Strong economic ties with the Mainland, especially with the Pearl River Delta, now form one of Hong Kong's fundamental strengths. The branching out of production processes to the Mainland over the past two decades has triggered a remarkable transformation in the economies of Hong Kong and the delta, with Hong Kong developing into an international financial centre and trading hub. The Mainland is the HKSAR's largest trading partner, accounting for 42 per cent of its total trade in 2002. The HKSAR also accounted for nearly half of the foreign direct investment in the Mainland in 2002. Of the 3 119 regional headquarters and offices established in Hong Kong in 2002, about 80 per cent are responsible for overseeing their Mainland business.

HONG KONG is a leading international trading and service hub as well as a high-value-added manufacturing base. It is widely recognised as one of the freest economies in the world, and the gateway to the Mainland market.

    In 2002, Hong Kong's total merchandise trade amounted to $3,179.9 billion. Over 310 000 business establishments in a wide range of service and manufacturing sectors are operating in Hong Kong, and the vast majority are small and medium enterprises (SMEs). There is also a strong presence of international businesses in Hong Kong. At the end of 2001, Hong Kong had 9 132 enterprise groups with inward direct investment.

    Hong Kong's continuing economic success owes much to a simple tax structure and low tax rates, a versatile and industrious workforce, an excellent infrastructure, free flow of capital and information, the rule of law, and the Government's firm commitment to free trade and free enterprise.

    The Government sees its task as facilitating commerce and industry within the framework of a free market. It maintains no tariffs and no regulatory measures impinging on international trade other than those required to discharge its international obligations or to protect health, the environment and access to high technology. The HKSAR also practises an open and liberal investment policy and actively encourages inward investment.

    The Government's industrial policy aims to promote industrial development by creating a business-friendly environment and providing adequate support services. The Government zones land for general and specialised industrial use. It also maintains and develops advanced education and training facilities, ensures a modern legislative and regulatory environment, and supports industry in enhancing productivity and quality through technology and management improvement. The Government, however, does not subsidise any specific industries.

    With the weight of the Hong Kong economy shifting towards knowledge-based and higher value-added activities, the Government puts increasing emphasis on promoting innovation and technological improvement in industry and business. It aims to strengthen support for technology development and application, develop a critical mass of fine scientists and engineers, skilled technicians and venture capitalists, and encourage the development of a significant cluster of technology-based businesses.