Guided by the principles of "one country, two systems," and "Hong Kong administrated by Hong Kong people," Hong Kong and the Chinese mainland have established all-around, multi-faceted and broad economic and trade cooperation ties under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA).

Economic and trade cooperation between the mainland and Hong Kong boosts the economy and comprehensive competitiveness of Hong Kong, further enhancing its status as the international finance, trade and transportation hub.

The mainland factor

So far, the "mainland factor" has been a major driving force behind Hong Kong's economic development.

The opening up and economic reform, as well as the rapid economic development on the mainland, has provided the Hong Kong manufacturing industry with new opportunities. From 1980 to 1996, the mainland economy grew 9.5 percent annually with 26.4 percent growth in foreign trade, a key factor conducive to the Hong Kong economy. For one thing, Hong Kong is an export-oriented economy and foreign trade has an important influence on its economic development. Trade volume between the mainland and Hong Kong jumped to 104.982 billion Hong Kong dollars in 1996 from a mere 28.195 billion in 1980, with an annual growth rate of 25.4 percent. Since then the Chinese mainland has become its biggest trading partner and re-export source and destination. In 1996, the re-export volume accounted for 84.8 percent of its total export volume. The mainland made up 57.7 percent of its re-export volume.

Second, processing trade between the mainland and Hong Kong has helped optimize the economic structure of Hong Kong. After the reform and opening up of the mainland, the cheap prices and favorable policies attracted the traditional manufacturing industry in Hong Kong to transfer to the mainland. Hong Kong's direct investment in the mainland reached $20.677 billion in 1996 from $1.88 billion in 1990, increasing nearly 49.1 percent year on year. Investment from Hong Kong accounted for nearly 50 percent of all foreign direct investment (FDI) on the mainland. Hong Kong has become the mainland's biggest FDI source.

Meanwhile, mainland companies have been entering the Hong Kong market, becoming its largest overseas investor, outnumbering even the United States and Japan. Mainland businesses are generally involved in Hong Kong's service industries including finance, retailing, transportation, storage, tourism and hotel. Chinese capital has become one of the most important factors safeguarding Hong Kong's prosperity and steady economic growth. From 1990 to 1996, Hong Kong maintained an economic growth rate of over 4 percent.