Macro Economics – Two of the Four Dragons – Hong Kong and Singapore

Two of the Four Dragons Mary Carroll ECON224-1101A-14 March 13, 2011 Two of the Four Dragons Hong Kong has a unique history as they were occupied by the United Kingdom (UK) for approximately 99 years beginning in 1841. An agreement was reached in 1984 between China and the UK where Hong Kong would go back under Chinese rule with some unique exceptions. Hong Kong would operate under China’s “one country, two systems” formula for the next 50 years.

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Ultimately this meant China’s socialist society would not be forced on Hong Kong allowing their autonomy for the next 50 years, except in matters of foreign and defense affairs. On December 19, 1984, a new agreement was signed between China and the UK transferring the rule of Hong Kong back over to China. It took some time to develop the specifics of governance and Hong Kong officially came under China on July 1, 1997. This day is celebrated as Hong Kong Special Administrative Region Establishment Day (Central Intelligence Agency, 2011).

For now Hong Kong operates under a free market economy and highly dependent on international trade and finance. The value of their goods and services exported (including re-exports) are four times the GDP. Hong Kong’s GDP in comparison to the world is number 47 and in 2010 their official exchange rate in 2010 was estimated at $226. 5 billion with 5. 7% GDP significantly improving from -2. 8% GDP in 2009. In 2008 the GDP per capita was $44,800 and then declined in 2009 with the global economic downturn to $43,400 GDP (PPP) and then improving to $45,600 in 2010.

Hong Kong made a quick recovery after the global financial economic crisis beginning in Q4 of 2009 and grew 10% in 2010 (Central Intelligence Agency). Hong Kong has an extremely low debt, low tariffs and minimal corruption and is considered to be one of the most economically free countries ( Hernandez, 2009). Hong Kong grew from a relatively backward economy prior to the 1970’s to what is considered today as a Newly Industrialized Economies (NIE). This rapid growth occurred in a relatively short period of time and the question is how Hong Kong continues its path of economic freedom.

Hong Kong’s key industries are banking and tourism and what manufacturing they previously did under the UK they have now transferred to their mainland (Dave, 2007). The first recommendation to continue the growth of Hong Kong would be to invest in Research and Development establishing itself as a new center of growth to advance technology and its overall intellectual property. This would open the door for investors to tap into new opportunities of growth specifically in the technology industry.

The second area to increase growth would be in advancement of the first by increasing secondary level education and building up technological training as Hong Kong has lagged behind in this arena. Recognizing that Human Capital Management is equally important as advancing technology, where there is a highly skilled and highly demanded workforce to accompany the growth and expansion from R & D. Thirdly, it is critical to keep the governmental regulations and involvements in trade, banking, R & D, education, etc…to the right balance. The lack of involvement and regulations allowed items that should have been advancing go unchecked.

Finding the right balance of intervention, specific to technology and education is a key for economic growth; Hong Kong is the gateway to China and has the opportunity to advance in these areas and open up newer markets (Dave). Based on the three items of growth selected, the “Slow Growth” formula would be applicable as it focuses on technological economic progress. This model may very well be the best to apply for a NIE as it takes a more standard, traditional approach to growth where a fast pace approach has preceded. The key components of this model include growth of the labor market, capital input and total factor productivity.

By putting an increased focus on R & D and technology this will incite investors to keep at the newly governed country’s table and open doors for learning and development which could progress Hong Kong’s workforce into the future (Dave). There are four countries that have been linked together and dubbed as “Asia’s Four Little Dragons” and they are Hong Kong, Taiwan, South Korean and Singapore. In addition to experiencing extreme growth and rapid industrialization between the 1960’s – and 1990’s these ‘Four Asian Tigers” have in common a very strong Chinese cultural influence (“Four asian tigers”, nd).

For the purpose of the paper, we will shift our focus to Singapore, one of the other dragons. Unlike Hong Kong, Singapore’s growth focused on electronics, information technology, and pharmaceuticals. The real GDP growth averaged 7. 1% for a period of four years from 2004-2008 and like other countries took a hit with the global financial crisis. Singapore rebounded to 14. 7% GDP in 2010. Singapore has grown its financial services sector and is now known as one of Southeast Asia’s high tech centers (Central Intelligence Agency). Singapore’s low unemployment rate of 2. % combined with their GDP – per capita (PPP) has risen to $57,200 in 2010 creating a reputation for a type of lifestyle enjoyed by the ‘middle class’. Singapore economy has flourished in the electronics and information technology sector but with neighborhood competitors taking their share in this market the time to identify new growth strategies are critical. Singapore has relied heavily on major corporations making their home in this land to take advantage of lower wages and overall investment and this creates significant risks.

To continue its economic growth, Singapore can leverage several economic strategies. First, restructure the taxes, service fee cuts to expand the economy by increasing domestic consumption and investment by the private sector by increasing their benefits in items like education and healthcare. Next, diversify and promote growth in lifestyle industries like tourism, building new resorts, attractions such as the Formula One Race and future planned state-of-the-art Sports Hub to be completed in 2012 and a National Art Gallery in 2013.

As well as continue to establish Singapore as a technology hub by continued investment in innovation (“Singapore’s new growth engines”, 2009). Lastly, work closely the Monetary Authority to ensure the appropriate monetary policies are in place to manage inflation and keep exports in balance. Some economist expects the “Monetary Authority of Singapore to allow a faster pace of currency appreciation and the central bank which uses its currency rather than interest rates to manage price gains, forecast inflation will average between 3 percent and 4 percent in 2011”, (Adams, 2011).

Singapore’s is one of the most open economies in the world and choosing to leverage the economic strategy of a ‘Demand Economy’ by continuing to diversify it’s trade is key. Already, trade is three times the size of their GDP and external demand generates more than three fourths of the economy’s total demand. Singapore also enjoys one of the largest ports in the world and can export with ease. Unlike its sister tiger, Hong Kong who has yet to invest in new technologies, R & D and education; Singapore can now reap the benefits of a demand economic strategy versus a slow growth one (“Singapore’s engines of,” 2010).

The similarities between these “Four Asian Tigers” have remarkably impacted their overall economic models driven highly by an export versus import model. They are known in the west by their inexpensive but productive workforce. These countries have been able to keep agricultural workers satisfied by promoting land reform and property rights and ensuring benefits supporting the agricultural policies. Ultimately keeping unemployment very low, focusing on exports and trade to wealthier countries and interestingly enough close ties to the US (“Four asian tigers”). | References Central Intelligence Agency, (2011). The world fact book (ISSN 1553-8133). Washington, DC: Retrieved from https://www. cia. gov/library/publications/the-world-factbook/geos/hk. html Dave, T. (2007, July 9). A study on technological progress and economic growth in hong kong. Retrieved from http://www. associatedcontent. com/article/299876/a_study_on_technological_progress_and_pg3. html? cat=9 Hernandez, F. (2009, June 12). Top 5 most economically free countries in the world. Retrieved from http://www. associatedcontent. om/article/1826317/top_5_most_economically_free_countries_pg2. html? cat=3 Singapore’s new growth engines a stimulant to lifestyle industry. (2009, October 1). Retrieved from http://www. articlesbase. com/art-and-entertainment-articles/singapores-new-growth-engines-a-stimulant-to-lifestyle-industry-1289339. html Adam, S. (2011, March 11). Singapore’s economy may expand 5. 7% this year, central bank survey shows. Retrieved from http://www. bloomberg. com/news/2011-03-09/singapore-s-economy-may-expand-5-7-this-year-central-bank-survey-shows. html Singapore’s engines of growth. (2010,


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