Economic and social issues in Hong Kong have been important in shaping the way that the handover settlement was constructed and then implemented during the SAR's first two decades. Especially since the Occupy movement, politics and economics in Hong Kong have become increasingly intertwined in ways that are similar to those in many other societies, revealing a microcosm of the crises of globalization. This chapter discusses the developments in Hong Kong's economy since 1997.

Hong Kong's economy has always been shaped by and exposed to developments outside its own boundaries to a much greater extent than most other places. Those external factors have changed over time. The impact of developments in China has always been right at the top of the list, while the geography of broader global influences has changed to reflect wider geopolitical and geo-economic trends, from the paramount influence of the British empire in the first century of Hong Kong's existence as a colony, through Japanese aggression and the Second World War, followed by the steady growth of engagement with the US and other fast-growing Asian economies after the war.

But Hong Kong's economic development has been about more than engagement and interactions between different economies. As noted in the Introduction, 1978 was the point when the Chinese leadership under Deng Xiaoping embarked on “reform and opening up”, looking to attract foreign investment and know-how into the economy, build special economic zones as a base for exports, and engage proactively in foreign trade. It was perhaps something of a coincidence that this happened at the same time that the global economy was entering a new phase of globalization, marked in particular by a revolution in the way that production was organized. This had already begun in East Asia as Japan and the other newly-industrialized Asian economies had grown rapidly.

In other words, “China was ready to enter the world, and the global economy was ready to integrate China”. This process would reshape both China's economy and globalization itself, and provide the context for a new phase of development in the Hong Kong economy. As we saw in Chapter 1, with rising labour costs in Hong Kong, and the opportunity to invest in culturally-familiar territory across the border in Shenzhen, many Hong Kong manufacturing operations moved their production to Guangdong.