Hong Kong’s Industrial Growth and Development

Table of Contents


In the 19th century, China was coming up and the other major world countries were seeing it as a potential market for their products. Therefore, the British Empire under the administration of Queen Victoria waged a war against China and captured the bit of it, currently known as Hong Kong, in 1942. In duration of less than five years, Hong Kong had been developed so much that it started acting as a major hub for various forms of trade across the globe, thanks to astute entrepreneurs (Yu 1). Despite a number of conflicts and external interference, the British had one agenda when they took over control of Hong Kong, establish it as a center for trade and economic wealth creation especially will dealing with eastern countries like China Empire (Tsang 56); and this marked the beginning of Hong Kong’s economic prosperity. Moreover, Hong Kong experienced a lot of problems resulting from the cultural differences, even though as a result of this it became one of the first countries in Eastern Asia to industrialize. The major factors that have enabled Hong Kong to prosper economically include its strategic geographic location, deep harbor for shipping, efficient civil service, sophisticated communication and transport systems, hardworking population, a large Chinese hinterland and a beneficiary of the Chinese open door policy (Liou 153).

Main body

Hong Kong became a suitable trading place as a result of its suitable geographical location. The total amount of goods produced and sold within the place increased by almost two hundred percent between 1961and 1997 when it got its independence from Britain. By the close of the 20th century, Hong Kong had developed into one of the worlds biggest ports and it also had one of the biggest ports in Asia that could handle several tones of goods (Tsang 352). Apart from being positioned strategically to promote trade, Hong Kong also had an enormous human resource that greatly supported trade. Even though, Hong Kong had a smaller population but due to its strategic location, it was possible to get labor force from across its borders and this really supported trade. The efficiency of the labor force was enhanced by Britain’s introduction of modern technology that helped in improving trade with other countries, establishment of business ventures and increased the recruitment of new personnel into various job sectors. Indeed, Hong Kong has been identified as one of the major Asian cities with the highest economic development rate both in terms of urbanization and industrialization (King 127).

The primary factors that led to the Hong Kong’s economic breakthrough are the two philosophies of “positive nonintervention and prudent fiscal management with surplus budget” that were adopted immediately after the WWII (Liou 149). Moreover, Hong was ruled by both China and Britain based on a policy that was called the positive non interventionism, advocated for by John James Cowperthwaite (Tsang 352). Cowperthwaite advocated for this policy after making an observation that the economy was progressing at a better rate without the involvement of the government than if it did. However, he also observed that it was important to have a structure that would guide the establishment of infrastructure that would support trade and guide decision making concerning the issues that were affecting Hong Kong. The policy was carried forward by other financial secretaries such as Philip Haddon Cave and Milton Friedman; the former argued that the referral of Hong Kong as a liberal community was insufficient. This policy therefore gave the governments the mandate to react to the call of the industries and organizations involved in the provision of social services when they ran into difficulties. The policy also demanded that the governments should be ready to provide guidelines to those organizations that they felt were involved in undemocratic activities (Tsang 352).

In 1842, China surrendered Hong Kong to Britain as per the treaty of Nanking and after that; it became a major business centre dominated by shipping, mercantile and banking companies. After some time, other forms of business activities started to crop up and this included the retail businesses which were meant to provide services to the local population. In the nineteenth century, other factories such as sugar and ice refining factories among others were also established while some other two treaties such as the Kowloon and the new territory treaties were signed in order to enhance the surrender of Hong Kong to Britain by China (Tsang 352).

The negative impacts in China always had a lot of negative effects on Hong Kong, for instance, the collapse of the dynasty system of governance in China resulted in Kuomintang taking a whole ten years to stabilize and form a government. Moreover, the great depression that took place in the 1930s seriously interfered with international trade between China and other countries. In 1937, China got involved in the Sino- Japanese war and again a war between Kuomintang really pulled down China’s economy (Tsang 352). These wars resulted in decreased international trade in Hong, in particular with China. The wars have also been shown to have contributed to the economic growth of Hong Kong since most international traders diverted their businesses to Hong Kong which was safer and more peaceful than China.

Industrialization in Hong Kong began as a result of the trade bans in the 1950s and the development in Hong Kong was no longer determined by PRC since during the world war investors and people who were moving from the mainland China moved into Hong Kong and invested there (Szczepanik 72). This became the starting point of industrial development in Hong Kong but later the economy diversified to accommodate other industries for electronics and plastics among others. Indeed, the manufacturing industry has been one of the major movers of the country’s GDP, although the sound banking and financial sectors’ policies made Hong Kong to be recognized and ranked third in eurocredit after London and New York in the 1990s (Liou 153). The industrial and economic development in Hong Kong was characterized by a large number of the Small and Medium sized Enterprises (SMEs) which were the backbone of the Hong Kong’s economy accounting for the largest number of employment as well a high percentage of the Gross Domestic product. As a matter of fact, a large percentage of the commodities meant for exports in Hong Kong were from the SMEs.

Another factor that made the economic development in Hong Kong quite unusual was the fact that up to about late 1960s the state had not given industrial development any attempt but was instead engaged in the provision of social amenities for its citizens as well as for the large numbers of immigrants from other countries. The state was using this as a strategy to capture an enormous market for its products. This makes the development in Hong Kong quite unique in the sense that it was not promoted by large companies but by the SMEs and again unlike the other Asian countries where industrial development was always under the direction of the state and at times associated with a high degree of foreign investments. The Hong Kong government also levied very low taxes and this attracted a lot of investors.

In actual sense, the fable about the Hong Kong’s economy being liberal was quite contrary to the actual situation. The government engaged in a grand plan to put up houses for its citizens this in a way subsidized the industries which were then able to carry out production at reasonably low costs and also greatly reduced the cost of living in the country. Moreover, the high density in urban areas was checked by the government’s intervention in establishing satellite towns and construction public houses in these towns to ensure affordable and adequate housing was available to all citizens (King 16). The government also invested heavily on education. It built a lot of primary schools as well, as secondary schools and later in 1971 it started providing free basic education for its citizens, this greatly increased the available skilled labor force for the companies that were coming up. Even though government invested quite extensively in education, it was rather slow to take part in international trade this is because Britain had put a control on the countries that Hong Kong could trade with but it allowed free inflow of resources from various countries.

As from the early 1950s the Textile industry in Hong grew quite substantially and this resulted in a lot of disagreements with the United Kingdom, the, this made the UK to intentionally withdraw from trade with Hong Kong, this was as a result of treaties that were signed by the two countries(Tsang 352). These did not really make Hong Kong slowdown its pace of development and it continued to use its elasticity to explore potential new markets for its products and this led to a great increase in the total amount of exports from the country. This pace of progress was though interrupted in 1967-1968(Tsang, 2007, 352) as a result of fracas in the mainland China due to cultural insurgencies and again it was further affected by the international oil calamity. Interference also occurred in the 1980s when China was making efforts to get back Hong Kong from Britain, this later happened in 1997.

In 1978, the PRC, through Deng Xiao Ping declared the open door policy (Tsang, 1997, 273) that allowed free and extensive trade between China and Hong Kong, this was important and it enabled Hong Kong to regain its place as being the sole provider of both monetary and market services in China. Since then trade between the two countries grew at a rate of about 28% per year between 1978 and 1997 when finally Britain ceded Hong Kong back to China. During that time too, most of the manufacturing companies started transferring their firms from Hong Kong to China where they could get access to cheap labor which was available there and one of the most significant evidence of this extensive trade between the two countries was the incorporation of Hong Kong with the Pearl River Delta in Guadong. By 1997, the total investment by Hong Kong in Guadong was about three quarters of the total foreign investment there.

The integration between these two countries accounted for about five million employment opportunities and these were mainly involved in the production of goods for export. Since 1997, the country has been involved in several other activities such as tourism, retail trade and monetary services. Even though the manufacturing industries were transferred out of Hong Kong there was a greater development of the services sector, this change was abrupt but id did not really interfere with the pace of development as well as the employment, as a matter of fact, Hong Kong during all this time was able to sustain the unemployment rate at an unbelievable rate of 2.5% (Youngson 6-10).

The come back of Hong Kong to China in 1997 did conserve the state’s economic nature which was of great importance to China. With regards to this, the law of ‘ one country two systems ‘ was established, this therefore allowed Hong Kong to retain its fiscal and economic sectors as well as the trade and movement. In 1997 Asia was affected by the financial crisis that also had a lot of grave effects on Hong Kong as well, this was just before the state was relented back to China. This financial crisis resulted in the prices of shares going substantially down and this resulted in most of the investors being unable to repay their mortgages. Despite this, Hong Kong and China continued currency exchange with the U.S without bringing it down. Again, with the occurrence of SARS in 2002 and the Asian financial problems, Hong Kong was forced into an economic depression which resulted in a significant rise in unemployment and a general decrease in the overall output. This crisis though generally led to an increased trade between Hong Kong and China but since China was not really affected by the economic down turn, economic development in Hong Kong now greatly relied on China.

The foundation of the modern day Hong Kong is based on its conquest by Britain in 1842 and its repossession by China in 1997. The establishment of Hong Kong as a result of the opium wars and the signing of the Nanking treaty and again as a result of the war between Chinese and the English, there was great eventuality involved in these deals since the first agreement was about a totally different island and so the Kowloon treaty was signed as an addendum by Britain. The state also began experiencing a lot of difficulties as the issues about equality in representation started coming up, this is because the Chinese felt that they were not equally represented as the British in this new government and yet they were the majority. The courts and the law enforcement force institutions were full of bigotry and offered substandard services, even though they at least managed to maintain law and order in the state.

The trading in Hong Kong remained significantly centralized despite the attempts to change this. The numbers of the Chinese traders grew substantially and was generally higher than that of the emigrant ones. There was a great racial and social segregation with the total population almost being equally represented by the Chinese, Eurasians and Portuguese among others. The Chinese in Hong Kong did not really incorporate the other ethnic groups and instead concentrated on constructing institutions to provide services for its own people. Hong Kong acted as an important driving force for transformation in China especially in Guangdong since it acted as a source for western ideologies and opinions and it also acted as a paradigm of western administration in addition to being a popular hub for authorities and the activists and these always resulted in a number of conflicts that also affected Hong Kong. According to the British leaders, the attack on China in 1992 promoted economic growth in China since it gave birth to the Kuomintang and the CCP. The strike in Canton-Hong Kong was a result of several issues in China but it failed as a result of the Canton state withdrawing its support of the strike, this scenario to a larger extent, pointed out the instability in the relations between China and Hong Kong and it also highlighted the reliance of Hong Kong on PRC.


The conflicts resulted in rise of the British Empire and its establishment in Hong Kong. The communists were allowed in the state and were only attacked if they interfered with tranquility of the state. The sudden fall of Hong Kong to the Japan annihilated the fable about Hong Kong being a royal supremacy. Britain made a lot of effort to regain control of Hong Kong which finally happened after a lot of concessions with Chiang Kai-Shek. Hong Kong economic growth though was mainly as a result of industrialization which was mainly headed by textile manufacturing but later, as more immigrants got into Hong Kong, the focus shifted to the smaller industries and later the government even focused more on service provision rather than manufacturing alone. The government was also not really liberal since it controlled the wages and the cost of living by providing free basic education and affordable housing to its citizenry; this indirectly subsidized the manufacturing firms enabling to produce at lower costs.

Works Cited

King, Ambrose Y. C. Social life and development in Hong Kong. Chinese University Press. 1981.

Tsang, Steve. A Modern History of Hong Kong. London, I.B.Tauris. 2007.

Liou, Kuotsai T. Managing economic development in Asia: from economic miracle to financial crisis. Greenwood Publishing Group. 2002.

Youngson, A. J. Hong Kong, economic growth and policy. Oxford, Oxford University Press. 1982.

Yu, Tony F. Entrepreneurship and economic development in Hong Kong. London, Routledge. 1997.

Szczepanik, Edward F. The economic growth of Hong Kong. Oxford, Oxford University Press. 1960

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