The Hong Kong Special Administrative Region (HKSAR) has a central place in the East Asian production and distribution channels as one of the leading regional distribution centers (RDCs) together with Shanghai, Shenzhen, and Singapore. A former British territory handed over to China in 1997 but still preserving a fairly autonomous and independent economy (according to the formula “one country, two systems”), it is one of the principal export-led growth Asian economies.
Hong Kong is the world’s seventh-largest trading economy as of 2017, has the highest foreign direct investment (FDI) after China, and is often the first port of call for Western companies approaching Asian markets for exporting as well as sourcing. More than anything else, it offers a very sophisticated service economy; services account for more than 90 percent in terms of contribution. Hong Kong’s GDP is based on four main sectors: trading and logistics (21.5 percent of GDP in 2018), tourism (4.5 percent), financial services (18.9 percent), and professional services of various kinds (12.2 percent).
What makes Hong Kong so attractive? History aside, there are many important factors that appeal to a company when it decides to go global and enter Asian markets, which are now acknowledged as engines of world growth.
First of all, Hong Kong is a free trade zone in the sense that all products, with the exception of specific items like tobacco and spirits, enjoy zero taxes in imports and exports. This has allowed a series of advantages, such as the offshoring of manufacturing to the neighboring Guangdong province in China since the 1970s.
Outputs are sent to Hong Kong for packaging, advertising, and further re-exports.
A rapid look at the Hong Kong Trade and Development Centre’s trade statistics will show that the majority of the HK SAR’s exports actually comprise re-exports of imported products from China and abroad. Hong Kong’s total exports were about $533.1 billion in 2018, while re-exports accounted for $527.2 billion. China, unsurprisingly, is the main supplier of imports, but many countries benefit from the free-trade regime. In the case of China, this relationship has become easier since the Closer Economic Partnership Arrangement (CEPA). This treaty, signed in 2004 (and the first of its kind to be signed
between the two entities), is now a building block of the progressively closer integration of Hong Kong’s economy with the Chinese mainland, not only in the traditional manufacturing and logistics sectors but also in services, which are generally off-limits for foreign companies. As a result of CEPA’s provisions, Hong Kong suppliers are enjoying preferential treatment when entering the mainland market in various service areas and can also have professional titles and qualifications recognized in China.

Questions
1. What are the elements that make Hong Kong so successful in terms of external trade?
2. Analyze the role of the exhibition industry in Hong Kong.
3. Using the sources provided as well as online research, illustrate the main features of Hong Kong as a logistics hub, especially regarding its deep-water port.
4. Why are Western companies increasingly using Hong Kong to showcase their products?
5. What are the main challenges awaiting Hong Kong in its efforts to remain one of the world’s largest trading economies?