Comparing Economies of Hong Kong, Macao and Taiwan Reveals ‘One Country, Two Systems’ Exists in Name Only

Experts believe that the CCP’s so-called politics above all else is the cause of Hong Kong’s economic decline. As the "One Country, Two Systems" has all but disappeared, Hong Kong has lost its advantage as an independent customs territory and downgraded from an international financial center to a city of international trade. The picture shows the streets in Central on Jan. 4, 2022 (Sung Pi-lung/The Epoch Times)

New Analysis

Hong Kong’s exports in November 2022 fell by 24.1 percent compared with the same period in 2021, the biggest drop in 70 years. At the same time, retail sales also fell unexpectedly, the largest drop in eight months, casting more gloom on the prospects for Hong Kong’s economic recovery. Experts believe that the Chinese Communist Party’s (CCP) so-called “politics above all else” is the prime cause of Hong Kong’s economic decline.

The supposedly sacred long-term fifty years of  “one country, two systems,” the trademark on which Hong Kong’s economy depends, has disappeared. As a result, Hong Kong has lost its advantage of having its own independent customs status. What it sees is its further deterioration from an international financial center to no more than just a city of international trade.

Dismal Hong Kong November Trade Figures

According to the November trade figures released by the Hong Kong Census and Statistics Department, the value of exports fell to HK$360.04 billion (about US$46.81 billion), the seventh consecutive month of decline since May. And such decline far exceeded market expectations of 16.2 percent, hitting the biggest drop since May 1954.

Among them, exports to major trading partners all recorded significant drops. Trade with mainland China was down 29.7 percent, the U.S. down 26.8 percent, the European Union reached double-digit declines, and the U.K. fell the most by as much as 39.6 percent. Exports to major Asian markets also weakened, Japan fell by 30.4 percent, The Philippines by 29.7 percent, and Vietnam by 22.2 percent.

The total value of imported goods in November fell by 20.3 percent from the same period in 2021 to HK$387.13 billion (about $50.33 billion), an 11.9 percent month-on-month drop from October, the biggest drop in 13 years. After hedging the value of imported and exported goods, the visible trade deficit reached HK$27.1 billion ($3.47 billion), equivalent to seven percent of the value of imported goods. In real value terms, it is about the same as that before the outbreak of the pandemic in 2019.

According to data recorded, trade and logistics are the two most important industries in Hong Kong, contributing 23.7 percent of Hong Kong’s GDP in 2021, employing more than 600,000 people, accounting for 16.5 percent of total local employment. The related professional and business support service industries contribute around 11.4 percent of Hong Kong’s GDP and employ around 15.5 percent of the total working population. All these show that any drop in trade will always have a profound impact on Hong Kong’s economy and employment.

In this regard, Pan Jinyi, deputy director of S&P Global Market Intelligence and Economic Research, said: “Judging from the big decline in export orders recorded for the year, it shows that the external environment is still challenging for Hong Kong’s private companies.”

Gary Ng, a senior economist at Asia-Pacific Natixis Bank, told The Epoch Times on Dec. 30 that Hong Kong’s trade data in November was far from satisfactory. On the one hand, it reflects the slowdown in global demand due to interest rate hikes and the impact of repeated pandemic attacks on the economy and technology sector in mainland China. On the other hand, the resulting destocking of enterprises leads to a further decline in orders.

Hong Kong’s Role in Re-Export also Impacted

As an important entrepot of electronic products, Hong Kong’s traditional role as a re-exporter is also facing challenges.

Taiwan’s “Economic Daily News” reported on Dec. 29 that after NVIDIA, an internationally renowned graphics processing unit (GPU) company, decided to move its finished product warehouse from Hong Kong to Taiwan, Advanced Micro Devices (AMD) also decided to relocate its warehouse in Hong Kong to Taiwan. This is also the second semiconductor industry leader who takes the initiative to move to Taiwan after Dutch semiconductor giant ASML’s earlier announcement of its investment in Taiwan.

According to the report, Hong Kong is becoming increasingly on par with mainland China, and the ongoing Sino-U.S. trade war is doing it no favor. Once the mainland is put under any U.S. embargo, Hong Kong will likely face a similar risk of a trade war. Naturally, European and American customers will consider diversifying such risks. Hong Kong used to be a base for the transshipment of parts and components in the technology industry, but now it will be replaced by Taiwan and Singapore for risk aversion. When this becomes a trend, Hong Kong’s transshipment role will gradually wane over the long term.

In fact, based on Hong Kong’s independent customs status in the world, it has long profited from service fees collected from the entrepot trade. Terence Chong Tai-leung, an associate professor of economics at the Chinese University of Hong Kong, quoted the 2018 data as an example. He said that Hong Kong’s entrepot trade volume was about three times its GDP, and Hong Kong’s service fee of about six percent accounted for 20 percent of its GDP. In 2020 and 2021, Hong Kong was the world’s sixth-largest commodity exporter.

​​​​After the CCP enacted the “Hong Kong National Security Law” in 2020, then U.S. President Donald Trump signed a presidential decree on July 14 of that year, canceling Hong Kong’s special tariff status and special economic treatment and annulling its special export rights on sensitive technologies. Altogether, this implies Hong Kong’s “one country, two systems” trademark is no longer recognized since then.

On Aug. 11 of the same year (2020), the U.S. announced that starting from Nov. 9, 2020, when products made in Hong Kong were exported to the United States, the country-of-origin label would need to be changed from “Made in Hong Kong” to “Made in China.” The U.S. Customs and Border Protection announced that in accordance with the executive order of the “Hong Kong Autonomy Act,” Hong Kong will no longer enjoy special treatment for trade, and anyone found breaching the regulations will be levied a 10 percent punitive tariff.

Victor Ng Ming-tak, a senior banker in Hong Kong, said in an interview with the program “Precious Dialogues” that the weak trade will not be resolved in the short term. The long-term factor affecting Hong Kong’s economy, the trademark “one country, two systems,” has all but disappeared. From that, Hong Kong has lost its advantage as an independent customs zone. The eminence of an international financial center is now relegated to just a city of international trade.

He said: “As long as the issue of the legal system is not resolved, and the ”Hong Kong National Security Law” is not withdrawn, foreign capital will not have the confidence to continue to stay and grow in Hong Kong.”

Retail Sales Shrinks, Brain Drain Continues, Financial Center Status no Longer Recognized

According to data released by the Census and Statistics Department of Hong Kong on Jan. 3, retail sales in November were HK$29.5 billion (about $3.84 billion), a year-on-year decrease of 4.2 percent, far below the 4.8 percent growth expected by economists. And is the worst performance since Mar. 2022.

On Jan. 5, S&P Global announced the latest Hong Kong PMI (Purchasing Managers Index), which recorded 49.6 in December, the 4th consecutive month below the 50 (neutral) line, reflecting that the Hong Kong economy continues to be in a state of contraction.

Since the beginning of 2020, strict pandemic prevention measures and entry quarantine restrictions have hit Hong Kong’s catering and tourism industries hard. Expatriates and locals fled Hong Kong en masse, and its diminishing ability to compete with places like Singapore as a regional hub has sparked widespread concern.

In June 2020, the Chinese University of Hong Kong released a poll stating that about 37 percent of Hong Kong people are considering emigrating abroad. In the past 60 years, Hong Kong has maintained a steady population growth rate, except for a slight decline during the brief “SARS” period in 2003.

According to data released by the Hong Kong Census and Statistics Department, in the two years to June 2022, Hong Kong’s population decreased by about 216,000 (or 2.8 percent) to 7.3 million. Fears of increased control by the Chinese Communist Party (CCP) exacerbate the situation.

To this end, Hong Kong Chief Executive John Lee Ka-chiu announced in October 2022 that incentives to “grab talent” and “grab enterprises” in an attempt to reverse the brain drain caused by years of strict pandemic prevention measures and political turmoil.

Ngan Po-kong, former director of the Finance channel of Hong Kong Cable TV, said that 2022 was a difficult year for Hong Kong’s financial market. The Exchange Fund lost HK$265.5 billion (about $34.52 billion) in the first three quarters, recording the 2nd biggest loss in history. Property prices also fell by 15 percent for the full year, the biggest drop in the last 15. The Hang Seng Index once fell below 15,000 points, reaching a new low in 13 years. Although it regained some lost ground in the last two months, it still fell by 15 percent for the whole year and for three consecutive years.

Ngan believes that politics above all else is the prime cause of the economic decline. For example, the recent interpretation of the law by the National People’s Congress reflects that the courts can no longer challenge the national security decision, which officially symbolizes the collapse of Hong Kong’s judicial system. “Hong Kong’s losses in 2022 are of course not limited to the financial and asset markets. What it loses the most is its recognition of the international community, or simply put, Hong Kong’s status as an international financial center,” he said.

Comparing Hong Kong, Macao, and Taiwan

Three years ago, the CCP listed the flow of cross-border funds used for gambling as a national security risk, and severely cracked down on overseas gambling activities, which led to the withdrawal of a large amount of funds from Macao. Coupled with the impact of the pandemic, Macau’s gaming revenue in 2022 was only 42.2 billion patacas (about US$5.2 billion), the worst since 2004. This has created a large fiscal deficit and pressure on the Macau government, which traditionally relies on gaming revenue for its proper finance.

However, contrary to the economic downturn in both Hong Kong and Macau, Taiwan’s economic growth rate reached 6.45 percent in 2022, the highest in 11 years, and its per capita GDP exceeded US$30,000 for the first time.

The International Monetary Fund (IMF) predicts that by 2022, Taiwan’s per capita GDP may surpass Japan and South Korea for the first time, becoming number one in East Asia and the 21st largest economy in the world.

Ji Da, an expert on China issues based in the United States, told The Epoch Times on Jan. 3 that Hong Kong’s development was a miracle in the history of world economies. Hong Kong has been rated as the world’s freest economic entity for many years in a row. Three-quarters of the world’s 100 largest banks operate in Hong Kong, and the number of multinational companies with regional headquarters and offices exceeds that of other cities in the Asia-Pacific region.

Da says, Hong Kong’s container port was rated one of the world’s busiest for many years, and Hong Kong International Airport was the world’s busiest cargo airport. However, the CCP violently suppressed the anti-extradition movement and forced the “Hong Kong National Security Law” in an attempt to control and transform the thoughts, spirits, and values of Hong Kong people. In so doing it hopes to achieve comprehensive and in-depth control over Hong Kong and bring it into line with the rest of China. But in so doing, Hong Kong has lost its advantage as an independent customs territory and status as an international finance center.