Analysis of Hong Kong Economy During Financial Crisis

808 Proceedings of the seventh foreignistic Conference on basis & perplexity An epitome of the Hong Kong Economy by and byward the Financial Crisis Cao Hongliu School of steering, Guangdong University of engineering science, Guangdong, P. R. China, 510520 (E-mail emailprotected com) accost This paper analyzes the current stinting cultivation and the berth of leading(p) industries in Hong Kong. It shows that Hong Kong prudence, which is mainly comprised of the armed operate pains in particular, confront with both opport unit of measurementies and ch bothenges after the pecuniary crisis.Hong Kong thriftiness has a coarse range of needs in victimization engine room, galvanizing and electronic technology, and manufacturing technology. knowledge in these aras has great implication to ensure sustained exploitation of Hong Kong deliverance. refer words Hong Kong economy status Leading manufacture Service effort 1 Introduction Hong Kongs a exquisite and open economy system and international monetary center, its economic using face numerous new challenges because of the impact of the adult male(prenominal) monetary crisis.Therefore, a comprehensive analysis of the Hong Kongs economic ontogeny and their leading attention status becomes an resultant issue. 2 Overview of Hong Kong Economy 2. 1 The operate arena is a leading exertion in Hong Kong From evade 1, we can see that the run assiduity is a leading constancy of Hong Kong economy. During the tenner from 1997 to 2006, operate sector in the Hong Kong economy has gained greater prominence. This deviate has already been reflected in the share of contri plainlyion of the serve sector to the local anaesthetic gross house servant product.The persona of the work sector to gross domestic product gaind from 85. 9% in 1997 to 91. 2% in 2006. Based on the industry definition of Hong Kong event and Statistics Department, The serve sector includes strongsale, reta il and consequence and avocationing switchs, restaurants and hotels transport, shop and communication theory financing, insurance, reliable country and worry run and community, social and personal work. put off 1 Gross Domestic point of intersection (GDP) by economical body process (at Current Prices) GDP by frugal Activity(2004-2007) 2004 2005 2006 2007Economic activity Agriculture and fish Mining and quarrying Manufacturing Electricity, gas and wet Construction GDP 886 72 44455 39726 40376 proportion 0. 1 * 3. 6 3. 2 3. 2 GDP 847 carbon 45547 39924 38538 ratio 0. 1 * 3. 4 3 2. 9 GDP 849 93 45761 40364 38688 ratio 0. 1 * 3. 2 2. 8 2. 7 GDP 895 114 39282 39426 40154 ratio 0. 1 * 2. 5 2. 5 2. 6 Services 1119304 89. 9 1207873 90. 6 1297545 91. 2 1429293 92. 3 Note info is from Hong Kong Annual abide of Statistics (2004-2008 Edition) alter by Hong Kong Census and Statistics Department. entropy unit is in one million million million basis and ratio unit is %.B esides, * repre displaces the comparison had slight than 0. 05% is in the fundamental economy The go sector becomes the principal computer address of connection. The employment share of the re outgrowths sector in sum up employment has app eat upd moderately oer the ultimo decade, from 79. 8% in 1997 to 86. 6% in 2007. In 2007, the service sector as a whole prosecute 3. 03 million persons taboo of the 3. 5 million everyplaceall employments. The run sector plays a real role in supporting the causeth of our external allot. In 2007, the determine of productions of function reached $652 one thousand thousand, representing an average annual plus rate ofProceedings of the seventh multinational Conference on intro & Management 809 8. 6% over 1997. In 2007, merchant and some opposite cover- associate to function was the or so spellant study(ip) service group, contributing 30. 9% to the abide by of quantity exportings of go. It was fol busteded by trans portation serve and prompt services, contributing 28. 6% and 16. 5% respective(prenominal)ly to the rate of wide-cut exports of services in 2007. In 1997, the respective percentage shares of these three major service groups in the value of add up exports of services were 25. 6%, 30. % and 20. 8%. 2. 2 The structure of Hong Kongs services industry sector Among the economic activities in the services sector, wholesale, retail and merchandise and export mickles, restaurants and hotels together contributed 27. 9% of the GDP in 2006, followed by financing, insurance, real estate and short letter services (25. 0%), community, social and personal services (18. 0%) and transport, storage and communications (9. 6%). Among them, pecuniary services, avocation, tourism and schoolmaster services are come across industries in the Hong Kong economy.They assume been the driving military force of Hong Kongs economic emergence, providing whim to offshoot of other sectors and creating employment. (1) Import and export trade . The moment and export trade is the roughly key industries in Hong Kongs service industry, has been performing an all important(p) role in the development of Hong Kong economy. The import and export trade produced a net output of HK$305. 1 billion in 2006, representing an increase of 39% over 1997. The ratio is the high upest among all service industry. In 2007, on that point were 98 000 import and export work establishments in Hong Kong, with 520 000 persons.At the like time, import and export trade sector is likewise directly promoting the development of other industries, much(prenominal) as logistics, transportation, communication channel services and other services. Hong Kongs import and export trade, including the telescopic trade and hidden trade two parts. The visible trade refers to the traditional commodity trade. In 2007, the value of Hong Kong imported and exported goods was $5,556 billion, representing an increase o f 9. 8% compared to 2006. Hong Kongs keep down exports of goods (comprising domestic exports and re-exports) in 2007 sum totaled to $2,688 billion, or change magnitude by 9. % when compared with 2006. The value of imports increase by 10. 3% to $2,868 billion in 2007. With the value of total exports being less(prenominal) than that of imports, a merchandise trade deficit of $180 billion was bring exhausted in 2007. In the import and export trade, the largest proportion of re-exports. This was largely ascribable to the relocation of legion(predicate) local manufacturing activities to the main demean of China. Quite a large amount of the goods produced in the mainland of China by the outward processing arrangement were sent back to Hong Kong and re-exported to other countries/territories.During 1997 to 2007, the value of re-exports change magnitude by 107%, while a decomposition of 48% was spy in the value of domestic exports. In 2007 the re-export trade to the mainland cont inued to grow rapidly. The invisible trade services are export and import trade of commercial services and pecuniary services. magical spell these services could be exported or imported by the import/export firms or companies in other sectors, nearly of the merchant and other trade-related services were exported or imported by import/export firms . In 2007, Hong Kongs exports and imports of services valued at $652 billion and $322 billion respectively.Compared to 2006, exports and imports of services increased by 15. 4% and 11. 7% respectively. Net exports of services in 2007 amounted to $330 billion, this makes Hong Kongs overall trade profusion of $150 billion. (2) Finance. Hong Kong is recognized as an international monetary center, many international avers and fiscal institutions ga in that respectd here. The pecuniary argumentation is classified in detail, cover charge all aspects of the fiscal industry. Hong Kong three-tier system of deposit-taking institutions, to wit license banks, restricted licensed banks and deposit-taking companies, known collectively as the accepted institutions.At the end of 2007, the number of authoritative institutions stood at 200, comprising 142 licensed banks, 29 restricted license banks and 29 deposit-taking companies. 68 of them were incorporated in Hong Kong and 132 were incorporated outdoor(a) Hong Kong. In addition, there were 79 representative offices of foreign banks coming from 27 economies/regions. As at end December 2007, 152 of the largest ergocalciferol banks in the world had a presence in Hong Kong. The value added generated by the banking industry amounted to $136. 5 billion, or 9. 6% of Hong Kongs Gross Domestic Product (GDP) in 2006, representing an increase of 41. % compared with 1997. The development of the banking sector excessively promotes the development of other monetary industries. In 2007, some 2 940 establishments and slightly 32 400 persons were set-aside(p) in the business. Th ese included cable and share companies commodity futures, gold coin and foreign exchange brokers/dealers cable, notes and commodity exchanges fund concern companies investing advisory companies and firms providing other different fiscal services. The financial commercialises and asset management industry generated value added of about $59. billion, contributing to 4. 1% of Hong Kongs GDP in 2006. 810 Proceedings of the seventh final causeetary Conference on aim & Management Hong Kong is as well the Securities and telephone exchange Center and an important place for the mainland enterprises to salary increase funds. At the end of 2007, 1 048 companies were listed on the Main Board of the Hong Kong Exchanges and clear Limited (HKEx), with a total market niftyization of $20,536 billion. Despite an increase of only 7. 5% in the number of listed companies, market capitalization was detect to rise 55. 0% over 2006.Since July 1993 when the beginning Chinese state posse ss company was listed on the HKEx done issuance of H shares, the role of Hong Kong as a major fund-raising revolve about for the mainland of China had become increasely important. By the end of 2007, there were 146 H shares listed on the HKEx, with market capitalization of $5,080 billion. In addition, there were likewise 93 Red Chips companies and 200 private enterprises listed on HKEx. Hong Kong is one of the near nimble and liberal debt markets and a leading asset management centre in Asia. (3) tourism . In 2007, 51 900 persons were sedulous in industries closely related o tourism, such as hotels and travel agents and 315 300 persons in industries partially related to tourism such as restaurants, retailers, transport operators and other service providers serving visitors. In terms of economic contribution, inbound tourism and outward-bound tourism together generated $45. 3 billion value added and 176 300 antic opportunities in 2006, or 3. 2% of total GDP and 5. 2% of total employment of Hong Kong respectively. The number of incoming visitors in 2007 reached 28. 2 million, increased by 11. 6% as compared with 25. 3 million in 2006 and set the highest record for visitor arrivals in history.The mainland of China remained the major source market of visitors to Hong Kong since 1994. visitor arrivals from the mainland of China reached 15. 5 million in 2007, accounted for 55. 0% of the total visitor arrivals, followed by South and Southeast Asia (10. 3%) and Taiwan (7. 9%). In addition, Hong Kong is Asias major trade parliamentary law of battle and business conference center. A total of 218 conventions and 78 exhibitions with international confederacy were held in Hong Kong in 2006. (4) professed(prenominal) service . The professional service is Hong Kongs fourth-largest service industry.The professional services industry generated $40 billion of value added, or 2. 8% of Hong Kongs Gross Domestic Product (GDP), in 2006 and provided job opportunities fo r about 106 000 persons in 2007. In 2007, there were about 13 500 professional services establishments, including 3 900 accounting, auditing and bookkeeping firms, 1 800 solicitor and barrister firms, 3 300 architectural, study and engineering firms and some 4 500 management consultant firms. The business receipts of professional services industry increased by 10. 7% in 2007 over a form earlier.The development of professional services industry over the other(prenominal) decade was quite remarkable. Number of establishments and persons engaged increased by 35% and 23% respectively between 1997 and 2007. During the said(prenominal) period, the total number of registered professionals also increased remarkably, with certified public accountants increasing at the fastest rate of 7. 3% per year on average. 2. 3 Manufacturing company is the support for the Hong Kong service industry In this paper, the Hong Kong Manufacturing go with refers specifically to the Hong Kong manufacturing companies in the mainland.The rapid elaborateness of Hong Kongs service industries in the past two decades benefited from the development of the Hong Kong Manufacturing Company and the sub-contracting business model. In the late 80s, under the drag of high land prices, high rents, high take cost, a large number of Hong Kong manufacturers shifted their outturn to the Mainland, where the land and labor be were relatively low, in particular the fall River Delta in Guangdong Province. And because of the changes in the business, many original manufacturing companies become the service company.These companies transferred their manufacturing factories to the Mainland, and unbroken the head hind ends and other high value-added services such as marketing, revise processing, material procurement, design, packaging, logistics business in Hong Kong. This business model is known as shop in anterior and factory in back mode. At the same time, in tramp to adapt to the changes in interna tional markets and increase exports, many traditional transaction companies, set up manufacturing factories in mainland, and form a sub-contracting operation mode.In the sub-contractors mode, products manufacture in the mainland branch companies, headquarters in Hong Kong focused its efforts on trade, market and management. This mode of operation combined the mainland companies low-cost production emolument and the Hong Kong trading companies familiar with the international market advantage together, promoted the expeditions of business of Hong Kong trade companies and meliorate their production efficiency. This production mode provided a strong support to the development of Hong Kongs service industry.The financial crisis hole great operating pressure to the Hong Kong Manufacturing Company. Mostly concentrated in the fall River Delta region, the types of these companies are sound equipment, electrical appliances, toys, clothing, footwear and other labor-intensive industries. T he development of these enterprises is based on low labor and land inputs, production technology is very low. With the Proceedings of the 7th International Conference on Innovation & Management 811 labor, land costs rising substantially in the beading River Delta region, the ompetitive advantages of the Hong Kong Manufacturing Company decrementd a lot in recent years. downstairs the impact of the financial crisis, there has an obvious drop in experts of these labor-intensive consumer goods. Many Hong Kong Manufacturing Companies face the difficulty of orders reduction, profit decline, and even bankruptcy. 3 Hong Kongs Economic Problems under the world(prenominal) Financial Crisis Table 2 1997-2007 duty Receipts Indices 1997 2002 2003 2004 2005 2006 2007 Wholesale/retail Import and export trade Restaurants Hotels get off computer memory Communications Banking support (except banking) Insurance 24. 4 107. 2 104. 7 99 61. 7 157. 1 127. 1 84. 1 79. 8 38. 2 88. 3 75. 5 94. 9 73. 1 68. 8 81. 1 96. 6 86. 4 56 59. 2 85. 8 80. 4 85. 7 58. 8 69. 1 77. 4 94. 3 86. 4 65. 7 70. 5 93. 8 90. 5 94. 3 81. 9 85 90. 6 95. 1 90. 2 87. 5 86. 2 atomic number 6 vitamin C blow carbon 100 100 100 100 100 100 100 100 100 100 107. 4 110. 2 109. 5 113. 7 110. 6 110. 2 100. 8 119. 5 147. 9 121. 3 99. 6 119. 6 114 109. 7 120. 6 119. 1 124. 2 131. 1 122. 6 127. 8 110. 8 165. 3 249. 7 156. 2 139. 3 135. 4 135. 4 117. 1 real number estate 135. 6 71. 5 75. 9 86. 2 Business 119. 7 87. 88. 1 95. 3 services Tourism 91. 5 75. 5 70 88. 5 Computer and 53. 1 63. 7 67. 3 81. 1 information services Note Data is from Hong Kong Annual Digest of Statistics(2008 Edition) Statistics Department. Table 3 2005 edit by Hong Kong Census and 2005-2008 the variation ratio of Business Receipts Indices 2006 2007 2007 3 quarter 9 15. 1 8. 2 15. 4 15. 7 11. 7 11. 7 9. 7 47. 7 99. 6 42. 1 27. 7 2007 4 quarter 15. 5 17. 7 7. 6 14. 8 16. 5 14. 8 10. 3 16. 2 45 82. 9 35. 4 69. 5 2008 1 quarter 9. 6 17. 5 13 . 2 16 9. 9 15. 9 10. 7 11. 2 6. 32. 8 11. 7 14. 5 2008 2 quarter Wholesale/Retail Import and export trade Restaurants Hotels Transport Storage Communications Banking Financing (except banking) Insurance Real estate Business services 5. 6 6. 8 10. 6 6 22. 1 17. 8 10. 4 5. 1 10. 9 14. 3 16 16 7. 9 7. 3 10. 2 9. 5 13. 7 10. 6 10. 2 0. 8 19. 5 47. 9 21. 3 -0. 4 10. 4 12. 8 8 13. 4 15. 2 10. 8 16 10 38. 3 68. 8 28. 8 39. 8 14. 1 14. 4 14. 6 15. 3 9. 6 11 3. 5 13. 5 -6. 8 4. 7 8. 3 10 Tourism 4. 9 19. 6 13. 2 11. 8 14 11. 5 10. 3 Computer and 12. 9 14 18. 7 18. 9 25. 4 14. 14 information services Note Data is from Hong Kong Annual Digest of Statistics (2008 Edition) emended by Hong Kong Census and Statistics Department. 812 Proceedings of the 7th International Conference on Innovation & Management Table 2 shows the revenue changes of the Hong Kongs service industry from the 1997 Asian financial crisis. In the 1997 Asian financial crisis and the posterior 2003 epidemic of SARS, Hong Kon gs service industry was particularly hard hit. Until 2006, the industry revenue was generally restored to the level of 97. Finance, insurance, transport, trade and other business incurred the largest loss.In February 2007, the U. S. sub-loan crisis happened, and the Lehman bank filed for bankruptcy in September 2008. The U. S. financial crisis intensified and developed into a ball-shaped financial crisis. From the bet on one-half of 2008, the global financial crisis began to wreak Hong Kong economy. This feat is particularly evident in the service industry. Hong Kongs financial industry has been most professed. From Table 3 it can be seen that Banking and financial services industries are in the most affected after the financial crisis. There is a rapid decline in industry revenue.In the second quarter of 2008, banking industry even has the first negative harvest since the past few years. At the end of the trine quarter, because a lot of major financial institutions in the l inked States had been threaten with a bankruptcy, the global financial crisis became even more serious. The panic change appeared in many countries stock market, Hong Kong was no exception. Hong Kongs Hang Seng ability plummeted by 15% in September, and fall 22% in October. The rule operation of Hong Kongs capital markets has been seriously affected.The growth of other financial related industries, such as insurance, real estate and business services, had a slowed down significantly from the line of the second quarter of 2008. Import and export trade and related industries sectors have been affected in different degrees. The merchandise exports slowed down in the three quarter and only had a infinitesimal increase. Even so, this was the worst performance since the first quarter of 2002. With the increase of global financial crisis, exports to other markets also had different degrees of slowing down.As a result, the growth of related industries, such as business service, trade service, transportation and storage service also slowed down slightly. Exports of services had maintained a silent increase in the financial crisis, but the growth rate was also smaller than the second quarter. The growth of tourism also had signs of deceleration and affect the growth of related industry, such as transportation, hotels, catering services, the number of visitors from languish distance market decrease a lot, particularly the tourists from Europe and the United States.To face the challenge of financial crisis, the SAR Government has been actively responding well to hold on the spread of financial risks. From the graduation exercise of the sub-loan crisis in the United States, in order to ensure stability of the financial system, the Hong Kong Monetary Authority introduced a number of measures to alleviate the pressure on banks and provide necessary assistance to the banks. Securities and Futures thrill and the Insurance Supervisory relegating also had made acti on to spike the protection of investors and policyholders.At the same time, most Hong Kongs local financial institutions participation in directly investing to the US sub-loan is limited in small scale. The local banking system dust steadily without be directly naturalized by the sub-loan crisis. Benefit from the economic development of the Mainland, Hong Kongs service industries is also faced with new opportunities in the global financial crisis. For example, supported by the growth of trade in the Mainland, offshore trade growth was fluid significant.Although 2008 is the Olympic Year, but the mainland tourists to Hong Kong remained a high-speed growth. In the tercet quarter of 2008, the Mainland tourists to Hong Kong wad still higher than last year, an increase of 9. 4%. Individual Visit escape is one of the bright spots the visitors in accordance with this scheme had a further rise in the third quarter, the ratio wad 14. 5%. These factors effectively guaranteed the smooth operation of Hong Kongs service industries. At the same time, the ten naturalization industry plan in the mainland had already been introduced.The mainland accelerate the pace of industrial upgrading and began to support the development of high-tech industry. These policies provide a good environment for the Hong Kong companies in mainland to get on their technological level and win their own industrial upgrading. Based on the above analysis, the challenges faced by Hong Kongs economic in the financial crisis can be summarized into the pursuance three aspects (1)financial sectors lolly decline a lot, related sectors services business reduces. 2) The trade and service market in Western countries shrink. 3 Hong Kong Company in mainland operates difficultly. Hong Kong economy is facing the opportunity for the steady development of the Mainland economy and the acceleration of the industrial upgrading. Therefore, in order to face the challenge of the financial crisis, it is important for Hong Kong service companies to boom out business in the Mainland, and to Hong Kong companies in mainland to resurrect the productivity. Proceedings of the 7th International Conference on Innovation & Management 813 4 ConclusionsThrough the above analysis, this paper can be drawn the following(a) conclusions (1) The a major hassle of Hong Kong economy is decline in financial sector profits and trade volume with Western developed countries. (2)The expansion of demand of the Mainland market is the most important opportunity for Hong Kongs economic development. (3) Hong Kong economy has great demands for information technology, electrical and electronic technologies, manufacturing technology. To ensure sustainable development of Hong Kong economy, it is very important to promote scientific and technological development. References 1 Yang Xue.The depth psychology of the Scientific and Technological necessitate Based on Micro-macro SystemJ. Social skill Frontier, 2008, (10) 241( In Chinese) 2 Guo Kasha, Wang Wenlong. cognition and Technology call for Analysis of Chinese High-Tech IndustryJ. Economic Review, 2004, (8)198(In Chinese) 3 Wu Jiapei, Wang Changsheng. Science and Technology demand Analysis of the in the altogether Road to IndustrializationJ. Science & Technology and Economy, 2005, (4) 4(In Chinese) 4 Li Jianhua, Cheng Baoying, Yang Xue. Analysis on Demand of Science and Technology Effected by Informatization During New IndustrializationJ. Information Science, 2004, (8) 903(In Chinese)Analysis of Hong Kong Economy During Financial Crisis808 Proceedings of the 7th International Conference on Innovation & Management An Analysis of the Hong Kong Economy after the Financial Crisis Cao Hongliu School of Management, Guangdong University of Technology, Guangdong, P. R. China, 510520 (E-mail emailprotected com) Abstract This paper analyzes the current economic development and the status of leading industries in Hong Kong. It shows that Hong Kong econom y, which is mainly comprised of the service industry in particular, facing with both opportunities and challenges after the financial crisis.Hong Kong economy has a wide range of needs in information technology, electrical and electronic technology, and manufacturing technology. Development in these areas has great significance to ensure sustained development of Hong Kong economy. Key words Hong Kong economy status Leading industry Service industry 1 Introduction Hong Kongs a small and open economy system and international financial center, its economic development face many new challenges because of the impact of the global financial crisis.Therefore, a comprehensive analysis of the Hong Kongs economic development and their leading industry status becomes an important issue. 2 Overview of Hong Kong Economy 2. 1 The services sector is a leading industry in Hong Kong From Table 1, we can see that the services industry is a leading industry of Hong Kong economy. During the decade from 1997 to 2006, services sector in the Hong Kong economy has gained greater prominence. This change has already been reflected in the share of contribution of the services sector to the local GDP.The contribution of the services sector to GDP increased from 85. 9% in 1997 to 91. 2% in 2006. Based on the industry definition of Hong Kong Census and Statistics Department, The services sector includes wholesale, retail and import and export trades, restaurants and hotels transport, storage and communications financing, insurance, real estate and business services and community, social and personal services. Table 1 Gross Domestic Product (GDP) by Economic Activity (at Current Prices) GDP by Economic Activity(2004-2007) 2004 2005 2006 2007Economic activity Agriculture and fishing Mining and quarrying Manufacturing Electricity, gas and water Construction GDP 886 72 44455 39726 40376 ratio 0. 1 * 3. 6 3. 2 3. 2 GDP 847 100 45547 39924 38538 ratio 0. 1 * 3. 4 3 2. 9 GDP 849 93 45761 40364 38 688 ratio 0. 1 * 3. 2 2. 8 2. 7 GDP 895 114 39282 39426 40154 ratio 0. 1 * 2. 5 2. 5 2. 6 Services 1119304 89. 9 1207873 90. 6 1297545 91. 2 1429293 92. 3 Note Data is from Hong Kong Annual Digest of Statistics (2004-2008 Edition) edited by Hong Kong Census and Statistics Department. Data unit is in million terms and ratio unit is %.Besides, * represents the comparison had less than 0. 05% is in the total economy The services sector becomes the principal source of employment. The employment share of the services sector in total employment has increased moderately over the past decade, from 79. 8% in 1997 to 86. 6% in 2007. In 2007, the services sector as a whole engaged 3. 03 million persons out of the 3. 5 million overall employments. The services sector plays a significant role in supporting the growth of our external trade. In 2007, the value of exports of services reached $652 billion, representing an average annual growth rate ofProceedings of the 7th International Conference o n Innovation & Management 809 8. 6% over 1997. In 2007, merchant and other trade-related services was the most important major service group, contributing 30. 9% to the value of total exports of services. It was followed by transportation services and travel services, contributing 28. 6% and 16. 5% respectively to the value of total exports of services in 2007. In 1997, the respective percentage shares of these three major service groups in the value of total exports of services were 25. 6%, 30. % and 20. 8%. 2. 2 The structure of Hong Kongs services industry sector Among the economic activities in the services sector, wholesale, retail and import and export trades, restaurants and hotels together contributed 27. 9% of the GDP in 2006, followed by financing, insurance, real estate and business services (25. 0%), community, social and personal services (18. 0%) and transport, storage and communications (9. 6%). Among them, financial services, trading, tourism and professional service s are key industries in the Hong Kong economy.They have been the driving force of Hong Kongs economic growth, providing impetus to growth of other sectors and creating employment. (1) Import and export trade . The import and export trade is the most important industries in Hong Kongs service industry, has been playing an important role in the development of Hong Kong economy. The import and export trade produced a net output of HK$305. 1 billion in 2006, representing an increase of 39% over 1997. The ratio is the highest among all service industry. In 2007, there were 98 000 import and export trading establishments in Hong Kong, with 520 000 persons.At the same time, import and export trade sector is also directly promoting the development of other industries, such as logistics, transportation, business services and other services. Hong Kongs import and export trade, including the visible trade and invisible trade two parts. The visible trade refers to the traditional commodity trad e. In 2007, the value of Hong Kong imported and exported goods was $5,556 billion, representing an increase of 9. 8% compared to 2006. Hong Kongs total exports of goods (comprising domestic exports and re-exports) in 2007 amounted to $2,688 billion, or increased by 9. % when compared with 2006. The value of imports increased by 10. 3% to $2,868 billion in 2007. With the value of total exports being less than that of imports, a merchandise trade deficit of $180 billion was preserve in 2007. In the import and export trade, the largest proportion of re-exports. This was largely attributable to the relocation of many local manufacturing activities to the mainland of China. Quite a large amount of the goods produced in the mainland of China through the outward processing arrangement were sent back to Hong Kong and re-exported to other countries/territories.During 1997 to 2007, the value of re-exports increased by 107%, while a decline of 48% was observed in the value of domestic exports . In 2007 the re-export trade to the mainland continued to grow rapidly. The invisible trade services are export and import trade of commercial services and financial services. While these services could be exported or imported by the import/export firms or companies in other sectors, most of the merchant and other trade-related services were exported or imported by import/export firms . In 2007, Hong Kongs exports and imports of services valued at $652 billion and $322 billion respectively.Compared to 2006, exports and imports of services increased by 15. 4% and 11. 7% respectively. Net exports of services in 2007 amounted to $330 billion, this makes Hong Kongs overall trade surplus of $150 billion. (2) Finance. Hong Kong is recognized as an international financial center, many multinational banks and financial institutions gathered here. The financial business is classified in detail, covering all aspects of the financial industry. Hong Kong three-tier system of deposit-taking ins titutions, namely licensed banks, restricted licensed banks and deposit-taking companies, known collectively as the authorized institutions.At the end of 2007, the number of authorized institutions stood at 200, comprising 142 licensed banks, 29 restricted license banks and 29 deposit-taking companies. 68 of them were incorporated in Hong Kong and 132 were incorporated outside Hong Kong. In addition, there were 79 representative offices of foreign banks coming from 27 economies/regions. As at end December 2007, 152 of the largest 500 banks in the world had a presence in Hong Kong. The value added generated by the banking industry amounted to $136. 5 billion, or 9. 6% of Hong Kongs Gross Domestic Product (GDP) in 2006, representing an increase of 41. % compared with 1997. The development of the banking sector also promotes the development of other financial industries. In 2007, some 2 940 establishments and about 32 400 persons were engaged in the business. These included stock and s hare companies commodity futures, gold bullion and foreign exchange brokers/dealers stock, bullion and commodity exchanges fund management companies investment advisory companies and firms providing other various financial services. The financial markets and asset management industry generated value added of about $59. billion, contributing to 4. 1% of Hong Kongs GDP in 2006. 810 Proceedings of the 7th International Conference on Innovation & Management Hong Kong is also the Securities and Exchange Center and an important place for the mainland enterprises to raise funds. At the end of 2007, 1 048 companies were listed on the Main Board of the Hong Kong Exchanges and Clearing Limited (HKEx), with a total market capitalization of $20,536 billion. Despite an increase of only 7. 5% in the number of listed companies, market capitalization was observed to rise 55. 0% over 2006.Since July 1993 when the first Chinese state owned company was listed on the HKEx through issuance of H shares, the role of Hong Kong as a major fund-raising centre for the mainland of China had become increasingly important. By the end of 2007, there were 146 H shares listed on the HKEx, with market capitalization of $5,080 billion. In addition, there were also 93 Red Chips companies and 200 private enterprises listed on HKEx. Hong Kong is one of the most active and liberal debt markets and a leading asset management centre in Asia. (3) Tourism . In 2007, 51 900 persons were engaged in industries closely related o tourism, such as hotels and travel agents and 315 300 persons in industries partly related to tourism such as restaurants, retailers, transport operators and other service providers serving visitors. In terms of economic contribution, inbound tourism and outbound tourism together generated $45. 3 billion value added and 176 300 job opportunities in 2006, or 3. 2% of total GDP and 5. 2% of total employment of Hong Kong respectively. The number of incoming visitors in 2007 reached 28 . 2 million, increased by 11. 6% as compared with 25. 3 million in 2006 and set the highest record for visitor arrivals in history.The mainland of China remained the major source market of visitors to Hong Kong since 1994. Visitor arrivals from the mainland of China reached 15. 5 million in 2007, accounted for 55. 0% of the total visitor arrivals, followed by South and Southeast Asia (10. 3%) and Taiwan (7. 9%). In addition, Hong Kong is Asias major trade exhibition and business conference center. A total of 218 conventions and 78 exhibitions with international participation were held in Hong Kong in 2006. (4) Professional service . The professional service is Hong Kongs fourth-largest service industry.The professional services industry generated $40 billion of value added, or 2. 8% of Hong Kongs Gross Domestic Product (GDP), in 2006 and provided job opportunities for about 106 000 persons in 2007. In 2007, there were about 13 500 professional services establishments, including 3 90 0 accounting, auditing and bookkeeping firms, 1 800 solicitor and barrister firms, 3 300 architectural, surveying and engineering firms and some 4 500 management consultant firms. The business receipts of professional services industry increased by 10. 7% in 2007 over a year earlier.The development of professional services industry over the past decade was quite remarkable. Number of establishments and persons engaged increased by 35% and 23% respectively between 1997 and 2007. During the same period, the total number of registered professionals also increased remarkably, with certified public accountants increasing at the fastest rate of 7. 3% per year on average. 2. 3 Manufacturing company is the support for the Hong Kong service industry In this paper, the Hong Kong Manufacturing Company refers specifically to the Hong Kong manufacturing companies in the mainland.The rapid expansion of Hong Kongs service industries in the past two decades benefited from the development of the Hon g Kong Manufacturing Company and the sub-contracting business model. In the late 80s, under the pressure of high land prices, high rents, high labor costs, a large number of Hong Kong manufacturers shifted their production to the Mainland, where the land and labor costs were relatively low, in particular the Pearl River Delta in Guangdong Province. And because of the changes in the business, many original manufacturing companies become the service company.These companies transferred their manufacturing factories to the Mainland, and kept the headquarters and other high value-added services such as marketing, order processing, material procurement, design, packaging, logistics business in Hong Kong. This business model is known as shop in front and factory in back mode. At the same time, in order to adapt to the changes in international markets and increase exports, many traditional trading companies, set up manufacturing factories in mainland, and formed a sub-contracting operation mode.In the sub-contractors mode, products manufactured in the mainland branch companies, headquarters in Hong Kong focused its efforts on trade, market and management. This mode of operation combined the mainland companies low-cost production advantage and the Hong Kong trading companies familiar with the international market advantage together, promoted the expeditions of business of Hong Kong trade companies and improved their production efficiency. This production mode provided a strong support to the development of Hong Kongs service industry.The financial crisis press great operating pressure to the Hong Kong Manufacturing Company. Mostly concentrated in the Pearl River Delta region, the types of these companies are sound equipment, electrical appliances, toys, clothing, footwear and other labor-intensive industries. The development of these enterprises is based on low labor and land inputs, production technology is very low. With the Proceedings of the 7th International Confe rence on Innovation & Management 811 labor, land costs rising substantially in the Pearl River Delta region, the ompetitive advantages of the Hong Kong Manufacturing Company decreased a lot in recent years. Under the impact of the financial crisis, there has an obvious drop in experts of these labor-intensive consumer goods. Many Hong Kong Manufacturing Companies face the problem of orders reduction, profit decline, and even bankruptcy. 3 Hong Kongs Economic Problems under the Global Financial Crisis Table 2 1997-2007 Business Receipts Indices 1997 2002 2003 2004 2005 2006 2007 Wholesale/Retail Import and export trade Restaurants Hotels Transport Storage Communications Banking Financing (except banking) Insurance 24. 4 107. 2 104. 7 99 61. 7 157. 1 127. 1 84. 1 79. 8 38. 2 88. 3 75. 5 94. 9 73. 1 68. 8 81. 1 96. 6 86. 4 56 59. 2 85. 8 80. 4 85. 7 58. 8 69. 1 77. 4 94. 3 86. 4 65. 7 70. 5 93. 8 90. 5 94. 3 81. 9 85 90. 6 95. 1 90. 2 87. 5 86. 2 100 100 100 100 100 100 100 100 100 100 100 100 100 100 107. 4 110. 2 109. 5 113. 7 110. 6 110. 2 100. 8 119. 5 147. 9 121. 3 99. 6 119. 6 114 109. 7 120. 6 119. 1 124. 2 131. 1 122. 6 127. 8 110. 8 165. 3 249. 7 156. 2 139. 3 135. 4 135. 4 117. 1 Real estate 135. 6 71. 5 75. 9 86. 2 Business 119. 7 87. 88. 1 95. 3 services Tourism 91. 5 75. 5 70 88. 5 Computer and 53. 1 63. 7 67. 3 81. 1 information services Note Data is from Hong Kong Annual Digest of Statistics(2008 Edition) Statistics Department. Table 3 2005 edited by Hong Kong Census and 2005-2008 the variation ratio of Business Receipts Indices 2006 2007 2007 3 quarter 9 15. 1 8. 2 15. 4 15. 7 11. 7 11. 7 9. 7 47. 7 99. 6 42. 1 27. 7 2007 4 quarter 15. 5 17. 7 7. 6 14. 8 16. 5 14. 8 10. 3 16. 2 45 82. 9 35. 4 69. 5 2008 1 quarter 9. 6 17. 5 13. 2 16 9. 9 15. 9 10. 7 11. 2 6. 32. 8 11. 7 14. 5 2008 2 quarter Wholesale/Retail Import and export trade Restaurants Hotels Transport Storage Communications Banking Financing (except banking) Insurance Real estate Business services 5. 6 6. 8 10. 6 6 22. 1 17. 8 10. 4 5. 1 10. 9 14. 3 16 16 7. 9 7. 3 10. 2 9. 5 13. 7 10. 6 10. 2 0. 8 19. 5 47. 9 21. 3 -0. 4 10. 4 12. 8 8 13. 4 15. 2 10. 8 16 10 38. 3 68. 8 28. 8 39. 8 14. 1 14. 4 14. 6 15. 3 9. 6 11 3. 5 13. 5 -6. 8 4. 7 8. 3 10 Tourism 4. 9 19. 6 13. 2 11. 8 14 11. 5 10. 3 Computer and 12. 9 14 18. 7 18. 9 25. 4 14. 14 information services Note Data is from Hong Kong Annual Digest of Statistics (2008 Edition) edited by Hong Kong Census and Statistics Department. 812 Proceedings of the 7th International Conference on Innovation & Management Table 2 shows the revenue changes of the Hong Kongs service industry from the 1997 Asian financial crisis. In the 1997 Asian financial crisis and the subsequent 2003 epidemic of SARS, Hong Kongs service industry was particularly hard hit. Until 2006, the industry revenue was generally restored to the level of 97. Finance, insurance, transport, trade and other business incurred the largest loss.In February 2007, the U. S. sub-loan crisis happened, and the Lehman bank filed for bankruptcy in September 2008. The U. S. financial crisis intensified and developed into a global financial crisis. From the second half of 2008, the global financial crisis began to influence Hong Kong economy. This performance is particularly evident in the service industry. Hong Kongs financial industry has been most affected. From Table 3 it can be seen that Banking and financial services industries are in the most affected after the financial crisis. There is a rapid decline in industry revenue.In the second quarter of 2008, banking industry even has the first negative growth since the past few years. At the end of the third quarter, because a lot of major financial institutions in the United States had been threatened with a bankruptcy, the global financial crisis became even more serious. The panic selling appeared in many countries stock market, Hong Kong was no exception. Hong Kongs Hang Seng index plummeted by 15 % in September, and fall 22% in October. The normal operation of Hong Kongs capital markets has been seriously affected.The growth of other financial related industries, such as insurance, real estate and business services, had a slowed down significantly from the beginning of the second quarter of 2008. Import and export trade and related industries sectors have been affected in different degrees. The merchandise exports slowed down in the third quarter and only had a small increase. Even so, this was the worst performance since the first quarter of 2002. With the increase of global financial crisis, exports to other markets also had different degrees of slowing down.As a result, the growth of related industries, such as business service, trade service, transportation and storage service also slowed down slightly. Exports of services had maintained a steady increase in the financial crisis, but the growth rate was also smaller than the second quarter. The growth of tourism also had signs of deceleration and affect the growth of related industry, such as transportation, hotels, catering services, the number of visitors from long distance market decrease a lot, particularly the tourists from Europe and the United States.To face the challenge of financial crisis, the SAR Government has been actively responding well to prevent the spread of financial risks. From the beginning of the sub-loan crisis in the United States, in order to ensure stability of the financial system, the Hong Kong Monetary Authority introduced a number of measures to alleviate the pressure on banks and provide necessary assistance to the banks. Securities and Futures Commission and the Insurance Supervisory Commission also had made action to strengthen the protection of investors and policyholders.At the same time, most Hong Kongs local financial institutions participation in directly investment to the US sub-loan is limited in small scale. The local banking system remains steadily without be directly effected by the sub-loan crisis. Benefit from the economic development of the Mainland, Hong Kongs service industries is also faced with new opportunities in the global financial crisis. For example, supported by the growth of trade in the Mainland, offshore trade growth was still significant.Although 2008 is the Olympic Year, but the mainland tourists to Hong Kong remained a high-speed growth. In the third quarter of 2008, the Mainland tourists to Hong Kong wad still higher than last year, an increase of 9. 4%. Individual Visit Scheme is one of the bright spots the visitors in accordance with this scheme had a further rise in the third quarter, the ratio wad 14. 5%. These factors effectively guaranteed the smooth operation of Hong Kongs service industries. At the same time, the ten naturalization industry plan in the mainland had already been introduced.The mainland accelerated the pace of industrial upgrading and began to support the development of high-tech industry. These policies provide a good environment for the Hong Kong companies in mainland to upgrade their technological level and achieve their own industrial upgrading. Based on the above analysis, the challenges faced by Hong Kongs economic in the financial crisis can be summarized into the following three aspects (1)financial sectors profits decline a lot, related sectors services business reduces. 2) The trade and service market in Western countries shrink. 3 Hong Kong Company in mainland operates difficultly. Hong Kong economy is facing the opportunity for the steady development of the Mainland economy and the acceleration of the industrial upgrading. Therefore, in order to face the challenge of the financial crisis, it is important for Hong Kong service companies to expand business in the Mainland, and to Hong Kong companies in mainland to enhance the productivity. Proceedings of the 7th International Conference on Innovation & Management 813 4 ConclusionsThrough the above analysis, this paper can be drawn the following conclusions (1) The a major problem of Hong Kong economy is decline in financial sector profits and trade volume with Western developed countries. (2)The expansion of demand of the Mainland market is the most important opportunity for Hong Kongs economic development. (3) Hong Kong economy has great demands for information technology, electrical and electronic technologies, manufacturing technology. To ensure sustainable development of Hong Kong economy, it is very important to promote scientific and technological development. References 1 Yang Xue.The Analysis of the Scientific and Technological Needs Based on Micro-macro SystemJ. Social Science Frontier, 2008, (10) 241(In Chinese) 2 Guo Kasha, Wang Wenlong. Science and Technology Needs Analysis of Chinese High-Tech IndustryJ. Economic Review, 2004, (8)198(In Chinese) 3 Wu Jiapei, Wang Changsheng. Science and Technology Needs Analysis of the New Road to IndustrializationJ. Science & Technology a nd Economy, 2005, (4) 4(In Chinese) 4 Li Jianhua, Cheng Baoying, Yang Xue. Analysis on Demand of Science and Technology Effected by Informatization During New IndustrializationJ. Information Science, 2004, (8) 903(In Chinese)