Hong Kong: The Most Business-Friendly City in the World

By The Editors

With enviable geography, world-leading density, and an astonishing government surplus, Hong Kong is well-positioned to withstand a sharp slowdown from its neighbor (and sorta-kinda-owner) to the north

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Reuters

It would be fitting that Hong Kong, by many accounts the most business-friendly country (or city) in the world, is led by a president who goes by the title "Chief Executive."

You get what you pay for, perhaps. Just this week, the Hong Kong government announced a round of pay raises for the government, increasing its chief executive's annual salary to a smooth $622,000. That's more than 50% more than the U.S. pays our president.

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Beneath this patina of flush government officials rages a dynamic, dense, and rich city. Leased by the British for 99 years in 1898, Hong Kong returned to China in 1997, where it resides as a "Special Administrative Region," which means that Hong Kong governs most domestic affairs and cedes control to China for foreign policy.

Left to its own devises, Hong Kong has become perhaps the most important major port in the world, complimenting geographical luck with a low-tax, low-regulation policy that has made it one of the top three easiest countries to do business, according to the Ease of Doing Business Index. For more than a decade, Hong Kong has received the most foreign direct investment of any Asian country not named China, and the United States is one of its top investors.

Conservatives envy the city as a haven for low taxes. The Heritage Foundation has repeatedly named it the freest economy in the world. This year, the think tank praised the state for its "simple and efficient" tax structure:

The standard income tax rate is 15 percent, and the top corporate tax rate is 16.5 percent. The overall tax burden is low at 13.9 percent of total domestic output. Government spending is equivalent to 17.3 percent of GDP. The budget balance has recorded large surpluses, which the government has chosen to reduce through per capita cash payments and tax rebates. Public debt is low.

Hong Kong trade relies not on industry (manufacturing makes up a tiny share of the Hong Kong economy) but on services and re-exports -- products made outside the city and shipped through its deepwater port. Mainland China accounts for more than half of all exports, while the United States and the EU make up another fifth, with 11% each.

Pay attention to those export figures. They explain both why Hong Kong has grown by an incredible 6% annually in the last decade and why the economy is in danger of a major slowdown as China's retrenches and the EU tip-toes around a continent-wide recession. On Wednesday, the Hang Seng index "posted its biggest loss in six months on Wednesday" after Chinese media reported flat loan growth for the country's countries largest banks, the Economic Times reported.

Still, Hong Kong has practically every ingredient economists recognize in a thriving city: a dense, well-educated urban population, excelling in tradable services, and blessed with a location that makes it an indispensable linchpin in world trade. "Hong Kong's economic strengths, including a sound banking system, virtually no public debt, a strong legal system, ample foreign exchange reserves, and an able and rigorously enforced anti-corruption regime, enable it to quickly respond to changing circumstances," the U.S. State department acknowledges

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http://www.theatlantic.com/business/archive/2012/05/hong-kong-the-most-business-friendly-city-in-the-world/257304/