23 September 2007

The Miraculous Asian Tiger

Olga Muravjova looks at how Hong Kong came to power in the international economic arena.
"If you approach Hong Kong from the sea, you will sail through a narrow channel between the island on the south and the mainland to the north, thus coming into the great harbor from which the island-colony gets its name. For Hong Kong (pronounced in Cantonese Heung Gong) means “Fragman Harbour” (Hague, 1959, p.7).

Sea and harbour are important for Hong Kong not only as determinants of its geographical position. The sea and the harbour may be seen as the symbols of trade and openness. And these two elements together with appropriate policy measures (and a dose of geographical luck) actually constitute the essence of Hong Kong's success.
In this article, I would like to show that the development of Hong Kong was due to policies that adopted the city-state's economy to changes and fluctuations in the post-war world economy. I also try to show how the development of Hong Kong affected the development of the Pearl River Delta in the People's Republic of China.

Tiger is Born: 1940s-1970s

The role of Hong Kong as an “entrepot” changed with the establishment of the People’s Republic of China in 1949 and the outbreak of the Korean War. As a consequence of the war the United Nations put an embargo on China in 1951 (Chan, 1996). This resulted in great waves of refugees, entrepreneurs and manual labor from China to Hong Kong, bringing along with them managerial and entrepreneurial skills, capital, market knowledge as well as an abundant labor force to the territory, and setting the foundation for the first phase of industrial development of Hong Kong (Chan, 1998).

From the mid 1950s, labor intensive industries directed by export oriented strategies developed, taking advantage of Hong Kong’s geographical and economic positions. Also, as Yulong and Hamnett (2002) say, other favorable conditions at that time, such as the freer economic policy, the emergence of the New International Division of Labor (NIDL) as well as integration with the world capitalist system, (especially in the “regulations governing the operation of economy and trading”) brought new opportunities for Hong Kong to improve its industrial structure and also had an influence on rapid development of the city.

Badcock (2002) says that the economic success of Hong Kong in the 1970s was due to its ability to “mass produce” consumer goods at lower prices than its main competitors in other places. The production of different electronic devices and toys was common among the industries. These goods were usually produced by small and medium enterprises, and this led to the economic paradox of mass production, since usually big companies experiencing economies of scale carried out mass production, as the Fordist model explains. However, Augustin-Jean (2005) says that Hong Kong had never been an example of the Fordist paradigm, and the small and medium enterprises managed to benefit from their ability to produce “differentiated products in small quantities and in a short period of time” using simple technologies. This gave the possibility for entrepreneurs to quickly adjust their production to changes in demand, to modify their products several times a year in order to satisfy their most demanding overseas customers and when orders were too large, companies subcontracted parts of the production. Indeed, as Badcock (2002) mentions, Hong Kong’s industries had adopted flexible production characteristic for post-Fordist manufactories. However, the development of Hong Kong depended on its external relations, the importance of its port, its free port status as well as its existence as a specific economic entity.

Since Hong Kong’s beginning in 1841, the city was declared a free port, which fitted the laissez-faire ideology of the time, specifically that of a supporter of the “free economy”, which British Government was. At that time, the “British Government decided that…British taxpayers should not subsidize the running of the colony”, and therefore there were no taxes on products (Augustin-Jean, 2005).

But that was not all. Industries in Hong Kong received benefits from government actions in the 1970s. In response to rising world trade protectionism and competitive pressures from its Asian counterparts and lower wage developing countries, Hong Kong’s government “embarked on a series of laissez-faire financial policies”, such as the introduction of low taxes, abolition of exchange controls, and the accessibility of an extensive range of financial and technical services (Yulong & Hamnett, 2002). This started a shift in its economic development strategy which entailed a move to a “diversified economic structure particularly focused on the financial and service sector”.

Furthermore, Hong Kong’s location on China’s doorstep, as well as near the sea, is another factor that has greatly benefited Hong Kong’s economic expansion. Since the middle of the 20th century, Hong Kong has been the major link for China’s relations with the outside world. Furthermore, Hong Kong’s industries received huge benefits from the waves of migrants from the Mainland, since the effect of that was the great supply of labor. Additionally, China had supplied Hong Kong with basic daily necessities including fresh food and drinking water, even during the “Cultural Revolution” (Yulong & Hamnett, 2002). The importance of the connection with China and Hong Kong’s location rose especially after the “Open Door” policy was implemented, which I will discuss later.

Role of Government: Urban Planning Strategies

Yet, not everything was according to laissez-faire lines in Hong Kong. Despite their laissez-faire attitude, and a policy of minimal intervention, the colonial authorities had become increasingly involved in the management of land and public housing. After the World War II, there was a rapid economic development as well as a huge inflow of immigrants. The Hong Kong Government quickly understood that some planning actions were needed. A famous urban planner, Sir Abercrombie, came from England to Hong Kong in 1947, however, due to the liberation attitude of the time, there was little done during that period. Nonetheless, after a tragic event, when a gigantic fire completely destroyed a slum area in New Kowloon and left about 50,000 people without shelter, “one of the most ambitious public housing programs on Earth” had been started (Augustin-Jean, 2005). Simultaneously, in order to try to reduce the inevitable disturbance (noise and pollution) caused by industries to the residential districts, local government put into practice a relocation program for small and medium enterprises (SMEs) and encouraged the creation of industrial zones. The local authorities presented their program as a part of their mission to help the poor and I definitely can state that local economy benefited from the government intervention in the housing market. The system was very simple, did not involve much transfer of public funds, and was economically beneficial. Therefore, as Augustin-Jean (2005) says, it was not considered as a “contravening mechanism” of an ideology of a “free economy”.

International Environment and Roots of Economic Development from 1979s

Gar On-Yeh (1997) says that the most significant economic restructuring in Hong Kong occurred in the late 1980s after the adoption of economic reform and open door policy of China in 1978. The catch phrase of the Open Economy Policy was “to open to the outside world and to revive the economy of the island” (Chan, 1998). Hong Kong transformed from an industrial to an information society; the major international centre was founded not only on trade, shipping, banking, investment and finance, but also on property, tourism and entertainment. The laissez-faire financial policies of the beginning of the 70s appeared to be victorious, and by the beginning of the 1980s, Hong Kong became the fourth largest financial market in the world after New York, Tokyo and London (Yulong & Hamnett, 2002). In the meantime, this resulted in a market decline in the industrial and manufacturing sectors. The Hong Kong economy survived the oil crises of the 1970s, but the growing land prices and increasing labor wages have deteriorated its industrial production advantages. A significant amount of manufacturing production moved to cities and towns in southern China (Chan, 1996). Moreover, the competitiveness of the United States and Europe in the world market improved, after they started using flexible production systems. However, these developments did not frighten Hong Kong, and because of the economic reforms occurring in China at that time, Hong Kong did not have to take extreme measures to remain a competitive actor in the world market (Augustin-Jean, 2005). Therefore, it is important to examine economic developments in the People’s Republic of China in order to evaluate the economic restructuring of Hong Kong.

Hong Kong and China

China's economic reforms since the late 1970s and 1980s have had a far reaching effect on the economic restructuring of Hong Kong's economy. Guangdong Province is the first province in China which benefited from the Open Door Policy. The reason for this is that three out of four SEZs and two out of the 14 coastal open cities are located there. The province is believed to move “one step ahead” of the other provinces in the People’s Republic of China. This is also the province to have the largest impact on trade between China and Hong Kong. As Chan and Kam mention, Hong Kong and China are currently the largest trading partners (Chan, 1996; Kam, 1999). For example, trade amounted to 395 billion Hong Kong dollars in 1990, and it has been described that Hong Kong’s role vis-à-vis China as being a “trading partner”, “financier”, a “facilitator” and “middleman” (Chan, 1996). These definitions are especially correct with respect to the Pearl River Delta, a composite delta in Guangdong Province of south China, developed into one of the leading growth regions in the People’s Republic, and where most of the wealth is situated.

Hong Kong and the Pearl River Delta Region

The Pearl River Delta was fundamentally an agricultural region, however, since the 1980s its economic profile had experienced significant transformation, changing from an agricultural to a manufacturing area, dominated by “textile, food processing, footwear and electronic assembly enterprises”. More recently, some cities have focused on expanding commercial and service sectors (Chan, 1998). After China adopted the “Open Door Policy”, the industrial and manufacturing sectors have been decreasing. As Chan (1996) mentions, there was a relocation of the local industries and factories from Hong Kong to Shenzhen and other parts of the Pearl River Delta region. Hong Kong industrialists used these regions as a “backyard”, since while administrative operations stayed in Hong Kong, the production lines gradually moved to Guangdong and were decentralized. Such complementarity of the factors of production gives us a significant explanation of the success story of Hong Kong. “China can provide cheap land and labor; Hong Kong has the capital surplus and know-how” (Augustin-Jean, 2005). The migration from rural areas provided the labor supply. The government strictly controlled rural-urban migration on the Mainland until the establishment of the rural responsibility system, which consisted of a set of reforms aimed on giving the individual peasant households bigger responsibility of managing their own economic matters. As a result, the Pearl River Delta region has experienced massive migration of farmers traveling to township enterprises. Since the adoption of the “Open Door Policy”, the portion of the delta in Guangdong Province has become one of the largest economic regions and a massive manufacturing centre of mainland China, and there is an increasing integration between Hong Kong and the Delta. Chinese government hopes that the manufacturing in Guangdong, in a combination with the financial and service economy in Hong Kong will create an economic gateway attracting foreign capital throughout mainland China (Rohlen, 2000). The closeness of the Pearl River Delta region to Hong Kong attracts the overseas investors, which consequently stimulates the economy of both Hong Kong and the Delta region.

Urban Planning after 1979

The control of urban planning after the introduction of the “Open Door Policy” was significantly higher than before the reforms occurred in China. However, the economic restructuring that has occurred since the mid-1980s has created new challenges for urban planning in Hong Kong. New measures had to be developed to deal with the increasing cross-border traffic and to accommodate the changing needs of economy. Thus, a Territorial Development Strategy appeared in the early 1980s to coordinate land use and transport development in order to be able to provide a better living and working environment as well as to sustain economic development (Gar-On Yeh, 1997).

After the establishment of People’s Republic of China, and after the Korean War, the industrial sector of Hong Kong was rapidly increasing because of the great labor supply, caused by the huge inflow of migrants from the Mainland to Hong Kong. Also, the flexibility of Hong Kong’s industries, and the ability to response quickly to demands, created big advantages. Hong Kong’s industries were either small or medium in size and also had simple and very flexible production systems. Other parts of the world would experience such flexible and post-Fordist way of production only decades later. Moreover, “free economy” (free port status and other laissez-faire policies) gave profits to local industries. Regarding the urban planning in Hong Kong, there was a significant intervention from the government, to a degree of paternalistic reasons.

The “Open Door Policy” influenced Hong Kong’s development in a major way, transforming the city from industrial to an information based society. Industrial and manufacturing activities moved to the Mainland, especially to the Pearl River Delta region. By that time, Hong Kong had become a major financial centre. The increase in the connection between Hong Kong and the Peal River Delta was economically beneficial. The connection with China on another hand made Hong Kong even more attractive for foreign investors. In the 1980s, the introduction of the Territorial Development Strategy in order to improve lives of people by sustaining economic growth was a major change.


Hong Kong had undergone many development phases before it achieved the status of developed city. Its geographical advantages, successful planning and openness to changing economic situations in the rest of the world, helped Hong Kong to become one of the most important cities and the fourth largest financial market in the world. Hong Kong may be a good example of how openness, free trade and, last but not least, appropriate government policies lead to economic prosperity. In this sense, Hong Kong is to a certain extent the child of an ongoing process of globalization.


Asian Info – Hong Kong. 3 May 2007.

Augustin-Jean, L., “Urban Planning in Hong Kong and Integration with the Pearl River Delta: A Historical Account of Local Development”, GeoJournal, Vol. 62, Issue: 1, pp. 1-13. 2005

Badcock, Blair. Making Sense of Cities – A Geographical Survey. London, Arnold. 2002

Bureau of East Asian and Pacific Affairs. “Hong Kong”. 2007. 2 May 2007.

Chan, R.C.K., “Cross-border regional development in Southern China, GeoJournal, Vol. 44, Issue: 3, pp. 225-237. 1998

Chan, R.C.K., “Urban Development Strategy in an Era of Global Competition: The Case of South China”, Habitat international, Vol. 20, Issue: 4, pp. 509-523. 1996

Hague Eric. In the Shadow of Nine Dragons. Hong Kong Sketches. London. 1959

Gar-On Yeh, A., “Economic restructuring and land use planning in Hong Kong”, Land Use Policy, Vol. 14, No. 1, pp. 25-39. 1997

Kam Ng, M., “Political economy and urban planning: a comparative study of Hong Kong, Singapore and Taiwan”, Progress in planning, Vol. 51, Issue: 1, pp. 1-90. 1999

Rohlen, P. Thomas. “Hong Kong and the Pearl River Delta: “One Country, Two Systems” in the Emerging Metropolitan Context”. 2002

The World Fact Book. “Hong Kong”. 2007. 1 May 2007.

Yulong, S., Hammett, C., “The potential and prospect for global cities in China: in the context of the world system”, Geoforum 33, pp. 121-135. 2002

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