On the logic of the economic integration of Hong Kong into the Greater China economy

Hong Kong has encountered an economic downturn since the outbreak of the Asian Financial Crisis in 1997. It was a result of the lack of long-term preparation for adjustment to changes in the industrial structure. Without a foundation to upgrade its industrial structure from labour-intensive manufacturing to mid and high-tech industry, Hong Kong could only transit its industrial structure directly from the secondary sector to the tertiary sector – financial services, trading and logistics, and related services. Nonetheless, due to the keen competition in terms of cost advantages from the neighbouring economies, mainly those regional economies in the Pearl River Delta and the Yangtze River Delta in Mainland China, Hong Kong has encountered the “Problem of Production Cost” in various industries. Since land rents and labour wages are the two major components of cost structure, the core strategy in economic development for Hong Kong is to maintain its competitiveness, by all policy means, helping to reduce the total cost of production for all sectors in the SAR