| This thesis presents an in-depth discussion on the effects of the linked exchange rate system upon the Hong Kong economic development and its status reconstruction issue of international financial center. The confidence issue will also be discussed in the thesis, with comprehensive interpretation of the different stages of economic development of Hong Kong and its sustainable development as an international financial center. The review, conducted through literature review and historical research methods, includes the development of the Hong Kong economy and the confidence that the people of Hong Kong have placed in it over the last 14 years. It is through this review that the historical changes and status of the Hong Kong economy after its handover will be discussed.The confidence in the“outer ring”and the development of the Hong Kong economy will be discussed in this thesis. The fluctuation of the Hong Kong economy shows a change in the level of confidence that the people of Hong Kong have placed in mainland China after its handover, which rises and falls repeatedly. The confidence level changes from the discussion on favourable circumstances to the agent-centric perspective, then the concern of marginalization and the present development.Confidence to bring prosperity to China Confidence lost that worry to be marginalized in China’s development Confidence to cooperate with mainland China through mutual support in the development.In addition, this paper also includes discussion about the internal problems of Hong Kong and the development of Hong Kong’s economy, which is on the discussion of the linked exchange rate system and the development of Hong Kong. If the economic development of Hong Kong after the handover reflects the confidence level Hong Kong has placed on mainland China, then the discussion of the linked exchange rate system after the“financial tsunami”reflects the shift in confidence level between the United States and China. As described above, this paper begins by describing the linked exchange rate system generated in the course of 1983 and its subsequent operations and developments. It also includes explanations of the linked exchange rate system how it stabilizes the development of Hong Kong’s export-oriented economic system. In other words, after the return of sovereignty to China in 1997, having experienced a variety of financial and political impacts in the past, Hong Kong can effectively resist against negative external factors caused by large exchange rate fluctuations. The system secures the stability of the long-term development of Hong Kong’s economy. Its contribution also includes stabilizing the role of Hong Kong as an International financial center and its sustainable development.Then, the paper discusses different expectations of regions/cities in mainland China towards the return of sovereignty of Hong Kong to China before and after 1997. These regions/cities include the Midwest, Jiangxi, western part of China, Hubei, Hunan, Yunnan, Guangxi, and Fujian. Before the return of Hong Kong, the city was an attracting region with good infrastructure, structured economic development, frequent trade and world-class standard services. The regions/cities hope that through this a number of advantages to promote local economic and trade developments, such as raising the effectiveness and efficiency of production, improving operational management, to escalate the quality of human talents, strengthening service standards and developing regional financial center.However, Hong Kong suffered misfortune from“financial turmoil”in October 1997, the“911”incident in 2001 and the“SARS”in 2003, in which Hong Kong’s economy continued to decline, and the momentum of development was lost. In contrast, mainland China’s economy continued to grow steadily synchronously. Hong Kong economic and trade environment was in the worst moment in 2003. Thus, the Chinese Central People’s Government decided to offer a helping hand to Hong Kong, such as CEPA, the“Mainland and Hong Kong Closer Economic Partnership Arrangement”,“individual visit”program and other programs to assist and stimulate Hong Kong’s economic recovery, enabling Hong Kong to regain momentum of economic rise. At the same time, some problems in Hong Kong were led. First, the pride in the past that people confided with their economic achievements was gone, which led to the confidence crisis; and second, the rapid development of mainland China was concerned by Hong Kong that Hong Kong might be marginalized. In economic development, China and Hong Kong governments should necessarily face and deal with these issues at the same time, so as not to damage social harmony and stability, which is the Central People’s Government is not willing to see. It is therefore that the role of China in promoting Hong Kong’s economic development should allow people in Hong Kong to realize the indomitable spirit as acquired in the past, to encourage Hong Kong playing an active part in the economic development of both Hong Kong and China, and to regain confidence which enables the co-ordination of Hong Kong and mainland China in order to faciliate common development.Good times never last, when Hong Kong economy was recovering, the U.S. real estate sub-prime mortgage problems occurred that raised the 2008“financial tsunami”and caused negative economic impacts to Hong Kong. In order to save the ailing U.S. economy, an unprecedented measure implemented by the U.S. government to enormously“print bank notes”, so the value of U.S. dollar continued to fall, triggering a lot of hot money flowing into Hong Kong and push up asset prices, coupled with the Yuan continues to appreciate which further accelerate the risk of asset bubbles under the profit-driven incentives. Many commentators believe that this will cause inflation to heat up, affecting the lives of the general public and increase the cost of doing business in Hong Kong. Many commentators, therefore, expressed concern that the Hong Kong dollar pegged to the U.S. dollar linked exchange rate system should be changed or abolished. Some have suggested the implementation of the Hong Kong dollar and the RMB should be linked to the linked exchange rate system. However, the author, after conducting the verification and analysis, together with synthesis of different views of economists, all believe that there was no direct relationship between inflation and the linked exchange rate system. On the contrary, the linked exchange rate system stabilizes the value of Hong Kong dollar, which is to ensure a stable business environment. The feasibility of linking the Hong Kong dollar and the RMB under the exchange rate system is temporarily not feasible because the RMB is not yet freely convertible. Moreover, the United States was still the first world economic power since the“financial tsunami”, the Hong Kong dollar pegged to the U.S. dollar linked exchange rate system is no need to change. The most important thing is to stabilize the Hong Kong’s status as an international financial center and hold onto the existing well-established link, if its economic and trade aspects are of the need to ensure stability.After the“financial tsunami”triggered, the world’s new economic order is being restructured in many countries, and China is the best and strongest economic strength with high performance among rising countries. China, therefore, can use this historic opportunity to promote domestic financial market reform and accelerate the pace of internationalization of the RMB. Since Hong Kong’s linked exchange rate system can effectively stabilize Hong Kong’s leading status of its international financial center in the world, people in Hong Kong should continue to take a proactive role to contribute their expertises acquired from the financial sector when the economic development of mainland China is booming. In other words, Hong Kong should well play a good role as Renminbi offshore center, which serves as a bridge for the“going out”of the Yuan. At the same time, Hong Kong herself must also create conditions to strengthen and consolidate itself as an international financial center, which allow the financial intermediary functions be effectively performed so as to maintain its international leadership status. |
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