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Hong Kong is one of the world's most open and dynamic economies. Hong Kong per capita GDP is comparable to other developed countries. Real GDP expanded by 8.2% in 2004 year-on-year, driven by thriving exports, vibrant inbound tourism and strong pick up of consumer spending. While severe acute respiratory syndrome (SARS) caused the Hong Kong economy to shrink during the first half of 2003, second quarter real GDP expanded by 3.2% year-on-year. Hong Kong experienced deflation from November 1998 until July 2004, when inflation reappeared at a 0.9% rate, measured year-on-year. A slack property market has also contributed significantly to deflation. By mid-2003, property prices had fallen 66% from their late 1997 peak, but have since rebounded by about 58% from that lower base. The Hong Kong Government has generally resisted pressure for large-scale public expenditures to stimulate the economy due to growing public policy concerns with the government budget deficit. The surplus for fiscal year 2004-05 was $2.7 billion or 1.7% of GDP, attributed to the sales of government bonds and notes. Hong Kong enjoys a number of economic strengths, including accumulated public and private wealth from decades of unprecedented growth, a sound banking system, virtually no public debt, a strong legal system, and an able and rigorously enforced anti-corruption regime. The need for economic restructuring poses difficult challenges and choices for the government. Hong Kong is endeavoring to improve its attractiveness as a commercial and trading center, especially after China's entry into the WTO, and continues to refine its financial architecture. The government is deepening its economic interaction with the Pearl River Delta in an effort to maintain Hong Kong's position as a gateway to China. These efforts include the conclusion of a free trade agreement with China, the Closer Economic Partnership Arrangement (CEPA), which applies zero tariffs to all Hong Kong-origin goods and preferential treatment in 27 service sectors. Hong Kong, along with the Macau SAR, is also participating in a new pan-Pearl River Delta trade block with nine Chinese provinces, which aims to lower trade barriers among members, standardize regulations, and improve infrastructure. U.S. companies have a generally favorable view of Hong Kong's business environment, including its legal system and the free flow of information, low taxation, and infrastructure. The American Chamber of Commerce's annual business confidence survey, released in December 2005, showed 98% of respondents had a "good" or "satisfactory" outlook for 2006. Survey results indicated a positive economic outlook through 2008. On the international front, Hong Kong is a separate and active member of the World Trade Organization (WTO) and the Asia Pacific Economic Cooperation (APEC) forum, where it is an articulate and effective champion of free markets and the reduction of trade barriers. Hong Kong residents across the political spectrum supported China's accession to the WTO, believing this would open new opportunities on the Mainland for local firms and stabilize relations between Hong Kong's two most important trade and investment partners, the United States and China. |
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