Chinese Communist Party, he is arrested and extradited. Japan invades Northern China in 1931, and anti-Japanese riots break out in Hong Kong.

1933-1936: Chinese authorities in Guangzhou send agitators to Kowloon to resist Hong Kong's resettlements there. The dispute drags on for five years. Chinese and Hong Kong leaders meet to discuss the development of southern China and make plans for a rail line linking major Hong Kong and Chinese cities.

1937-1940: When Japan blockades Chinese ports, Hong Kong becomes a crucial channel for arms supplies to China. A completed railway and bridge over the Shenzhen River facilitate traffic between Hong Kong and Guangzhou.

1941-1945: Japan attacks Hong Kong on December 8, 1941. Britain surrenders to Japan in Hong Kong on December 25. Four years of painful occupation follow.

1946-1949: Britain and China begin talks on Hong Kong's sovereignty, but they fizzle when China's civil war leads to a communist victory. Hundreds of Shanghai businesses transfer operations to Hong Kong. The government reinforces Hong Kong garrisons and adopts a tough anticommunist stance. Identity cards are issued to residents over age 12, and police search powers extended.

1950-1951: Britain recognizes the People's Republic of China (PRC) in 1950. Relations are uneasy as hundreds of thousands of Chinese refugees flood into Hong Kong. When the United Nations imposes a trade embargo on China, it effectively ends Hong Kong's entrepot status. Britain drops reform plans for Hong Kong, calling the timing "inopportune."

1952-1965: When a plane carrying Chinese and North Vietnamese officials explodes midair in 1955, China blames Hong Kong rebels and demands justice. Riots break out when Nationalist flags are defaced in Kowloon in 1956. With China's markets virtually closed, Hong Kong focuses on industrialization and soon becomes a significant Asian industrial center.

1966-1971: Booming as a freewheeling industrial and financial center, Hong Kong is a rest stop for U.S. troops fighting in Vietnam and a major U.S. listening post for Asia. But tensions with China remain high and worsen when left-wing radicals place bombs in crowded areas and stage anti-British protests. There is a run on Chinese banks in Hong Kong. Riots break out on Kowloon after a ferry rate increase.

1972-1979: China opens to the West, and tensions with Hong Kong relax. In 1978 Deng Xiaoping invites Governor MacLehose to visit and discuss the expiration of the New Territories lease. Hong Kong is referred to as "a Chinese territory under British administration." Property values are astronomically high, and some businesses begin to move north into China.

1980-1981: Hong Kong's population reaches 5.2 million; the "touch base" policy that had been in practice is abolished to halt the influx of immigrants from China. Hong Kong British passport holders are downgraded to "British Dependent Territory Citizens." When China opens Special Economic Zones (SEZs) in Guangdong, heavy Hong Kong investment begins.

1982-1984: Margaret Thatcher begins negotiations with Deng Xiaoping on the future of Hong Kong. By 1984 they complete the first draft of the Sino-British Joint Declaration on the Future of Hong Kong. They agree that Hong Kong will become a Special Administrative Region (SAR) of China in 1997, with its own laws, freedoms, and way of life continuing until at least 2047.

1985-1989: In Beijing a committee is formed to draft the "Basic Law" that will govern Hong Kong after hand-over, and a Sino-Soviet Joint Liaison Group is set up in Hong Kong to facilitate the transfer of government. In 1989 Governor Wilson announces a controversial plan to build a new airport by early 1997, slated to be one of the world's largest infrastructure projects.

1990-1991: Basic Law is formally promulgated. China announces that it must be consulted on all decisions involving Hong Kong before 1997, especially those regarding the airport project. A new Hong Kong Bill of Rights overrides all other laws, but the PRC claims the right of review and repeal in 1997.

1992-1995: Negotiations on the future of Hong Kong continue. The thorniest issues to be resolved are the pace of democratization and the new airport under construction. Beijing is alarmed to learn of likely debt in the airport project, and objects to Governor Patten's proposals for democratic reforms.

1996: Fears about what will happen in Hong Kong after the hand-over grow. China threatens to treat non-Chinese residents differently, eroding international business confidence.

1997: In June, thousands gather in memory of Tiananmen Square victims and demand that their freedoms remain untouched. In July Hong Kong becomes an SAR of China. Business ties with China strengthen when tycoon Tung Chee-hwa becomes the first chief executive. China soon moves to repeal 16 laws, including several from the Bill of Rights. Teaching of Mandarin is encouraged alongside Cantonese and English.

1998-1999: In a prominent "right of abode" case, the government tries using a mainland mechanism to overturn a decision of Hong Kong's courts, unsettling many. Yet despite fears, Hong Kong's legal system and civil service remain independent.

2000-2003: Hong Kong is a major financial and commercial center. China's World Trade Organization membership and massive industrial investment in Guangdong boost trade, but other revenue is down. The "one country, two systems" political system takes hold, but the mood is less buoyant, competition from other cities fierce. The economy falters with the spread of Severe Acute Respiratory Syndrome (SARS) in 2003.

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1910-1918: The 1842 Treaty of Nanjing cedes Hong Kong island to Britain in perpetuity. It is ruled by Britain as a colony. The Peking Convention of 1860 cedes the Kowloon area, on the mainland opposite Hong Kong island, to Britain, also in perpetuity. The Peking Convention of 1898 gives Britain a 99-year lease over the New Territories, comprising an additional mainland area and additional islands.

1919-1929: China presents its claims for the return of the New Territories at the Paris peace talks in 1919 and at the Washington Conference in 1921, but both times they are rejected. The first Chinese legislator is named to the Hong Kong Executive Council in 1926, but the government remains almost entirely British. Britain extends diplomatic recognition to China's Nationalist government.

1930-1949: Hong Kong continues to be ruled by Crown-appointed governors except for a brief period when it falls to Japan (1941-45). During this period China and the U.S. both pressure Britain to return Hong Kong to China, but Winston Churchill refuses, saying, "Hands off the British Empire." In 1945, Britain accepts the Japanese surrender and reestablishes full colonial rule in Hong Kong.

1950-1959: While decolonizing elsewhere, Britain adamantly holds onto Hong Kong as its most profitable colony. Political tensions erupt frequently during this decade as China accuses Hong Kong of sympathizing with the ousted Nationalists, now in Taiwan.

1960-1976: A series of articles begin to appear in the Chinese press describing Hong Kong as an unresolved problem left over from the past, and "when conditions are ripe... should be settled peacefully through negotiations." Years of political turmoil in China provoke no changes or political reforms in Hong Kong.

1977-1984: When Deng Xiaoping takes charge in China, he begins negotiations with Britain over Hong Kong's future. In 1984 the question of sovereignty is settled with the Sino-British Joint Declaration, making Hong Kong a Special Administrative Region (SAR) of China in 1997. It will retain its way of life for 50 years under a "one country, two systems" doctrine.

1985-1989: The Basic Law that will govern Hong Kong post-1997 is drafted and approved, and plans are made for the transition. Mirroring the new openness in China, local Hong Kong activism increases. After the brutal crackdown in Tiananmen Square, the Alliance in Support of the Patriotic Democratic Movement in China is formed.

1990: Sino-British officials reach a secret deal on the future political structure of Hong Kong. Basic Law is formally enacted by the People's Congress and promulgated by the PRC, enshrining the concept of "one country, two systems." The head of the SAR will be a chief executive, advised by an executive council. The first Hong Kong Legislative Council (LEGCO) elections are held.

1991-1996: The Hong Kong Bill of Rights is enacted, but Chinese officials claim the right to repeal any rights and laws incompatible with Basic Law. In 1992 pro-China elements form the Democratic Alliance for the Betterment of Hong Kong. Liberal Democrats win by a landslide in the 1994 LEGCO elections. Chinese officials decry LEGCO as an "advisory body" within the British colonial structure.

1997-1999: On July 1, Hong Kong becomes HKSAR, a Special Administrative Region of China, under the leadership of industrial tycoon Tung Chee-hwa. He is answerable to China's president, Jiang Zemin. Anson Chan is administrative secretary. The Union Jack is lowered for the last time in 1997, and the flag of the People's Republic of China is raised.

2000-2003: The Democratic Party still dominates the Legislative Council, but chief executive Tung wields effective power and is reappointed without elections in early 2002. He makes political appointments to minister-like positions, breaking with the tradition of top civil servants running administrative departments. Tung's popularity, high in 1997, is now less than that of Chinese leader Jiang Zemin.

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1910-1941: Hong Kong's status as a free port makes it a central entrepot in the trade between China, India, and Britain. Local industries of shipbuilding and repair, rope manufacturing, and sugar and matches, all support this status. This brings modern industrialization to Hong Kong but has minimal impact on the local economy, which is mainly sustained by trade.

1942-1945: When Japan invades Hong Kong during World War II, the business elite is maintained in waterfront brothels. They are marched daily to offices, where they balance books and sign currency.

1946-1949: With the defeat of Japan, Hong Kong continues as an entrepot trade center, with food and textiles accounting for nearly two-thirds of re-exports. Civil war rages in China, and trade begins to falter.

1950-1961: A 1950 U.N. embargo on trade with China ends Hong Kong's entrepot status. With the Chinese market virtually closed until 1978, Hong Kong focuses on industrialization and develops new industries like textiles and plastics for export. With Japan in ruins after World War II and a huge flight of labor, capital, and expertise from Shanghai into Hong Kong, it becomes Asia's unrivaled industrial center.

1962-1970: The economy booms, and Hong Kong builds highways, tunnels, reservoirs, and high-rise buildings at a breathtaking pace. Industries diversify to include optical goods and electronics. The financial sector grows rapidly as Hong Kong banks lend to governments throughout the region, fueling Asian economic expansion. The Hong Kong stock market and gold markets are some of the world's most active.

1971-1978: When Chinese leaders Zhou Enlai and Mao Zedong die in 1976, Hong Kong's stock market drops slightly but rebounds quickly. Business continues as usual. Hong Kong increasingly relies on China's Guangdong province for cheap vegetables and other foodstuffs, legal and illegal labor, and its water supply. By 1978 China is the second largest source of Hong Kong imports.

1979-1983: Rising costs from two decades of growth, plus competition from other producers in Southeast Asia, threaten Hong Kong's price competitiveness. When China imposes policies to end the flow of cheap labor from the mainland, Hong Kong begins to move its labor-intensive industries into China, especially into the New Economic Zones in Guangdong province.

1984: Jardine Matheson, Hong Kong's largest and oldest trading company, announces plans to move its legal residency to Bermuda, a move reflecting uncertainty over the fate of businesses when Hong Kong reverts to Chinese rule. Its head office and fixed assets will remain in Hong Kong.

1985-1994: Hong Kong invests billions in "out-processing" centers in Guangdong. Chinese partners supply the plant, labor, water, and electricity, while Hong Kong partners provide equipment, product design, materials, and marketing. This "cross-border industrial system" allows Hong Kong to avoid Chinese trade barriers and bureaucracy and is hugely successful. Investment jumps from US$0.5 to $5.8 in 10 years.

1995-1996: Hong Kong once again plays an entrepot role, with most of its trade with other countries involving re-export of products made in out-processing factories in China. High inflation rates and cheap currency drive island real estate properties up over 50 percent. By 1995 Hong Kong is the world's most expensive location for Class A office space, with rents as much as $135 per square foot.

1997-2000: The restoration of Hong Kong to China marks the beginning of full economic integration. As manufacturing moves to other Chinese cities, Hong Kong remains Asia's banking center and tries to transform itself into the infotech center of Asia.

2001-2002: Hong Kong enjoys its position as gateway to China and benefits from increased trade after China enters the WTO, despite the global economic slowdown. But growth is close to flat, and unemployment, public assistance, and the government deficit all swell, putting pressure on the currency. Mainland cities like Shanghai and offshore centers like Singapore present Hong Kong with tough competition.

2003: The deadly SARS virus' spread from China raises fears of an economic crisis. Tourism plummets, and commerce is disrupted. The government halves its goal of 3 percent economic growth and unveils a financial aid package for business designed to counter the impact of the panic. The package, which slices into revenue sources, makes budget deficit reduction unlikely.

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1910-1936: China's revolution of 1911 brings a new wave of refugees to the British colony. Hong Kong's population swells from 33,000 in 1851 to nearly 900,000 by 1931. Anti-British sentiment rises alongside growing Chinese nationalism, fed by events on the mainland. The first commercial flight is made from Hong Kong to Guangzhou in the early 1930s.

1937-1941: Japanese troops battling on the mainland sweep across the border and enter Hong Kong's New Territories in 1941. They destroy the colony's weak defenses and take control of Hong Kong on Christmas Day. By 1941 the population reaches 1.6 million.

1942-1945: Japan tries to "Japanize" Hong Kong, renaming buildings and landmarks and instituting Japanese language programs at schools. Allied prisoners of war and civilians are held in local camps or shipped to Japan. Some prisoners are beaten, tortured, or executed for espionage or attempting to escape. Thousands are forced across the border into China in an effort to conserve Hong Kong's food and fuel.

1946-1949: Hundreds of thousands of refugees fleeing violence and political uncertainty in China stream into Hong Kong. Within five years the population swells to more than two million. Charities and relief organizations cannot handle all the new arrivals, who struggle to survive in appalling conditions.

1950-1959: A lack of housing leads 300,000 squatters to build tin and board huts on slopes too steep for development, and to share them with their pigs, chickens, and ducks. Drugs, gambling, prostitution, and disease flourish. Fires sweep a squatter settlement in 1953, displacing 70,000 people and spurring the government to action. Vast concrete public resettlement buildings are constructed.

1960-1969: Hong Kong becomes a major manufacturing center with a booming economy. The population reaches 3.1 million. Problems with crime, corruption, and income disparity worsen. Hong Kong becomes a recreation place for U.S. troops and a major listening post in Asia. China erects a barbed-wire border barricade.

1970-1979: Hong Kong is a freewheeling international city that is continually rocked by turbulence in China. During the Cultural Revolution, Hong Kong officials step up anticommunist purges and close pro-Beijing newspapers. Chinese incursions into Vietnam in 1978 and '79 send waves of boat people to Hong Kong and throughout the region. Yet the quality of life remains high, and property values soar.

1980-1989: Hong Kong is the most densely populated city in the world. Economic ties with China increase, but cultural ties remain limited. After the Tiananmen Square massacre in 1989, Hong Kong protestors are warned, "The well water does not interfere with the river water." Plans are announced for an ambitious new airport that will be one of the largest infrastructure projects in the world.

1990-1996: Hong Kong continues to strictly limit the entry of immigration from the mainland while also reaping the benefits of being close to a large, low-income population. Elections are held in 1990 and 1994, with strong Liberal Democrat victories. As the population braces for change, many apply for British citizenship.

1997-1999: With the erosion of migration barriers, communication and travel between Hong Kong and China grows. The largest suspension bridge in the world is completed, linking Kowloon to the Lantau airport construction site. The local press reports freely and critically on the PRC and Hong Kong government. In April '98 the first contingent of People's Liberation Army (PLA) soldiers marches into Hong Kong.

2000-2003: Though closely overseen by China, Hong Kong retains distinctive freedoms and energy; China sees in its "one country, two systems" example a model for eventual reunification with Taiwan. But the economy grows sluggish: Rising unemployment, competition from other cities, and the ambiguous political system combine to dull the city's edge. The 2003 spread of SARS prompts quarantines and school closings.

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1940-1959: Hong Kong's population increases dramatically as hundreds of thousands of refugees flee China, straining the land's natural resources. Severe deforestation and erosion result.

1960-1969: Rapid industrialization and inadequate government controls further degrade Hong Kong's environment. Untreated industrial sewage is discharged directly into the waterways. Urbanization results in an accelerated deterioration of air quality.

1970-1979: Agricultural chemicals, domestic sewage, and industrial effluent contaminate the rivers that flow into the harbors. More than 1.6 million cubic meters of waste flow into Victoria Harbor every day. Repulse Bay records water quality 52 times worse than European safety standards. The Environmental Protection Unit is formed but remains largely ineffective until years later.

1980-1989: Environmental protection legislation begins to develop, but the process is slow, and regulations are weak and often ignored. Factory emissions and heavy traffic pollute the air. Wildfires destroy thousands of trees. Green groups begin to appear. A government White Paper of 1989 recommends new protections and goals for the next 10 years. Building begins on proposed waste disposal facilities.

1990-1998: A chemical waste treatment center begins operation. Industrial sewage laws are enacted, but critics say only heavier fines will deter the illegal dumping of hazardous waste. Landfills are nearly full. Diesel fuel emissions add to deteriorating air quality, and water and noise pollution are problems. Tourism suffers, and Hong Kong's poor environmental health leads businesses to relocate.

1999: The chief executive's 1999 Policy Address includes a framework for improving Hong Kong's environment. It proposes to improve air and water quality by phasing out diesel vehicles; improve the sewage disposal system; cooperate with Canton (Guangdong) Province to reduce cross-border pollution; reduce waste; and promote sustainable development.

2000-2003: The government blocks the Kowloon-Canton Railway's construction of a new line through wetland and bird sanctuaries, marking the first time a permit is rejected on environmental grounds. An outbreak of avian flu forces a massive poultry cull and attracts criticism of the government's handling of the crisis.

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Rule of Law

1910-1940: By 1898 Britain takes over Hong Kong island, Kowloon, and the New Territories. China condemns the unequal treaties but makes no formal demands on this land until 1982. The colony is ruled by a governor appointed by the British Crown, who has complete law-making authority. Executive and Legislative Councils provide only advice and "checks" on the his authority.

1941-1945: Hong Kong falls to Japan during World War II, bringing British rule temporarily to a halt. During the war, both China and the United States press Britain to return Hong Kong to China, but Prime Minister Winston Churchill adamantly refuses.

1946-1948: After a brief interval of military rule, in 1946 British reestablishes a full colonial government under the authority of a Crown-appointed governor. The move is said to "resemble a Bourbon restoration." While Britain announces its intention of divesting itself of colonies after the war, nothing is done to decolonize Hong Kong or to provide its citizens with democratic rights.

1949: Petitions are made for changes in the constitution at central and municipal levels. After China becomes communist in 1949, LEGCO adopts broad new public security legislation. Identity card are required for all residents over 12 years old, and police are given authority to search domestic premises and arrest and report any "undesirable" persons.

1950-1979: Hong Kong's colonial system of government remains virtually unchanged, despite popular demand for some kind of representation. There is no voting and no power of impeachment.

1980-1981: In 1980 a process of democratization is begun that gradually gives political power to Hong Kong residents. A three-tiered system is established for more popular representation: Below the Legislative Council are now two Municipal Councils (urban and regional) and 18 District Boards.

1982-1984: Margaret Thatcher travels to Beijing to talk with Deng Xiaoping about Hong Kong's future. In 1984 they sign the Joint Declaration that cedes Hong Kong to Chinese rule in 1997 under the "one country, two systems" formula, a status that is to last at least 50 years.

1985-1989: A mini-constitution called "Basic Law" is drafted to govern Hong Kong after 1997. It contains controversial provisions regarding the election of a chief executive to govern the Special Administrative Region (SAR). The first indirect elections for LEGCO are held in 1985, then again in 1988. A Sino-British Joint Liaison Group is set up in Hong Kong to facilitate the transfer of government.

1990-1991: Basic Law is promulgated in 1990. The first popular elections to LEGCO are held in 1990; anti-Beijing candidates secure most of the 20 available seats. In 1991 citizens vote for District Board and Municipal Council members. The Hong Kong Bill of Rights is enacted, but China claims right of review and appeal after 1997. Direct LEGCO elections are held, and Liberal Democrats capture 16 of 20 seats.

1992-1996: The governor's electoral-reform proposals provoke stiff opposition from Beijing. In Hong Kong's first fully democratic elections, in 1994, pro-democracy candidates win handily. Pro-PRC candidates enjoy a stunning win in the '95 LEGCO elections, and China vows it will dissolve LEGCO in '97. Tensions continue with China over who rules Hong Kong. Tung Chee-hwa becomes the new chief executive in 1996.

1997-1999: China announces plans to repeal the rights of protest and free association; Tung Chee-hwa supports the repeal. Hong Kong becomes an SAR of China in July 1997; Basic Law takes effect. A "right of abode" makes news in 1999 when China threatens to overturn a Hong Kong court decision; similar concerns exist over arrest notifications and prisoner-transfer agreements.

2000-2003: While an independent judiciary remains in place, concerns grow over the ultimate authority of Hong Kong courts. Residents enjoy rights of expression and association; the Falun Gong sect, persecuted in the mainland, operates freely. But the executive model of government allows for little democratic debate. Corruption is said to be growing; political insiders allegedly benefit from public contracts.

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Trade Policy

1910-1940: As a British colony, Hong Kong is used mainly as an entrepot in the "triangular trade" between China, India, and Britain. The complementary industrial activities developed -- shipbuilding, rope-making, sugar, and matches -- have little direct impact on the local economy. Hong Kong's growth comes primarily from its position as a trading port.

1941-1950: When Hong Kong comes under Japanese occupation during World War II, trade dries up. With the end of the war, the establishment of a new communist government in China, and the outbreak of the Korean War, Hong Kong's dependence on entrepot trade comes to an end.

1951-1961: The 1951 U.N. trade embargo on China slashes trade in Hong Kong's port, forcing the colony to shift its economic focus towards export-oriented manufacturing. Shipbuilding gives way to textiles and plastics. In a stunning transfer of industrialization refugees from Southeastern China provide cheap labor, capital, and technical expertise. In one decade Hong Kong's exports jump from 30 to 80 percent.

1962-1970: An export promotion strategy continues to dominate. The Hong Kong Trade Development Council is established to support local industries and expand trade. Textile industries expand, while technology- and capital-intensive industries are also built up. Hong Kong becomes a leading exporter of electronics, optical goods, clocks, and watches.

1971-1978: The development of other export-oriented Asian countries heightens competition in labor-intensive products market. Some factories move north into China. Hong Kong imports more cheap goods, food, and water from China. Home industries diversify by producing higher-quality electronics and other goods. Because of its thriving free port, Hong Kong becomes a center of smuggling traffic.

1979-1983: China begins a reform era and opens Special Economic Zones (SEZs) near Hong Kong. Increasing investment in labor-intensive industries in Guangdong province leads Hong Kong to shift from light manufacturing to a services industry. It emerges as an international financial center, with finances beginning to replace manufacturing as its largest industry.

1984-1996: Hong Kong investment flows into new industrial zones in China that produce goods for export. Hong Kong is the busiest container port in the world and one of the world's largest exporters, although most exports are now classified as re-exports. It also remains one of the financial capitals of the world.

1997-1998: Under the "one country, two systems" agreement with China, Hong Kong keeps its status as a free port and tariff-free zone. The Asian financial crisis is a blow to Hong Kong, whose primary trading partners besides China and the U.S. are Japan, Taiwan, South Korea, and Singapore. Reduced import demand creates a downturn in Hong Kong's exports and re-exports.

1999-2003: The economy gradually recovers from the Asian financial crisis, only to encounter another slowdown in 2001 brought on by the economic problems of Hong Kong's key trading partners, the U.S. and Japan. Despite this dependence, Hong Kong benefits from its position as gateway to and from China, and trade grows in double digits in 2002, helped along by a revival of tourism.

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1910-1971: Hong Kong's monetary system, like China's, is based on the silver standard. When China abandons it in 1935, Hong Kong follows suit. The Hong Kong dollar (HKD) becomes the official monetary unit, and a currency board links it to the British pound sterling. HKDs are issued by Hong Kong and Shanghai Banking Corporation and Standard Chartered Bank.

1972-1982: Briefly linked to the U.S. dollar when the British pound is allowed to float, the HKD's exchange rate is also allowed to float the following year. Excessive money growth and uncertainty about Hong Kong's political future cause sharp devaluation of the dollar.

1983: The Hong Kong dollar plummets further when negotiations break down between Britain and China over Hong Kong's future after 1997. To create stability, the currency board is reinstated, and the Hong Kong dollar is linked to the U.S. dollar at a rate of HKD7.8 to US$1.

1984-1989: The Sino-British Joint Declaration of 1984 allows Hong Kong to continue issuing its own currency until the year 2047. The currency board system appears to effectively slow inflation. Hong Kong's financial markets become jittery with the coming political transition.

1990-1996: The Hong Kong dollar is fixed to the United States's currency, as are its interest rates, even though Hong Kong's inflation rate is three times America's. The Hong Kong dollar is increasingly perceived as overvalued.

1997-1998: The HKD remains the legal currency after the hand-over. Government invests an estimated US$15 billion of Hong Kong's reserves in the market to ward off speculative attacks resulting from uncertainty about whether its currency will stay pegged to the U.S. dollar. Interest rates rise drastically. Hong Kong suffers further overvaluation of the dollar and a brief period of severe inflation.

1999: The Hong Kong dollar slowly begins to recover as the economy stabilizes. Internal debate continues over whether the peg system should remain in place. Deflation sets in.

2000-2003: As deflation persists and the economy wobbles in and out of recession, government spending outpaces revenue, particularly from property taxes, and the growing deficit places pressure on the Hong Kong dollar, which remains pegged at its fixed rate to the U.S. dollar. Rumors of devaluation pick up anew; some economists argue a 20 percent devaluation would be appropriate.

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Categories: Overview | Political | Economic | Social | Environmental | Rule of Law | Trade Policy | Money
Graphs: Growth | Income | Inflation | Unemployment | Well-being | Trade Volume | Trade (CAB) | Spending

Related: LinksView all categories for years from to | See Full Report | Print