ENG-2006 — Page 69

The Economy | 41

late December 2006 before closing the year at 19 965, 34 per cent higher than at the end of 2005. The average daily turnover rose to $33.9 billion establishing another record year. With the stock market capitalisation surpassing $13 trillion at the end of December 2006, Hong Kong's stock market overtook Toronto's to become the sixth largest in the world.

Consumer price inflation, although inching up in the first three quarters of 2006, remained moderate through to the end of 2006. The strong economic upturn, coupled with the low inflation rate, provided a highly supportive marcroeconomic environment for Hong Kong. On a year-on-year basis, the increase in the Composite Consumer Price Index inched up from 1.6 per cent in the first quarter to 2.0 per cent and 2.3 per cent respectively in the second and third quarters, before edging down. to 2.1 per cent in the fourth quarter following a fall in oil prices and a steadier increase in housing cost.

Structure and Development of the Economy

With its strategic location at the doorstep of Mainland China and in a time zone that bridges the gap between Asia and Europe, Hong Kong serves as an excellent global centre for trade, finance, business and communications. Hong Kong is now the 11th largest trading entity in the world. It operates one of the busiest container ports in the world in terms of throughput, as well as one of the busiest airports in terms of number of passengers and volume of international cargo handled. In addition, it is the world's 14th largest banking centre in terms of external banking transactions, and the sixth largest foreign exchange market in terms of turnover. Its stock market is Asia's second largest in terms of market capitalisation.

Hong Kong is noted for its high degree of internationalisation, its business- friendly environment, the rule of law, free trade and the free flow of information, open and fair competition, its well-established and comprehensive financial network, a superb transport and communications infrastructure, sophisticated support services and a well-educated workforce complemented by a pool of efficient and enterprising entrepreneurs.

In addition to this are its substantial amount of foreign exchange reserves, a fully convertible and stable currency, prudent fiscal reserves and a simple tax system with a low tax rate. Hong Kong was also ranked as the world's freest economy by the US Heritage Foundation for the 13th year in a row in 2006. It is also ranked consistently as the first by the Fraser Institute of Canada.

Hong Kong's economy nearly tripled in size over the past two decades, with GDP soaring at an average annual rate of 5.1 per cent in real terms. This surpasses both the world's ecomomic growth of 3.7 per cent and the 2.8 per cent growth recorded by the Organisation for Economic Cooperation and Development (OECD) economies. Over the same period, Hong Kong's per capita GDP has doubled, chalking up an average annual growth rate of 3.9 per cent in real terms. At US$27,680, Hong Kong's per capita GDP was one of the highest in Asia in 2006 (Chart 1).