After 156 years of British colonial rule, Hong Kong was officially ceded to the People’s Republic of China in 1997. As part of the transition terms, China agreed to adopt a “one country, two systems” policy for 50 years after the takeover. This meant the new Hong Kong Special Administration Region (SAR) would retain a high degree of autonomy in its internal affairs, while defense and foreign relations were kept under PRC authority.
Hong Kong is a limited democracy, headed by a chief executive who is elected by an 800-member electoral college and appointed by Beijing. The chief executive is supported by the executive council. The legislative branch comprises a 60-strong Legislative Council, split between directly and indirectly elected members. The legal system is based on British common law.
The Wall Street Journal and Heritage Foundation’s Index of Economic Freedom ranked Hong Kong the freest economy in the world for 16 consecutive years. GDP was US$207.4 billion in 2009, down 2.6% on the previous year. With a population of seven million, GDP per capita is just under US$43,000, in line with developed nations.
About 90% of Hong Kong’s GDP comes from financial services, with the city’s relatively unregulated markets and low-tax policy attracting capital from around the world. It is estimated that the value of goods and services traded in Hong Kong are worth four times its GDP.
Among the drivers of Hong Kong’s growth is its proximity to China. Beijing favors the SAR with limited renminbi foreign currency exchange privileges, while Hong Kong is the principal stock market for Chinese firms seeking foreign listings. Some 40% of the companies listed on the Hong Kong Stock Exchange are Chinese firms, which generate 60% of market capitalization and 70% of turnover.