SOSC005 Hong Kong Economic History

1
SOSC005 Hong Kong Economic History

• CHEN, Y.C. Assistant Professor
• Division of Social Science
• ycchen_at_ust.hk

2
Overview

• I. The Early Colonial Economy (1840-1860)
• II. The Rise of Chinese Capitalist (1861-1941)
• III. Integration with China before the
  Crisis(1980-1997)
• IV. Integration after the 1997 crisis

3

• Early Colonial Economy
• (1941-1960)

4
The Occupation

• British was the 18th century colonial empire that
  colonized many territories.
• By 1899, British has occupied land that is 61
  times larger than it own territory.
• On 26 Jan 1841, British occupied the Hong Kong
  island, and began a 150 years of colonization

5
Why British occupied Hong Kong?

• Mainly commercial interest
• A place to fix their commercial boat after a long
  journey
• A place where British merchants were under direct
  protection of British military might.
• Materials support for the British army in the
  Opium War 1940-1942.

6
Hong Kong as free-trade port

• 4 months after British occupied Hong Kong in
  1841, Hong Kong was declared as free-trade port
• All vessels from China or Chinese merchants that
  came to Hong Kong for trade did not have to pay
  any form of taxes.
• Until today, Hong Kong only tax on limited goods
  such as cigarette, alcohol, drinks, cosmetic..
  etc.
• There were no restriction import goods in term of
  warehousing, categorization, re-manufacturing,
  repackaging nor re-export.

7
Why free-trade port?

• Hong Kong lack of natural resources and
  exportable goods
• Food and other consumer goods need to be imported
• Good transportation location
• Good natural harbor
• Strong British colonial army to protect the port
  and trade security, e.g. fight the pirates.

8
Build infrastructure

• Land office was erected in 1841 to measure and
  divide the land for auction (for sale).
• By 1846, all the lands in the Victoria city was
  auctioned (or rented) out except military and
  government land.
• There were residential buildings, offices for the
  European, warehouse and some factories.

9
Early economic ordinances (??)

• 1843 LEGCO was established and many important
  economic ordinances was released.
• 1847?????????
• 1856???????
• 1866???(??)??
• 1875???????
• 1877?????
• 1883???????
• 1885??????
• 1886???????????????
• 1888???????
• 1892????????

10
Three main industries

• Import and export trading
• Hong Kong has a natural harbor. By 1848, the
  number of British vessels (457), American vessel
  (118), and Chinese (42) and Spanish (23).
• Hong Kong was a mid-way trading center between
  China, Britain and India.
• Indian cotton and opium ? China
• Chinese tea and silver ? Britain and India
• British industrial goods (textile, cigarette) ?
  China.
• British trading companies in Hong Kong
  monopolized the trade.
• The two main trading items were opium and Chinese
  bonded labors.

11
Shipping industry

• Many British companies built vessels for
• Trade between Hong Kong, China, India and the
  West.
• Taking passengers on routine routes, such as ??,
  ??, ??, ??, ??.
• Peninsular and Oriental Steam Navigation Company
  (????????) ? Jardine Matheson Co (????) were
  largest shipping companies that engaged in opium
  trade.

12
Ship Building Empire

• To strengthen long-distance navigation and navy
  power, British colonial government continuously
  support shipping industry, more than other
  industries.
• 1863 Whampoa Dock Co. (??????)
• 1888 with the assistant of British Navy, Whampoa
  Dock Co. built a new shipping dock at ?? that can
  accommodate the largest British Navy fleet.

13
Banking Industry

• Many British banks were established to provide
  trading services.
• Import and export financing
• Credit insurance.
• Oriental Banking Corporation focused on opium
  trading services.
• Standard Chartered Bank was the largest
  remittance service (??) between China, Britain
  and India.

14
Illegal Opium Trade

• Opium trade continues to be the major trading
  item in the early Hong Kong colonial history,
  especially after the Treaty of Nanjing (????)
  in 1942 that granted British trading rights and
  privileges in five Chinese ports.
• Almost every British trading companies (12
  largest) in Hong Kong involve opium trade.
• In 1847, 86.5 of Hong Kong total export was
  opium.
• The large opium vessel entered Hong Kong harbor
  and reloaded on to smaller vessel, and shipped to
  Shanghai.
• There were 40 opium pontoons (??) along the China
  coastal region. Most of them belong to the
  British companies

15
Coolie Trade

• In 1847, the gold rush in San Francisco and gold
  mine discovery in Australia 4 years later
  stimulate the coolie trade in Hong Kong.
• Young male workers were smuggled to Hong Kong by
  Chinese brokers ??. They were forced to sign a
  contract to work continuously to repay their
  travel and food expenses.
• These indentured labor (????) were then shipped
  to the U.S., South America, Australia and
  Southeast Asia.
• 25 of coolies dies in the journey between
  1850-1856.

16
Good Business

• 1851 - 1872, around 320, 000 coolies were
  exported from Hong Kong.
• Shipping company made 90,000 for each trip.
• Coolie trader made 160-283 per coolie sale.
• 1851-1875, the annual revenue of coolie sale was
  3.4 million.

17
Early Colonial Economy

• 1841-1843 British military used Hong Kong as a
  entry port to supply military resources during
  the Opium War.
• 1844-1848 After the Nanjing Treaty, Hong Kong
  trade decreased because merchants could enter
  freely into the 5 ports in China.
• 1949-1860 capital accumulated from illegal opium
  and coolie trade were reinvested in Hong Kong.
  Hong Kong become the transit trade center
  (??????).
• Hong Kong financed 1/4 import to China 1/3 of the
  export from China

18
Urban Land Development

• In 1858, most trading companies set up their
  headquarters in Hong Kong.
• The increase in real estate price stimulated
  colonial government to reclaim new land. Most
  auctions went to 25-30 Western trading firms.
• They dominated real estate business through
  construction of offices, shop houses,
  residential, warehouse and port.
• By 1855, colonial government had reached balanced
  budget, and thus did not need any budgetary
  subsidy from the British government.

19

• Mid Colonial Economy
• (1861-1941)

20
The Rise of Chinese Capitalist Class

• Chinese capitalist class formation started by
  working as broker for their British companies.
• Chinese merchants from China and oversea brought
  capital to Hong Kong and opened stores and
  trading firms.
• The began trading in China, and later expanded to
  international trading.
• The numbers of Chinese business in Hong Kong
  increased from 35 in year 1858 to 393 in 1881.

21
From collaborators to competitors

• Colonial government encouraged Chinese capitalist
  to invest in Hong Kong because they were good
  business collaborators who have good connection
  with China and oversea Chinese networks, and have
  good knowledge of the markets.
• At the end of 19th century, many Chinese
  capitalist gradually became the competitors of
  the Western Capitalist.

22
The naturalization of the Chinese capitalist class

• The 8th governor John Hennessy understood that
  they could not isolated 95 of the Chinese
  population, especially the Chinese capitalist
  class.
• The Chinese was crucial to British business
  interest.
• 90 of colonial government revenue came from the
  Chinese.
• Against segregation, Hennessy allowed Chinese
  elites to live in the European area (????),
  become Legco member, enter the town hall freely
• Chinese Naturalization Ordinance was passed to
  provide British citizenship to the Chinese elites.

23
Chinese Business

• Manufacturing Small scale light industries have
  emerged textile, food and drink industries.
  Grew faster after 1st War World.
• Retailing Oversea Chinese started retailing.
  ??????, ??, ??, ??.
• Banking Bank of East Asia (??) and other Chinese
  banks were established. Together with traditional
  ??, ??, ???, Chinese slowly became the third
  largest financial power.

24
Banking Industry

• They were around 30 banks. 10 British banks, 8
  Chinese banks and other foreign banks. Their main
  business was import/export service with China,
  only little went to investment service.
• ?? was popular among Chinese, provide loan
  service.
• ??? provided low interest loan for working class
  community
• ?? work as a cooperation among individuals led by
  ?? based on trust. It is a cheaper way of getting
  personal loan.

25
Chinese labors
Great Guangzhou-Hong Kong Strike in 1922

• Chinese working class was highly discriminated by
  the British colonial government and their Chinese
  bosses.
• Their salary was 1/500 of the governor and 1/15
  of the lowest rank civil servant.
• If they created trouble, they will be punished
  as criminals.

26
Worker strikes
Great Guangzhou-Hong Kong Strike 1922

• There were many strikes in which workers demand
  better wages or protest against war.
• 1872 ???? 1883 ???? 1888 ?? 1895 ??,???????
• In 1922, 6000 workers from Seamans Union (SU)
  went on strike for 56 days. It was joined by
  30,000 workers.
• The Union had an armed militia that enforced the
  strike and blockaded all food by rail or sea.
• Tens of thousands of strikers and their families
  left Hong Kong for Canton where the local
  government housed, fed and paid them a wage.

27
Economic diversification

• Colonial government continued its free-trade port
  policy.
• Greater special rights are given to British
  companies, while absorbing Chinese business
  elites.
• HSBC, ??,?? conglomerates that represented
  British interest have become very dominant
• Economy has diversified from coolie and opium
  sales to more trade, finance and manufacturing.
  At the same time, construction, public
  infrastructures, local business and services
  began to take off as population increase rapidly.

28

• Late Colonial Economy (1945-1997)

29
Japanese Occupation (1941-1945)

• Japan occupied Hong Kong for 3 years and 8 months
  during the WW II.
• They took over all the British and foreigners
  banks and their assets.
• Hong Kong currency was banned.
• Hong Kong population decreased from 1600
  thousands in 1941 to 600 thousands in 1945.
• All economy activities stagnant.

30
Positive Non-interventionism

• After British took back Hong Kong in 1945, the
  governor continue free trade economic policy in
  Hong Kong.
• However, the unregulated banking sectors were
  engaged in fierce competition, which led to
  Banking crisis in the 1960s. Government begin to
  regulate import/export of gold (1947) prohibited
  foreign bank to set up branch in Hong Kong (1966)
  ..etc.
• Positive non-interventionism only intervene in
  economy at the time of major economic
  difficulties or crisis.

31

• Abolish Foreign Exchange Control in 1973
• Foreign exchange transaction increase rapidly. By
  1978, the daily transaction was 0.5 billion US,
  increase to 5 billion in 1980 and 10 billion in
  1982, and 91 billion in 1995.
• Abolish Gold import and export control in 1974
• Hong Kong gold exchange increase from 0.3 million
  ounces per day to 1 million at the end of 1970s.
  Hong Kong becomes one of the 4th largest gold
  market in the world.
• Relax the prohibition of bank branch in Hong
  Kong in 1977.
• Oversea banks increase from 48 in 1975 to 151 in
  1995. Rank 3rd after the U.S. and U.K.

32
Regulation of Bank and Stock market

• At the same time, government engage in close
  regulation to prevent the banking crisis in the
  1980s) and stock market crisis (1973 and 1987).

33
Industrial Development

• 1945-51 Recovering from the war
• 1952-70 Rapid industrialization
• 1971-80 Finance, tourism, real estate and
  transportation took off.
• 1981-1997 Move from manufacturing to service.
• Service industry has increased from 68 in 1980
  to 84 in 1996.
• Manufacturing has decreased from 23 in 1980 to
  7 in 1996.

34
Industrialization

• 1947-1950, large amount of oversea Chinese
  capital flew into Hong Kong, which was equivalent
  to 48 of HK national income.
• Population doubled from 1945-1947, and continue
  to increase at 15 per year.
• The influx of abundant capital, cheap labors and
  skilled labors were the pre-condition to the
  rapid industrialization of Hong Kong in the 1950s
  and 1960s.
• With decrease in trade barrier (GATT in 1947),
  Hong Kong export of manufactured goods increased.
  

35
Trade Embargo (??)

• The U.S. government announced trade embargo
  against China during Korean War in 1950. Under
  U.S. pressure, other countries follows.
• HK Colonial government Trade and Industrial
  Branch also prohibited important raw-materials
  from import/export to China.
• Hong Kong export fell sharply because the embargo
  has basically stop the trade flow between Hong
  Kong and China.

36
Manufacturing

• Due to the embargo, many HK entrepreneur decided
  to shift to export-oriented manufacturing
  (????????).
• Traditional traders also started to trade
  locally produced products, instead of trade on
  foreign products.
• Manufacturing firms increased from 1479 (in 1950)
  to 4783 (in 1960). Employees increase from 82,000
  (1950) to 216,000 (1960).

37
The success of manufacturing

• Market demand
• Advanced countries phrased out labor-intensive
  manufacturing. HK picked up.
• Flexible production
• Hong Kong firms could produced faster, cheaper
  and more varieties.
• Entrepreneurship (?????)
• ??????????? (niche market)
• ??? (risk taking)
• ??? (innovative)

38
Entrepreneurship in Textile Industry

• In 1965, the US and UK set import quota for Hong
  Kong textile product. Hong Kong firms reacted by
• Increase the added value of the product by
  improving the textile product.
• Facing the technical barrier from South Africa.
  Hong Kong firms reacted by
• Innovation through trial and error, and finally
  overcome the technical barrier and export to
  South Africa.

39
Cheap labor

• Between 1949-1970, more than 1 million migrants
  came from China, 25 of total HK population.
• They provide the large quantity of cheap labor
  needed in the labor-intensive industries.

40
Textile Capital and Skilled labor

• Many Chinese entrepreneurs from Shanghai and
  Zhejiang relocated to Hong Kong during to avoid
  civil war in China.
• They moved machines and technologies to Hong
  Kong.
• They also and invited skilled workers from
  Shanghai and Zhejiang factory to work in new Hong
  Kong factories.

41
Semi-public government agencies

• Hong Kong colonial government provided
  semi-public agencies to promote industrialization
  through provide market assessment, consultancy,
  technical enquiry, and training.
• Hong Kong Industrial Association
• Hong Kong Export Credit Insurance Council
• Hong Kong Trade and Development Council
• Hong Kong Productivity Center

42
Hong Kong Public Housing

• Hong Kong public housing is crucial in providing
  affordable housing to poor workers.
• It all began in a accident in 1953. Before the
  accident, Hong Kong government has no interested
  in providing housing for the poor.
• ??? fire happened on the Christmas Day of 1953.
• ? ? ? ? ? ? ? ? ? ? ? ? ? ? , ? ? ? ? ? ? ? ? ? ?
  ? ? ? ? , ? ? ? ? ? ? ? ? ? ? ? ? ? , ? ? ? ? ? ?
  ? ? ? ? ? ? ? ? ? ? ? ? ? , ? ? ? ? ? ? ? ? ? ,
  ? ? ? ? ? , ? ? ? ? ? ? ? ? ? ? ? ? , ? ? ? ? ? ?
  ? ? ? ? ? ? ? ? , ? ? ? ? ? , ? ? ? ? ? ? ? ? ?

43
???????
44
????

• ???????????????,???????,???????,????41??,????1
  64,000????? ????????,??????,???????,???? ?

45

• 1953?????????,??????????????????????????????????,?
  ???????????????????????,??????????,?????????????

46

• ???????????????????
• ???????????????????????

47
Housing Authority (?????)

• (1)1955-1964--the HA need to build rapidly to
  replace the slum population.
• a. With limited resources
• b. The quality of the public housing was
  terrible, but it successfully house 600,000
  people in 9 years.
• c. Public housing was a successful social control
  strategy.

48
(2)1965-1966 Housing policy change

• a. Pressure from the public to improve the
  quality of the public housing
• b. HA improved the quality, for example, 2.2 ?
  3.25 squared meter
• c. But the number of public housing decrease.

49
(3)1972-1983

• a. Economic growth, population increase
• b. In 1972, started the 10 project.
• c. New town project.
• d. Between 1972-1983, the speed of production is
  4 hours per unit.
• e. House 70 of the population.
• (4) 1983-1997
• a. Public housing enlarge to accommodate
  middle class need.
• b. Construct public housing for single

50
(5) After 1997

• Under the pressure of private real estate market,
  government stop selling of public housing to
  middle class in 2002.
• Construction of Public Housing also slowed down
  because of the budget crisis.
• Old and poor continues to live in
  ????????????? etc.
• Government taking step to privatizing public
  housing. E.g. the Link incident.

51
Economic diversification (1971-1980)

• Multi-Fibre Arrangement Regarding International
  Trade in Textile, MFA) has set quota restriction
  on textile and garment import to the U.S., U.K.
  and European Market.
• Many textile and garment firms went to Southeast
  Asia, Africa, India and Latin America to avoid
  quota restriction.
• Some upgrade to produce higher quality products.
• At the same time, HK manufacturing began to
  diversified into electronics, watch, toys and
  jewelry industries.

52
Hong Kong Firms Network

• Hong Kong trading firms get order from brand
  named buyers.
• Buyers could be retailers (Walmart, Marks
  Spencer), branded marketers (Disney) and branded
  apparel manufacturers (Sara Lee Corporation, Levi
  Strauss)
• Trading firms subcontract their order to small
  manufacturing firms OEM firms.
• OEM (Original Equipment Manufacturing)
  subcontractor (factory) produces garment
  according to buyers specifications/requirements.

53
Triangle Manufacturing

• U.S. Buyers place their orders with Hong Kong
  trading companies or manufacturing companies, who
  in turn shift some or all of the requested
  production to offshore factories in low-wage
  countries (e.g. China).
• These offshore factories (in China) are wholly
  owned subsidiaries of Hong Kong manufacturers,
  joint-venture partners or independent overseas
  contractors.
• The finished goods are shipped directly to buyers
  in the U.S..

54
Triangle Manufacturing
Source Gereffi, 1999. Buyer-driven commodity
chains