Economic Policy

In July 1997, the reunification of Hong Kong with China took place
smoothly under the 'One Country, Two Systems' concept. The Basic
Law, which is the constitutional law of the HKSAR, gives solemn and
inviolable legal protection for this concept. The Basic Law also stipulates
that Hong Kong has the right to exercise a high degree of autonomy, and
that Hong Kong shall adopt social, economic and political systems
different from those in the Mainland. Hence, under the auspices of the
'One Country, Two Systems' concept and the Basic Law, the HKSAR
shall continue to practise free enterprise and free trade, follow prudent
financial management policies, keep a low and predictable tax system,
uphold the rule of law, and maintain an efficient, executive-led
government and a quality oriented civil service.

Hong Kong has long been renowned for its market-oriented economic
policy. The law of the market is simple and clear: the fittest survives.

Economic vitality is the key to maintaining competitiveness and creating
rising prosperity. The invisible hand of market forces will drive the
economy towards lower cost, higher efficiency, better quality, and
therefore adding higher value to products and services. It is through the
creation of more new jobs and new business opportunities that Hong
Kong's people can continue to enjoy higher incomes and better standard
of living.

The HKSAR Government will continue to play an important enabling role
in providing a better environment for business in Hong Kong. This prime
objective will work through: first, a business-friendly environment that
encourages enterprises to develop into higher value-added activities;
secondly, quality education, training and retraining that enable the people
in Hong Kong to acquire the ability to enter into new and expanding fields;
and thirdly, a quality living environment that helps retain local
professionals as well as attract overseas talents to build their home and
career in Hong Kong, and to create wealth both for themselves and for the
economy. The essential ingredients for fulfilling this objective comprise
the provision of good and affordable housing, better education, ample
cultural and sporting facilities, efficient transport and up-to-date
technology.

The Basic Law further stipulates the need to maintain the status of Hong
Kong as an international financial centre. The last decade saw remarkable
growth in Hong Kong's financial services in banking, securities trading,
insurance and fund management. The government will strive to
continuously improve Hong Kong's position as a premier financial centre
by maintaining a world-class supervisory regime without over-regulation,
by providing state-of-the-art financial infrastructure and a well-trained and
adaptable workforce, and by sustaining an open market and a level playing
field. Underlying this, a sound monetary regime and currency stability are
key to investment confidence in Hong Kong as a competitive centre for
global finance and business operations.

The government will not seek to influence the economic structure through
regulations, tax policies or subsidies. Business decisions are best left to
the private sector, except where social considerations are over-riding.
Private enterprise will continue to have the maximum freedom to set its
own direction, and to explore and seize opportunities in the light of
ever-changing market conditions.

Moreover, the government will continue to adhere to prudent fiscal
policies, while maintaining a simple tax structure and low tax rate that
sustain workers' incentive to work and entrepreneurs' incentive to invest.
The 1997 corporate tax rate and standard tax rate - 16.5 per cent and
15 per cent, respectively - were low by international standards. The public
sector in the economy will remain small and efficient. In the fiscal year
1997-98, public sector expenditure accounted for only around 18 per cent
of the GDP. The underlying principle of a small government is to ensure
that it will not crowd out an excessive amount of resources from the
private sector. In concrete terms, the growth rate of public sector
expenditure is to be kept within the trend growth rate of the economy. 

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