PESTEL analysis of Hong Kong (Hong Kong City Profile)
This detailed PESTEL analysis of Hong Kong aims to provide readers with an insight into some of the political, economic, social, technological, environmental, and legal factors that affect Hong Kong today. Hong Kong is a special administrative region of China. It is officially known as the Hong Kong Special Administrative Region of the People’s Republic of China (Hong Kong SAR).
Political factors affecting Hong Kong
Hong Kong was a British territory and became a special administrative region of China in 1997. It is largely free to manage its own affairs and is governed under China’s principle of ‘one country, two systems’ (BBC, 2018). It is a semi-autonomous region; however, China retains the authority to veto changes to its political system. The Chief Executive is the head of government and serves for a maximum of two five-year terms. He/she is elected by a representative election committee and is appointed by the State Council (led by the Premier of China).
Hong Kong manages its own internal and external relations. It can build external relations in areas such as communications, trade, tourism, and culture. However, China is responsible for its foreign affairs and defence. Honk Kong has been experiencing profound political challenges since June 2019. Anti-government protests have been rocking the city with escalating violence and anger on all sides. This unrest has massive implications not only for Hong Kong and China, but also for global trade and politics (Yeung, 2019).
Economic factors affecting Hong Kong
The next element to address in the PESTEL analysis of Hong Kong is the economy of Hong Kong and the factors affecting it. The economy of Hong Kong is marked by number of features such as the free flow of capital, low tax rates, a highly developed financial system, and a reliable legal system. The city is often considered the most important global financial centre after New York and London. It houses regional headquarters of most of the major banks in the world. It is easy and cost-effective for foreigners to start a business in the city. However, Yau (2020) reports that the city’s status as a key global financial centre has dropped recently due to social unrest and anti-government protests.
Hong Kong’s Four key industries that have been driving its economy are financial services, tourism, trading and logistics, and professional and producer services. Its main export destinations are China, India, Vietnam, the Netherlands, and Macau, while it imports integrated circuits, broadcasting equipment, office machine parts, gold and telephones mostly from countries such as China, Chinese Taipei, Singapore, and the USA (OEC, 2020).
The GDP in Hong Kong was approximately $366.03 billion in 2019; however, it is expected to be slightly lower in 2020 (Trading Economics, 2020). The unemployment rate increased really high in the first half of 2020 with a challenging labour market. It is worth noting that Hong Kong posted the largest-ever quarterly economic contraction of 8.9% in the first quarter of 2020 (Chan, 2020).
Social factors affecting Hong Kong
Hong Kong is one of the wealthiest cities in the world. More than 73,000 people from this city have a net individual worth of $5 million or more (Elkins, 2020). In addition, approximately 10,000 people are regarded as ‘ultra-high-net-worth’. Hong Kong is an attractive place for rich people as it is a gateway to China. It is also Asia’s prime financial centre and one of the least corrupt places in the world.
The population of Hong Kong is approximately 7.5 million. The life expectancy for men is 81 years, while 87 years for women. The major languages spoken in the city are Chinese (mainly Cantonese) and English (BBC, 2018). Hong Kong houses some of the biggest media players in the world and has a major film industry.
However, Hong Kong faces some social challenges as well. Recent protests have rocked the city. Inequality is rising and many people live below the city’s poverty line. Hong Kong is one of the most densely populated places in the world. The housing market is extremely expensive with many families living in apartments that are extremely tiny, subdivided, and windowless. In fact, one of the greatest challenges facing the city is housing crisis.
Technological factors affecting Hong Kong
Hong Kong has a very advanced technological environment. It is famous for its world-class ICT infrastructure and Internet connectivity. The Hong Kong Science Park houses more than 800 technology companies. Many of those companies have demonstrated high levels of product innovation capabilities at the global stage. Consequently, some of them won innovation awards by Consumer Electronics Show (CES). Hong Kong has a number of world class AI technology companies such as SenseTime and WeLab.
Hong Kong has been trying for a long time to utilise its financial power to develop high-tech ideas. The government investment in the tech industry has grown massively over the years. However, Hong Kong falls behind some of its Asian competitors such as Singapore in tech development and attracting FDI. For instance, Singapore accounts for 59% of Asian regional headquarters of many multinational companies such as Facebook, LinkedIn, Google, and Visa, whereas Hong Kong accounts for 18% only (Hammond and Ruehl, 2020). One of the reasons that put many companies off from investing in Hong Kong is the high cost of office space or developable land.
Environmental factors affecting Hong Kong
Hong Kong is a beautiful city. Many people consider it a MUST visit at least once in a lifetime. It is a shoppers’ paradise, full of stylish boutiques, traditional stores, luxurious shopping malls and lively street markets. Likewise, scintillating views and skylines, festivals, and a colour nightlife make it a tourist heaven as well. However, all these have impacts on the city’s environment. Limited inhabitable areas, waste management, and air pollution are some of the major environmental issues facing Hong Kong today.
Legal factors affecting Hong Kong
The legal environment is the last element to discuss in this PESTEL analysis of Hong Kong. However, it is worth noting that due to the limited scope of the article, the discussion here is somewhat limited. The judiciary in the city works independently of the system of mainland China under the principle of ‘one country, two systems’. It is often considered the best judicial system in Asia and has a great reputation for fairness. The main employment legislation is the Employment Ordinance (EO) that guarantees employment benefits such as paid maternity and paternity, annual, and sick leaves.
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Last update: 10 August 2020
BBC (2018) Hong Kong territory profile, available at: https://www.bbc.co.uk/news/world-asia-pacific-16517764 (available at: 02 August 2020)
Chan, M. (2020) Hong Kong’s unemployment rate jumps to highest level in 15 years, available at: https://asia.nikkei.com/Economy/Hong-Kong-s-unemployment-rate-jumps-to-highest-level-in-15-years (accessed 02 August 2020)
Elkins, K. (2020) NYC is the leading city for the wealthy—here are the top 10 richest cities in the world, available at: https://www.cnbc.com/2020/05/14/top-10-richest-cities-in-the-world-according-to-wealth-x.html (accessed 05 August 2020)
Hammond, G. and Ruehl, M. (2020) Why Hong Kong is failing to produce more tech start-ups, available at: https://www.ft.com/content/458bc9d0-3e79-11ea-a01a-bae547046735 (accessed 08 August 2020)
Trading Economics (2020) Hong Kong GDP, available at: https://tradingeconomics.com/hong-kong/gdp (accessed 04 August 2020)
Yau, C. (2020) Hong Kong drops to sixth in new global financial centre rankings, leapfrogged by Tokyo, Shanghai and Singapore, available at: https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3077299/hong-kong-drops-sixth-new-global-financial-centre (accessed 05 August 2020)
Yeung, J. (2019) From an extradition bill to a political crisis: A guide to the Hong Kong protests, available at: https://edition.cnn.com/2019/11/15/asia/hong-kong-protests-explainer-intl-hnk-scli/index.html (accessed 03 August 2020)
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Author: M Rahman
M Rahman writes extensively online with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He is a graduate of Leeds Metropolitan University and London South Bank University.