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The Economy
Raising flat supply through increasing land supply has been the Government's top policy priority in ensuring a healthy and stable property market. Much work was done in 2012 to manage demand and reduce the possible risks to financial stability arising from an exuberant property market.
The local stock market fluctuated in 2012. It rebounded on entering 2012 on the better-than- expected performance of the US economy, but nosedived in May on an abrupt worsening of the euro debt crisis. The Hang Seng Index (HSI) hit a low of 18,186 on 4 June 2012, the lowest since late-2011, but the stock market largely went on a rally from July upon some stabilisation of the euro debt situation following the European Central Bank President's pledge to safeguard the euro and the European authorities' efforts to stem the crisis, as well as the advanced economies' fresh round of quantitative easing in September. The HSI closed the year at 22,657, up 23 per cent from the end of 2011. Against an uncertain global economic outlook and dented market sentiments, the average daily turnover shrank to $53.9 billion in 2012. Fund- raising activities also turned quieter, with total IPO funds raised shrinking by 65 per cent to $89.8 billion. Hong Kong ranked as the world's third largest IPO centre in 2012, after taking the lead for three consecutive years.
Inflation was generally on an easing trend during 2012, thanks to moderated imported inflation and the feed-through of the earlier stabilisation of private housing rentals. In 2012, underlying inflation averaged 4.7 per cent, down from 5.3 per cent in 2011.
Structure and Development of the Economy
Hong Kong is a global centre for world trade, finance, business and telecommunications, strategically located at the doorstep of the Mainland's huge and vibrant economy. Hong Kong is currently the world's ninth largest trading entity. It operates one of the world's busiest container ports in terms of container throughput, as well as one of the world's busiest airports in terms of number of international passengers and volume of international air cargo handled. Hong Kong is also the world's eighth largest banking centre in terms of gross external positions of banks, and the sixth largest foreign exchange trading centre. Its stock market is the second largest in Asia in terms of market capitalisation.
As an international business hub, Hong Kong has a business-friendly environment with the rule of law, free trade and free flow of information, open and fair competition, a well-established and comprehensive financial network, superb transport and communications infrastructure, sophisticated support services, and a flexible labour market with a well-educated workforce and a pool of efficient and innovative entrepreneurs. Moreover, it has a sizeable amount of foreign exchange reserves, a fully convertible and stable currency, prudent fiscal management and a simple tax system with low tax rates. In view of these virtues, Hong Kong has been ranked by the US Heritage Foundation as the freest economy in the world for 19 consecutive years. Similarly, the Fraser Institute of Canada has also consistently ranked Hong Kong Number 1 in the world in terms of economic freedom. In 2012, Hong Kong was ranked the world's most competitive economy by the International Institute for Management Development for the second consecutive year, and remained the second easiest place to do business in the world
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