Hong Kong Economic History

SOSC005 Hong Kong Economic History

CHEN, Y.C. Assistant Professor

Division of Social Science

ycchen@ust.hk

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

Early Colonial Economy

(1941-1960)

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

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.

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.

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.

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.

Early economic ordinances ( 條例 ) 1843 LEGCO was established and many important econ

omic ordinances was released. 1847 年《市场贩物牌照条例》 1856 年《购买地产条例》 1866 年《公司（登记）条例》 1875 年《追偿欠债条例》 1877 年《公司条例》 1883 年《小贩管理条例》 1885 年《度量衡条例》 1886 年《拍卖地产条例》和《印刷出版业条例》 1888 年《书籍注册条例》 1892 年《创制品商标条例》

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.

Shipping industry

Many British companies built vessels for Trade between Hong Kong, China, India and the W

est. Taking passengers on routine routes, such as 廣州 ,

上海 , 寧波 , 福州 , 廈門 . Peninsular and Oriental Steam Navigation Compa

ny (半島東方輪船公司 ) 及 Jardine Matheson & Co (怡和洋行 ) were largest shipping companies that engaged in opium trade.

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. ( 黃埔船坞公司 )

1888 with the assistant of British Navy, Whampoa Dock Co. built a new shipping dock at 紅磡 that can accommodate the largest British Navy fleet.

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 ( 匯兌 ) between China, Britain and India.

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” ( 南京條約 ) 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 ( 驳船 ) along the China c

oastal region. Most of them belong to the British companies

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 “ 掮客” . They were forced to sign a contract to work continuously to repay their travel and food expenses.

These “indentured labor” ( 契約勞工 ) were then shipped to the U.S., South America, Australia and Southeast Asia.

25% of coolies dies in the journey between 1850-1856.

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.

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 ( 轉口貿易中心 ).

Hong Kong financed 1/4 import to China 1/3 of the export from China

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.

Mid Colonial Economy (1861-1941)

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.

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.

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 interes

t. 90% of colonial government revenue came from th

e Chinese. Against segregation, Hennessy allowed Chinese

elites to live in the European area ( 皇後大道 ), become Legco member, enter the town hall freely

“Chinese Naturalization Ordinance” was passed to provide British citizenship to the Chinese elites.

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.　四大百貨：先施 , 　永安 , 　大新 , 　中華 .

Banking: Bank of East Asia ( 東亞 ) and other Chinese banks were established. Together with traditional 銀號 , 　銀會 , 　典押業 , Chinese slowly became the third largest financial power.

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.

銀號 was popular among Chinese, provide loan service.

當押鋪 provided low interest loan for working class community

銀會 work as a cooperation among individuals led by 會頭 based on trust. It is a cheaper way of getting personal loan.

Chinese labors

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.

Great Guangzhou-Hong Kong Strike in 1922

Worker strikes

There were many strikes in which workers demand better wages or protest against war.

1872 搬運工人 ; 1883 人力車夫 ; 1888 艇夫 ; 1895 碼頭 ,運煤和糖廠工人

In 1922, 6000 workers from Seaman’s 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.

Great Guangzhou-Hong Kong Strike 1922

Economic diversification

Colonial government continued its free-trade port policy.

Greater special rights are given to British companies, while absorbing Chinese business elites.

HSBC, 怡和 , 太古 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.

Late Colonial Economy (1945-1997)

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 foreigner’s 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.

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.

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.

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).

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.

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.

Trade Embargo ( 禁運 )

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.

Manufacturing

Due to the embargo, many HK entrepreneur decided to shift to “export-oriented manufacturing” ( 出口導向的製造業 ).

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).

The success of manufacturing

Market demand Advanced countries phrased out labor-intensiv

e manufacturing. HK picked up. Flexible production

Hong Kong firms could produced faster, cheaper and more varieties.

Entrepreneurship ( 企業家精神 ) 靈活的遊走在不同的市場 (niche market) 敢冒險 (risk taking) 有創意 (innovative)

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.

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.

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.

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

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.

石硤尾 fire happened on the Christmas Day of 1953. 白 田 村 眾 安 道 一 百 二 十 四 號 二 樓 ， 有 人 燃 點 火

水 燈 時 不 慎 燒 著 棉 胎 ， 引 起 火 警 。 火 勢 最 初 並 不 強 烈 ， 僅 波 及 三 十 多 間 房 屋 ； 但 後 來 強 烈 的 北 風 陡 起 ， 令 火 燄 迅 速 四 處 蔓 延 ， 未 及 十 分 鐘 ， 大 火 已 波 及 數 百 戶 。 十 時 正 ， 火 頭 由 白 田 村 向 東 灣 及 正 街 蔓 延 ， 火 高 數 十 丈 ， 火 勢 一 發 不 可 收 拾 。

石峽尾木屋火災

災情嚴重

根據港督向英國政府的報告中提到，這場石硤尾大火，涉及三個木屋區，災場廣及 41 英畝，即相當於 164,000 平方公尺。 大火歷時六個小時，燒毀萬間房屋，六萬人頓成災民，無家可歸 。

1953 年的石峽尾木屋火災，揭示了戰後香港政府城市發展與管理的問題。為解決數以萬計災民的居住問題，港督葛量洪遂推出徙置區的興建計劃。七層高的徙置區，浴室、洗房、走廊共用，標誌著下層社會的生活方式。

新蒲崗臨時搭建的鐵皮屋讓失去家園者暫住；最右邊是有不少巴士站的彩虹道及黃大仙部份公屋。

Housing Authority ( 房屋委員會 )

(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.

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.

(2)1965-1966 Housing policy change

(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

(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 “天台屋”、“籠屋”、“床屋”、“板間房” … etc.

Government taking step to privatizing public housing. E.g. the Link incident.

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.

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 buyer’s specifications/requirements.

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..

Triangle Manufacturing

Source: Gereffi, 1999. Buyer-driven commodity chains