Economic Sustainability for HK In the more recent years, new markets were developed for Hong Kongs exports, including markets in the Middle East, Eastern Europe, Latin America Africa Increasing Economic Links between hk& the mainland Since the Mainland adopted its economic reform open-door 1978, economic links between Hong Kong the Mainland have gone from strength to strength. This has about substantial economic benefits for both places Specifically, visible trade between Hong Kong the mainland has grown strongly since 1978, at an average rate o However, reflecting the increasing trend of direct shipment of goods into& out of the mainland also the enhanced port facilities simplified customs procedures in Mainland, the value of two-way trade grew at a more moderate pace in the more recent years, at an annual average of 7 per cent between 1993& 1998 In 1999, the Mainland was still Hong Kong's largest trading partner, accounting for 39 per cent of Hong Kongs total trade Hong Kong has continued to be the largest source of external direct investment in the Mainland Main. Along with the surge in two-way trade, investment people flows, financial links between Hong Kong the inland have also been on a rapid increase over the past two decade The economy in 1999 External Trade Export performance staged a strong recovery over the course of 1999, reversing the downtrend in 1998 Exports of goods remained slack in overall terms in the first half of 1999, but exhibited a distinct upturn in the third quarter, accelerated markedly in growth in the fourth quarter Economic Integration of HK Though the ZD is the natural hinterland of HK, the framework of"one country, two systems"has many restrictions on the form of economic integration between hK its hinterland Despite the reversion of HK to China in mid 1997, HK is for practical purposes independent economic entity with its own currency customs immigration controls There are still many barriers to the economic integration HK the ZD, some of these barriers will persist till 2047 or even beyond For instance, it is virtually impossible for HK the ZD (or Mainland as a whole) to form a formal trade bloc on the model of the European Union). Even the establishment of a boarder industrial park is fraught with difficulties Though "old-style"integration based on discriminatory preferences on trade in goods is impractical, the reversion of HK presents opportunities of "new style"integration through policy coordination The reversion of HK, the AFC (Asian Financial Crisis), China's impending entry into the wTo have promoted such coordination Despite HKs reversion to China, there is very little hope than hk the mainland can form some kind of trade bloc such as a Customs Union, or a Common Market. A Customs Union is out of the question as it requires that HK the mainland levy the same external tariff, which is zero as hK is a free port Both the 1984 Sino-British Declaration the Basic Law have specified that HK would be a free port. A Common Market is even more problematic as it requires free migration within the bloc this runs against HK's very strict immigration controls against the mainland Even a traditional Free Trade Area(FTA), which is the trade bloc with the lowest degree of formal economIc integration, is impractical because the mainland would lose tariff revenue there would be no offsetting gains in mainland exports as HK is already a free port ee trade zone. Even if Shenzhen becomes a free trade zone hK Shenzhen will still be separate entities in trade 9 Shenzhen has built asecond line separating itself from the rest of China Shenzhen aspires to become a But HK's freedom in external economic affairs is guaranteed by both the Sino-British agreement the basic anyone HK Shenzhen have different import prohibitions. For example, Shenzhen cannot afford the free importation of political or religious literature from HK There is a possibility of a new-style integration through policy coordinations HKs reversion to China in 1997, the AFC, Chinas prospective entry into the WTo have promoted policy coordination between China HK Since 1997, policy coordination has moved forward seven areas These areas are namely Border area issuesEconomic Sustainability for HK 2  In the more recent years, new markets were developed for Hong Kong’s exports, including markets in the Middle East, Eastern Europe, Latin America & Africa.  Increasing Economic Links between HK & the Mainland  Since the Mainland adopted its economic reform & open-door policy in 1978, economic links between Hong Kong & the Mainland have gone from strength to strength. This has brought about substantial economic benefits for both places.  Specifically, visible trade between Hong Kong & the Mainland has grown strongly since 1978, at an average rate of 24 per cent in value terms.  However, reflecting the increasing trend of direct shipment of goods into & out of the Mainland & also the enhanced port facilities & simplified customs procedures in Mainland, the value of two-way trade grew at a more moderate pace in the more recent years, at an annual average of 7 per cent between 1993 & 1998.  In 1999, the Mainland was still Hong Kong’s largest trading partner, accounting for 39 per cent of Hong Kong’s total trade.  Hong Kong has continued to be the largest source of external direct investment in the Mainland.  Along with the surge in two-way trade, investment & people flows, financial links between Hong Kong & the Mainland have also been on a rapid increase over the past two decades.  The Economy in 1999  External Trade  Export performance staged a strong recovery over the course of 1999, reversing the downtrend in 1998.  Exports of goods remained slack in overall terms in the first half of 1999, but exhibited a distinct upturn in the third quarter, & accelerated markedly in growth in the fourth quarter.  Economic Integration of HK  Though the ZD is the natural hinterland of HK, the framework of “one country, two systems” has imposed many restrictions on the form of economic integration between HK & its hinterland.  Despite the reversion of HK to China in mid 1997, HK is for practical purposes & independent economic entity with its own currency & customs & immigration controls.  There are still many barriers to the economic integration HK & the ZD, & some of these barriers will persist till 2047 or even beyond.  For instance, it is virtually impossible for HK & the ZD (or Mainland as a whole) to form a formal trade bloc on the model of the European Union). Even the establishment of a boarder industrial park is fraught with difficulties.  Though “old-style” integration based on discriminatory preferences on trade in goods is impractical, the reversion of HK presents opportunities of “new style” integration through policy coordination.  The reversion of HK, the AFC (Asian Financial Crisis), & China’s impending entry into the WTO have promoted such coordination.  Despite HK’s reversion to China, there is very little hope than HK & the Mainland can form some kind of trade bloc such as a Customs Union, or a Common Market. A Customs Union is out of the question as it requires that HK & the Mainland levy the same external tariff, which is zero as HK is a free port.  Both the 1984 Sino-British Declaration & the Basic Law have specified that HK would be a free port. A Common Market is even more problematic as it requires free migration within the bloc & this runs against HK’s very strict immigration controls against the Mainland.  Even a traditional Free Trade Area (FTA), which is the trade bloc with the lowest degree of formal economic integration, is impractical because the mainland would lose tariff revenue & there would be no offsetting gains in mainland exports as HK is already a free port.  Shenzhen has built a ‘second line’ separating itself from the rest of China & Shenzhen aspires to become a free trade zone. Even if Shenzhen becomes a free trade zone, HK & Shenzhen will still be separate entities in trade.  But HK’s freedom in external economic affairs is guaranteed by both the Sino-British agreement & the Basic Law, & HK is a member of the WTO.  For example: HK has the largest clothing quota in the world & HK does not want to share its quotas with anyone else.  HK & Shenzhen have different import prohibitions. For example, Shenzhen cannot afford the free importation of political or religious literature from HK.  There is a possibility of a new-style integration through policy coordinations.  HK’s reversion to China in 1997, the AFC, & China’s prospective entry into the WTO have promoted policy coordination between China & HK. Since 1997, policy coordination has moved forward seven areas.  These areas are namely  Border area issues