ABSTRACT
Hong Kong developed from a manufacturing centre to an Asian world city in the half century after World War II. At the doorstep of China, it benefited tremendously from China’s adoption of economic reform and an Open Door policy after 1978. In the early Chinese Reform Period, while most of Hong Kong’s manufacturing industries moved to China and, in particular, to the nearby Pearl River Delta (PRD), its economy grew strongly because of a regional division of labour based on a ‘front shop, back factories’ model. However, with China’s economic growth and increasing technological ‘know how’, Hong Kong is losing some of its competitive edge. In the early reform years, Hong Kong served as China’s ‘dragon head’, providing the finance, marketing and office services for factory production in the PRD. More recently, however, this ‘front shop, back factories’ model has begun to lose its relevance. On the one hand, with further growth of manufacturing industry and service activities, the PRD has become a dynamic regional engine of growth in its own right. On the other hand, Hong Kong is starting to show signs of decline with job loss, deflation, a rising unemployment rate, declining relative income and a slowing down of infrastructure development. This chapter examines the changing nature of the competition that Hong Kong is facing and the challenges that it has in sustaining its economy and maintaining its position as the dragon head of the PRD.
