Negative Impact Of Inflation In Hong Kong

NEGATIVE IMPACT OF INFLATION IN HONG KONG

      Hong Kong is highly recognize as a worldwide trading hub pride of Asia it is one of the world’s largest international financial center and a free trading policy that capture the world global position to transact business in this region. Hong Kong continue to exercise a strong capitalist economy in Asia, major corporate business groups all over the world conduct business and concentrate in this region because this city alone consist of more than 7 million highly dense population but they still manage to improve in economy. Hong Kong is recognized as a tiger economy of Asia. Figure shows that during 1961 to 1997 their Gross Domestic Product has grown as high as 180 times, their stock market is the 7th largest in the world. Since then, Hong Kong open up economic transaction for import and export market, Information and Communication Technology revolution takes place; they have become the central economic hub not just in Asia but the world.  

      While Hong Kong still experience a decent economic condition up to the present times they can’t help but be affected by worldwide economic crisis during 1998 that there are slight changes in business and economic trading practices usually inflation rate sets in that causes a downturn that decreases their purchasing power. The inflation has been affected by the recent Sever Acute Respiratory Syndrome (SARS) that invaded the city during 2003, during those times the economy of Hong Kong has been greatly affected the business trading decreases, hotels and restaurant and tourism has become very slow and weak the stock market falls heavily and most import and export trading has been delayed because of the SARS outbreak that even their people would simply stay at home to protect themselves from such deadly disease.

      The average inflation rate of Hong Kong is 4.63% that goes down to a record low of -6.10 in 1999. The recent record of inflation for the last three years goes up to 6.2 in 2008 and recovered in 2009 to negative and rise again up to 2.3% in 2010 and continue to increase up to 5.8 in September in this recent year of 2011 and still it is expected to rise or maintain its composure in the next few years. The negative impact of high inflation rate higher than its average is the low purchasing power of people to afford the rising prices of basic goods and services; according to Hong Kong Council of Social Service Advisory Council shows that there are 1.26 million residents that are living in Hong Kong in poverty state because of the ever increasing inflation. According to Financial Secretary John Tsang that the inflation continue to heat up in the city, according to other economist in other countries in Europe and Australia that their prediction shows that the inflation will even increase in the next few months or years to come. The Hong Kong government has a program that started to subsidize electrical supplies to help residents in the rising cost of electricity they also put the minimum wage up to HK per hour last May of 2011.

·         In particular the negative impact of inflation rate in Hong Kong is currently transparent in their sudden changes in standard of living that they are suffering from structural changes; there are manufacturing, production and sales company that shifted their operation to mainland China. The integration of Hong Kong to mainland China shifted its way to protect some business sectors but not the employees who instantly loss their job.

·         The unemployment rate also increases rapidly, they also experienced severe labor shortage in industries including finance, insurance, real estate and other agency who tried to retrench their labor force in order to cut cost their expenses to save their company from falling down.

·         One of the most negative impacts of inflation is a weak Hong Kong currency that if the Hong Kong dollar depreciated its value the trading of US dollar depreciates as well. The link between Hong Kong and US dollars are sometimes criticized by its people and there are proposals that they should have a steady alteration linkage between countries but the government has rejected the proposal and continue to gain confidence between this links.

·         Another negative impact of inflation rate to their country is the delay of infrastructure and government projects to balance their expenditure and spend the government fund to a social welfare and development.

      The inflation rate battle is definitely a competitive struggle in economic recovery in Hong Kong that has brought a devastating effects on price of basic commodities and livelihood including the business sectors has been affected especially the real estate industry and small enterprise, the government revenue shows a varying degree in Gross Domestic Products (GDP) Budget deficit is still a significant problem. Although Hong Kong continues to struggle from inflation, the unification and bond between the mainland China and the continuous international business participation in World Trade Organization will soon find its way to bring back the economic strength to where they have left. Their government is confident about this condition.   

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