ENG-2007 — Page 77

The Economy | 41

deserved attention. The headline Composite Consumer Price Index in 2007 rose by an average of 2 per cent over 2006, while the underlying Composite CPI (which nets out effects of public rental waiver in February 2007 and rates concession for the second and third quarters of 2007) for the year as a whole was 2.8 per cent higher than in 2006.

Structure and Development of the Economy

Hong Kong is a global centre for world trade, finance,

world trade, finance, business and telecommunication with its strategic location on the doorstep of the Mainland China, a vast booming economy. Hong Kong is currently the world's 12th 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 air cargo handled. Hong Kong is also the world's 15th largest banking centre in terms of gross external positions of banks, and the sixth largest foreign exchange trading centre. Its stock market is the third 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, a superb transport and communications infrastructure, sophisticated support services, and efficient and innovative entrepreneurs complemented by a pool of well-educated workforce. Moreover, it has substantial 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, the US Heritage Foundation named Hong Kong the freest economy in the world for the 13th year in a row in 2007. Likewise, the Fraser Institute of Canada has also consistently ranked Hong Kong as the world's freest economy.

The Hong Kong economy has grown more than twice as large in the past two decades, with its GDP expanding at an average annual rate of 4.4 per cent in real terms, surpassing the world economy's growth of 3.5 per cent by a large margin. Over the same period, Hong Kong's per capita GDP nearly doubled, posting an average annual growth rate of 3.3 per cent in real terms. At US$29,900, Hong Kong's per capita GDP was among the highest in Asia in 2007 (Chart 1).

In line with the Hong Kong economy's increased openness amid growing influence of globalisation, Hong Kong's trade in goods grew about sevenfold and its trade in services almost fourfold in real terms over the past two decades. In 2007, the total value of visible trade (comprising re-exports, domestic exports and imports of goods) reached $5,551 billion, equivalent to 343 per cent of GDP. This was considerably larger than the ratios of 190 per cent in 1987 and 223 per cent in 1997. If the value of exports and imports of services is also taken into account, the ratio would be even greater, at 404 per cent in 2007, as compared to 230 per cent in 1987 and 259 per cent in 1997.