Despite the ranking. The reason for that

Despite the increase of
FDI, Hong Kong’s position on the world rating of FDI recepients has fallen from
two to four since 2014, due to the even higher increase of other countries’ FDI
receipts. Figure 6 shows where most of Hong Kong’s FDI originates from, with
the British virgin islands and the Cayman islands leading the ranking. The
reason for that is, that companies channel their income through Tax havens like
the cayman islands where no actual operation is conducted (Santander trade portal).  

The overall economic
well-being can be attributed to various factors. Especially the good
international relations and the facilitaded trade have a positive effect on
Hong Kong’s capitalist economy. Additionally, other factors are in favor of the
region’s development. Among these are the tax rates, applicable within Hong
Kong. There is no capital gains tax or inheritance tax and especially the absence
of capital gains tax is very attractive for investment. The corporate tax rate
is 16.5 % and the standard personal tax rate lies at 15 % which both can be
considered low to average. It should be mentioned here, that by renouncing tax
on capital gains, the government feeds the impression among the people, that
powerful organisations or individuals, who further increase their property are
favored over ordinary people (BBC).

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In order to fully
understand the economic situation, additional factors must be considered. On
the positive side it should be mentioned, that Hong Kong is on rank 15 of the
least corrupt nations out of 175 countries according to the 2016 corruption
perception index (Transparency International). Moreover, the foreign exchange,
being the second largest in Asia, plays an important role. The currency, Hong
Kong Dollar, is pegged to the US Dollar at a rate of 7.8 which can also be
considered positive, because it reduces the risk of large fluctuations. The
situation can be viewed critically though, because it also means that the
currency value will not move, as it normally would, along with the economic
development of Hong Kong (Russel 2017). The unemployment rate also gives a
positive image since it is rather low with 3.1% despite the density of the
population (Tradingeconomics 4, 2017).

Some negative elements
should also be mentioned, starting with the interest rate which is currently
1.75% (Tradingeconomics 5, 20017). While this is not extremely high, the
interest rate is higher than for example in Europe (currently 0%), which can influence
the decision for investment in Hong Kong, because borrowing money is more
expensive. Another point to be considered is the minimum wage. While the author
generally supports the idea of minimum wage, it is mentioned as a negative
factor, because it is very low with only 34,5 HKD, equivalent to 4.41 USD (Tradingeconomics
6). This is also an indicator for another negative factor, namely the huge
income inequality. Statistics show that despite government efforts, on average

the richest households
earn about 44 times as much as poor families do (Yau and Zhou 2017). Along with that, society
faces another problem concerning the housing situation. Because Hong Kong is so
densely populated, housing space is very rare and extremely expensive, making
it diffucult for people with average or low income to afford apartments (Ng
2017).  8 Foreign Direct Investment

While FDI can be
considered a factor of the economic situation, it is evaluated seperately
because of its high importance for Hong Kong. Hong Kong receives a lot of
foreign direct investments every year and the amount has increased over the
last years to an equivalent of 108 billion USD, as can be seen in figure 5 (Tradingeconomics
3, 2017).

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