THE ECONOMY
commodity prices. For 2003 as a whole, the Composite CPI fell by 2.6 per cent, narrowed from the 3.0 per cent drop in 2002.
The GDP deflator, as a broad measure of overall price change in the economy, however, exhibited a more pronounced decline by 5.1 per cent in 2003, as against a 3.0 per cent fall in 2002. This was due in large part to a worsening in the terms of trade, aside from downward price pressure in the domestic economy. Consequential to the enlarged decrease in the GDP deflator, nominal GDP had a larger fall in 2003 than in 2002, by 2.0 per cent as against 0.8 per cent.
Structure and Development of the Economy
With its strategic location at the doorway to the Mainland and on the international time zone that bridges the time gap between Asia and Europe, the HKSAR has been serving as a global centre for trade, finance, business and communications. Hong Kong is now ranked the 11th largest trading entity in the world. It operates the busiest container port in the world in terms of throughput, as well as one of the busiest airports in terms of number of international passengers and volume of international cargo handled. In addition, it is the world's 12th largest banking centre in terms of external banking transactions, and the seventh largest foreign exchange market in terms of turnover. Its stock market is Asia's second largest in terms of market capitalisation.
Hong Kong is characterised by a high degree of internationalisation, business- friendly environment, rule of law, free trade and free flow of information, open and fair competition, well-established and comprehensive financial network, superb transport and communications infrastructure, sophisticated support services, and a skilled and well educated workforce complemented by a pool of effective and enterprising entrepreneurs. Added to these are the substantial amount of fiscal reserves and foreign exchange reserves, a fully convertible and stable currency, and a simple tax system with a low tax rate. On these virtues, Hong Kong is widely regarded as amongst the freest and most competitive economies in the world. The US Heritage Foundation ranks Hong Kong as the world's freest economy for the 10th year in a row in 2004. The Cato Institute of the United States, in conjunction with the Fraser Institute of Canada and other research bodies around the world, also consistently ranks Hong Kong as the freest economy in the world.
Over the past two decades, the Hong Kong economy has more than doubled in size, with GDP growing at an average annual rate of 5.0 per cent in real terms. This outpaces considerably the growth of the world economy and the Organisation for Economic Cooperation and Development (OECD) economies. Over the same period, Hong Kong's per capita GDP doubled at constant price level, giving an average annual growth rate of 3.7 per cent in real terms. At US$23,300 in 2003, this per capita GDP was amongst the highest in Asia, next only to Japan (Chart 1).
In line with increased external orientation of the Hong Kong economy, trade in goods expanded by eight times and trade in services by almost three times in real terms over the past two decades. In 2003, the total value of visible trade (comprising re-exports, domestic exports and imports of goods) reached $3,543 billion, corresponding to 287 per cent of GDP. This was distinctly larger than the ratios of 156 per cent in 1983 and 230 per cent in 1993. If the value of exports and imports of services is also taken into account, the ratio is even greater, at 331 per cent in 2003, as compared to 192 per cent in 1983 and 267 per cent in 1993.
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