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Inflation Rate and Its Reasons in Hong Kong

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In 1998, inflation rate decrease during financial crisis, a huge capital outflows from Asian region. HK dollar cannot be devaluated, prices and wages adjust downwards. Demand from overseas buyers has decrease, exporters lower the price and try to cope with the reduce demand. Soon, producer started to cut the wages. Hong Kong face confidence economy problem, people started to sell HK dollar to foreign currencies. HK dollar fell from a normal price US$1: HK$6.5 to US$1: HK$10. In 2002, the inflation rate in Hong Kong was decrease from -2.67% to -2.98% because of SARS (Severe Acute Respiratory Syndrome). This brought Hong Kong’s economy into a complete halt. SARS has serious negative effect the demand of Hong Kong, the local consumption and the export of service to tourism has been affect in a short run. After the outbreak of SARS, unemployment rate had increase again and lead the inflation increase in 2003. Besides that, the inflation rate is mostly influenced by the domestic factor.

In particular, some special relief measures of rates concession and waiver of water and sewage charges implemented by the Government during the year. In 2008, the inflation rate in Hong Kong was increase from 2.01% to 4.33%. This caused by the rising cost of food prices. The increase in cost of meal brought away from home and house rental also contributed to the rise in consumer prices. The unemployment rate increase because of the rising of labor cost. In order to overcome high inflation rate, government had introduce some relief measures to lower the inflation rate on lower income and underprivileged groups. In 2011, the inflation rate in Hong Kong was increase from 2.24% to 5.56%. The reason of inflation increase was cost of consumer prices increase and this related to the rising prices of house rental.

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The increase in the import price remain in the high position to surge in global food and commodity prices. Import goods are foreign goods that sold from others country and bought by domestic residents of a country (Hong Kong). Hong Kong’s import goods have divided into two categories, large proportion of import goods named retained goods are for the locals consumed while subsequent import goods is for the re-exportation. Hong Kong mainly imports are machinery and transport equipment. China is the mainland that acts as the supplier for Hong Kong. In 1998, the percentage of import is -7.073%. Hong Kong experienced a drop in its total value of imports in 1998 (US$183.7 billion for goods and US$11.7 billion for services). The Asian Financial Turmoil in beginning July 1997 that also affected Hong Kong had led to declines in 2 years which is 1998 and 1999. The Hong Kong dollar as well as futures and stocks markets drop caused decreases in all sectors which had weaken consumer sentiment. However, the setback rapidly recovered and the total percentage of import slowly increased in 1999 ( -2.314% ) and continue in 2000 (17.183%).

In 2009, the imports in Hong Kong decreased from 3.295% to -7.929%. The total value of import decreased from 2868.0 billion in 2007 to 2692.4 billion in 2009. It is caused by the financial tsunami that happened from end of 2008 to early 2009. The lowest percentage of total imports between this 20years is -7.929% in 2009. In 2010, the import of Hong Kong has increased from -7.929% to 18.359%. It is due to the strong rebound in re-export trade and the strengthening of local demand. Retained imports of consumers goods performed strongly with sanguine consumer sentiments while capital goods increased with robust investment. The upturn in the consumer spending had contributed growth in intake of consumer goods. The United States was the largest sources of Hong Kong’s import goods. By practices free trade in 2010, the value of imports from US had been rising steadily. It is due to Hong Kong treats foreign and local companies on the same footing so that imports products from others country able to compete freely with local products.

Exports is goods and services that produced by own country and then sell to the others country to earn profits and increases incomes of own country. Hong Kong’s main export markets are the Mainland and the United States. The major export goods of Hong Kong are consumer goods and light manufactures. Total exports of goods comprise domestic exports and re-exports. Domestic products are the natural product that manufacturing in Hong Kong while re-exports are products which has previously imported and then re-exported without undergo manufacturing process in Hong Kong. In 1998, the export in Hong Kong is -5.424 as the economy was first hit hard by the catastrophic ripples of the Asian financial crisis. In late 2000s, global economic recession downfall has affects Hong Kong’s external trade and caused sharply drop in total export before being crippled by the outbreak of the Severe Acute Respiratory Syndrome (SARS) in 2003. It is due to unstable economic condition of its major trading partners.

In early 2009, the total export decreased from 3.501% to -9.256% which causes by United States financial crisis. During 2008, Hong Kong’s export slackened when trade in both goods and services registered notable drop in growth. This financial crisis had leading to significant contraction in economic activities, severe job losses and sharp cut back in import demand. Therefore, Hong Kong was experiencing export slowdown. The negative growth of 9.256% has been Hong Kong’s worst performance emerging economies in 2009. However, the Hong Kong government swiftly put forward a series of measures to stabilize the financial market, support enterprise, and create employment to face the financial crisis. In 2010, the export of Hong Kong increased from -9.256% to 17.561%.

The performance of Hong Kong export grew strongly and speedy recover. The mainland and others Asian markets remained key growth driver in Hong Kong exports of goods. The strong demand in Asia, together with gradual revival in advanced economies, propelled trade flows in Asian region, rendering a staunch support to Hong Kong’s export performance in 2010. Beside the Asian markets, United States (US) was also the important market for Hong Kong’s domestic export in 2010. Hong Kong’s major domestic export items to United States is telecommunications equipment, jewellery and others. The requirement of export product raise will increase the income of own country.

Hence, export in Hong Kong able to enhance Hong Kong economic development. Hong Kong is one of the largest trading economies. Hong Kong becomes an ideal location to base a business that operates in the imports and exports sector as it has a strategic geographic position, along with the free trade economy policy and low taxation. The changes of the two main economics activities. The two main economics activities that become the driving force of economic growth in Hong Kong is tourism and financial services. Tourism industry and financial services is the efficient impetus for growing up in recession of Hong Kong. Furthermore, the economic competitiveness of Hong Kong has been enhanced. Tourism industry is one of the main economics activity in Hong Kong. In the Asian Pacific region, Hong Kong is one of the most popular destinations for visitors. Tourism in Hong Kong includes retail trade, food, and beverage services, transport, accommodation services and personal services.

According to the GDP graph, Hong Kong’s tourism industry is being increased from 9.8% in 1997 to 16.7% in 2017. In 2010, the overall visitor arrivals to Hong Kong totally over 36 million. Its value added increased by an average annual rate of 12.5% if comparing with 2005. Besides, The inbound tourism also provided 190500 jobs. The lowest percentage GDP is 6.5% in 1998 because the currency depreciation in Asia and a shortened length of stay by all visitors. The two reasons of the GDP keep increasing is mainland visitors are the main resource of tourist in Hong Kong and the government has also developed diversified tourist attraction. For example, government discusses the further development of the Disneyland Resort in Hong Kong and Ocean Park has become a world-class marine-themed park with the completion of the Master Redevelopment Plan. In financial services sector, Hong Kong is a primary international financial centre to provide a wide range of services and products. Hong Kong is the third leading global financial centre in Asia. According to the GDP in past 20 years, the Hong Kong’s financial services is being decreased from 10.4% in 1997 to 9.8 in 1998. This is because the financial crisis occurs and cause the Hong Kong’s GDP dropped 5.1%. The financial services sector contributes to Hong Kong’s GDP increased from 10.4% in 2004 to 18.4% in 2017. In 2014 and 2016, value and employment added in this industry increased by 17% and 3% respectively.GDP in 2015 to 2016 is being increased from 16.7 to 17.6 because of the vibrant banking and insurance activities were mainly underpinned.

The reasons of rising GDP in financial services is Hong Kong financial institutions develops into the Mainland to enlarge business by providing services. Besides, the development of financial services Hong Kong has been promoted in no foreign exchange control free capital circulation and free capital circulation.

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