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CONTENTS
INTRODUCTION PAGES - 4
GROSS DOMESTIC PRODUCT PAGES 5 - 6
EXCHANGE RATE PAGES 7 -
Custom writing service can write essays on Economic analysis of the Australian & Hong Kong economies
MONETARY POLICY PAGE 10
INFLATION PAGES 11 - 1
THE FUTURE PAGES 1 - 15
REFERENCES PAGE 16
INTRODUCTION
· AUSTRALIAN ECONOMY
There have been significant changes to Australias place in the world economy since 100. From a marked dependence on the United Kingdom for `men, money, and markets down to the 150s, where the `lucky country evolved into a key player in the emerging Asia-Pacific group of dynamic economies by the 180s. Yet such shifts obscure the fundamental continuities, which have characterised Australian development ever since European settlement began. Australia's place in the global economy is primarily one of an exporter of primary produce and a heavy borrower.
Australia has always been at the mercy of external elements over which it has little apparent control. Long before the concept of globalisation acquired its modern currency, Australias dependence on the outside world made it prone to recurrent economic crises because of a periodic inability to earn export surpluses to pay for capital inflows. It is for this reason that the extent to which external, rather than domestic, forces have shaped the growth of the Australian economy is very evident. This is not to say the peculiar domestic forces have also helped to drive the Australian economy. For much of the twentieth century most Australians lived in a high-income economy with a large service sector, an unusually rapid rate of population growth, and a well-entrenched system of protectionism. Collectively, Australian's have shown a high propensity to consume, a marked liking for leisure, and a strong preference for owner-occupation and suburban living. Alongside an optimistic belief that, in the long run, `shell be right lay an assumption that ad hoc government intervention would somehow sort out any short-term problems.
· HONG KONG
By contrast, Hong Kong, as one of the last remaining colonial outposts, retained a number of similarities with European or British methods of operating, controlling and reporting, to maintain their economic position in the global market place.
As in many fields of study, an understanding of international accounting differences is aided by an examination of evolution. The systems of law and commerce in Australia and Hong Kong all derive historically from the UK. Not surprisingly, therefore, the British accounting system was similarly exported and still feels at home in these environments.
In both economies, there are loose regulatory frameworks provided by Companies Acts. These are supplemented by more detailed accounting standards promulgated by committees dominated by accountants. Tax rules are different from accounting rules for certain items (eg. depreciation), which gives rise to deferred tax. For most issues, tax rules follow accounting rules.
A further connected feature is the nature of the financial system. On the whole, one could say that Australia and Hong Kong have a system based on capital markets. There are large numbers of listed companies with widespread shareholdings. By contrast, Japan and Korea (and Germany and Italy) have credit-based financial systems with heavy involvement by governments or financial institutions. It follows that, published financial reporting and external auditors are much more relevant in a capital market system because there are large numbers of external investors to report to.
Gross Domestic Product
The figures above suggest that Australia has entered a prolonged period of growth that will continue well into the next decade, and could even surpass the golden age of the 150s. In those days, Australia still ``rode on the sheeps back, with agriculture, especially wool, accounting for much of its prosperity. The biggest change in the 10s has been a surge in manufactured goods and services which together now contribute twice as much to exports as farming does Australia is seeing the benefits of structural changes over the past 15 years that have made its economy more resilient. The changes started with the former Labor government, which took the crucial decision in 18 to float the Australian dollar. It dismantled many of the tariffs that had for decades protected inefficient Australian industries from foreign competition, deregulated the financial system and started to privatise transport, communications and utilities.
On the down side, the Hong Kong economy contracted by 4% during the first half of 18, the stock market crashed to a 5- year-low, and the unemployment level reached a 15-year high, as the region suffered from the financial crisis that had engulfed south east Asia since 17. This situation was exacerbated as GDP fell by 5% during 18, as the region endured its worst ever economic recession and unemployment rose to above 5% - an unheard of figure in the days under British control.
However, once the Asian crisis passed by, the resilience of Hong Kong's economy meant it was quick to recover. Based upon Hong Kong's huge financial reserves and its pivotal financial position in the world economy and because of the pre-eminent position the Hong Kong Stock exchange has in world financial markets.
EXCHANGE RATE
· HONG KONG
The attacks on the Thai baht and other Southeast Asian currencies in 17
barely touched Hong Kong. With a huge fiscal reserve of well over HK$00
billion, a huge foreign exchange reserve of U.S.$8.6 billion, and a budget
surplus for most of the last thirty years, Hong Kong is well positioned to
withstand speculative attacks on its currency. And indeed the Hong Kong dollar
remained strong, relative to the official link rate of HK$7.8 to the U.S.
dollar, when practically all ASEAN currencies depreciated against the U.S.
dollar. But a large foreign exchange reserve must be complemented with strong
fundamentals if a currency is to free itself from speculative attacks. The
management of the Hong Kong economy now needs more caution, vision, and
understanding than ever before. In particular, Hong Kongs ability to complete
in international markets is expected to be severely tested in the next ten
years, and the recent attacks on Southeast Asian currencies are forcing Hong
Kong to face those issues sooner than it otherwise might have.
Yet Hong Kong is not without its worries. Hong Kong's
attractiveness to investors has been declining recent years. There are two
reasons behind these developments. Hong Kong may have been subject to influences that reduced its attractiveness in absolute terms, as other countries may have improved their absolute attractiveness, so that Hong Kong is losing out
in relative terms to these countries.
For example, inflation and the relative appreciation of the Hong Kong dollar against competitor currencies have raised labour and land costs. Global improvements in transportation and communication have made formerly
unfavourable locations less of a drawback. And changes in the government
policies of Hong Kongs competitors may also have increased their attractiveness.
Given that the, under the current "one country, two systems" framework, the Hong Kong dollar will remain distinct from the RMB, there remains the further question of whether the current, linked exchange system,
which provides a direct link to the U.S. dollar at a fixed, official link rate
of HK$7.8 to the U.S. dollar, is best for Hong Kong.
To be fair, the linked exchange rate system has contributed a great deal to
public confidence in the future of Hong Kong during the time leading up to 17.
· AUSTRALIA
While, in Australia's case, the volatility of the dollar, accompanied with generally downward movements against the major global currencies has, in recent years, assisted in providing Australia with some protection against falls in the global economy. This resilience in the economy was achieved as a result of the improved standing Australia's exports have in the global economy from the weakening Australian dollar, thereby increasing the flow of foreign capital into the country as the export accounts are settled.
MONETARY POLICY
· HONG KONG
One key concern of some observers such as the World Economic Forum is whether the one country, two systems framework, which is the platform under which mainland China has decreed Hong Kong will be permitted to trade, is viable, given that it implies the circulation of two distinct currencies in one country. The monetary policies attached to this framework are linked to China and are built upon a number of key principles, which include -
· that China for to be prosperous Hong Kong is to be prosperous itself;
· that Hong Kong needs an independent monetary policy in order to maintain its attractiveness to investors
· that China needs an independent monetary policy to maintain the
macroeconomic stability necessary for its own prosperity
Hong Kong is Chinas predominant source of inward foreign capital, and therefore facilitates the flow of foreign capital into China as an intermediary.
It has made the world more accessible to China, whether as a supplier or
as a market. To continue to do so, Hong Kong needs to retain its position as a
world-class financial centre. Therefore, it must not have any foreign exchange control; the Hong Kong dollar has to have 100 percent, unconditional convertibility.
· AUSTRALIA
The Australian government, through the Reserve Bank (RBA), has a policy of controlling inflation and monetary supply through the use of interest rates. The guidelines under which the RBA operates have been set to ensure that monetary policy controls the direction of the economy. This is achieved by adjusting the flow of available money by manipulating the interest rate levers to make money more or less attractive or affordable. If inflation is trending upwards, lever is pulled, interest rates rise, and in the medium term, inflation comes down. Alternatively, the interest rate lever is released in the event of low inflation, which is generally accompanied by low investment.
INFLATION CPI
As discussed throughout this report, the graph above highlights that the Australian economy has negotiated the economic crises in the past 5 years in a positive manner. On the other hand there has been obvious problems in the Asian economies such as the collapse in Thailand, the property bubble burst in Hong Kong and Japan, and these have had detrimental effects upon Hong Kong's performance.
A consistent inflation performance allows business to confidently predict where their investments are best placed, or what results they can expect of their business strategies. The uncertainty of Hong Kong's inflation figure, while there have been some negative numbers, does not engender the confidence that businesses are looking for in their investments.
Additionally, a government that allows inflation to rise to very high levels is usually ineffective in many respects; so determining whether high rates of inflation are a cause of poor economic performance or a symptom of other problems that impinge on economic activity can be difficult. Nevertheless, numerous researchers have documented a link between high rates of inflation and poor economic outcomes. The picture is less clear at more moderate rates of inflation (Bruno 15) but plausible arguments can be advanced that even relatively low rates of inflation distort economic decision-making. Thus, monetary policymakers commonly justify their concern with restraining inflation in terms of the beneficial impact on economic output over the long term. They also point to the role of low inflation expectations and enhanced central bank credibility in strengthening the policymakers hand.
Evidence that cost inflation is hurting Hong Kong is best drawn from recent
hotel occupancy rates. Hotels occupancy rates were estimated to be still 8 to percent. (Source Hong Kong Tourism Industry)
THE FUTURE
One option that may be worth considering, is to merge the RMB with the HK dollar. This means either that China has to give up that independence or that Hong Kongs monetary environment has to be dictated by developments in the rest of China. For those reasons, any speculation that the HK dollar would merge with the RMB in the short medium term (10 0 years) is unwarranted.
Beyond that, depending upon China's performance in the global economy, which, in turn is dependent on a number of important factors -
· The price it pays for it's labour;
· The sustainability of its economic growth through capital investment in new projects;
· Its human rights record;
· losses in the state enterprise and bad loans in state banks
Then in fifty years, the likelihood of a merge would be greater, but it would still require that the RMB itself be 100 percent convertible and that China cleans up its
fiscal problems.
Australia's economic growth is all the more remarkable given that Australia is still following the export formula that worked so well a century ago close to two-thirds of Australias exports are still rural and mineral commodities. This is a risky strategy. More export revenue is now to be made in services (such as banking, insurance, tourism and education). The world needed what Australia exported in 101; that is not necessarily the case today. As societies get richer, their proportion of expenditure on, for example, food stuffs declines (there is a limit, say, to the amount of bread that a person can eat) and instead their tastes run to services (such as overseas travel).
American economist Paul Krugman, writing in Fortune magazine in December 18, called Australia the miracle economy of the worlds financial crisis. Its rate of economic growth (about five per cent) was one of the best performances in the industrialised world. Australia has now had eight years of uninterrupted economic growth - the longest period of growth in its history.
Additionally, international commodity prices are very low and Australias two and a half decades of economic rationalism, culminating in the General Agreement on Tariff's & Trade (GATT) has reduced the protectionism still enjoyed by its competitors. For example, Australia could export coal to Germany (the Australian is a better quality than German coal) at a lower price (even including shipping costs) than the current cost of German coal. But the German Government prefers to subsidise each miner on the basis that it is better to subsidise the miners than have them sit around all day on unemployment benefits.
Furthermore, Australia is a country of almost 1 million people, with an economy about the size of South Korea or the Netherlands. It represents less than two per cent of the gross global product. It is vulnerable to international economic fluctuations. The Australian dollar is the sixth most traded currency in the world by currency speculators. Despite these limitations, the Australian economy, according to the statistics, is doing well.
Meanwhile, China has recently been admitted to the World Trade Organisation,
Which will result in reducing its tariffs rapidly and liberalising its dealings with foreign investors. Already some foreign banks, for example, have been allowed to conduct business in RMB deposits and lending.
It is with such a China that Hong Kong has reunified. If the communist state
stands for a rigid bureaucracy and a command economy, then Hong Kong has
not reunified with a communist state. To be accurate, China has become a mixed
economy and is due to become largely a market economy, if not within a
generation, certainly within the fifty years of one country, two systems
promised by the Basic Law. The assertion, commonly found in the Western media, that Hong Kong has reverted to Communist China is actually inaccurate and misleading.
The reversion of Hong Kong to Chinese sovereignty has benefited both Hong
Kong and China economically. Hong Kong benefits because reunification with
China greatly enhances Hong Kongs locational advantage.
The economic miracle of Hong Kong is legendary, but the one now taking
place on the mainland is even more striking. The challenges facing Hong Kong are not small, but the reunion with China has greatly assisted Hong Kong in meeting them.
REFERENCES
Bruno, Michael. 15. Does Inflation Really Lower Growth? Finance & Development, September, pp. 5-8.
Hong Kong Tourism Industry
http//www.weforum.org/site/homepublic.nsf/Content/Homepage
International Monetary Fund "World Economic Outlook Report 00"
Paul Krugman, "Fortune" magazine, December 18
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