Hong Kong, administrative region of China, consisting of a mainland portion located on the country’s southeastern coast and about 235 islands. Hong Kong is bordered on the north by Guangdong Province and on the east, west, and south by the South China Sea. Hong Kong was a British dependency from the 1840s until July 1, 1997, when it passed to Chinese sovereignty as the Hong Kong Special Administrative Region (SAR).

The British control of Hong Kong began in 1842, when China was forced to cede Hong Kong Island to Britain after the First Opium War. In 1984 Britain and China signed the Sino-British Joint Declaration, which stipulated that Hong Kong return to Chinese rule in 1997 as the Hong Kong Special Administrative Region (SAR) of China. The Joint Declaration and a Chinese law called the Basic Law, which followed in 1990, provide for the SAR to operate with a high degree of economic autonomy for 50 years beyond 1997.

Hong Kong's population has increased steadily over the past decade, reaching about 6.8 million by 1999. Hong Kong is one of the most densely populated areas in the world, with an overall density of some 6,300 people per square kilometer.

Cantonese, the official Chinese dialect, is spoken by most of the population. English, also an official language, is widely understood; it is spoken by more than one-third of the population. Every major religion is practiced in Hong Kong; ancestor worship is predominant due to the strong Confucian influence.

All children are required by law to be in full-time education between the ages of 6 and 15. Preschool education for most children begins at age 3. Primary school begins normally at the age of 6 and lasts for 6 years. At about age 12, children progress to a 3-year course of junior secondary education. Most stay on for a 2-year senior secondary course, while others join full-time vocational training. More than 90% of children complete upper secondary education or equivalent vocational education.
Hong Kong, as the world's tenth-largest trading entity and ninth-largest banking center, is one of the world's most open and dynamic economies. Per capita GDP approximates Great Britain's. Hong Kong's banking system is sound, and the government has massive reserves. The economy suffered its worst recession in 30 years during the Asian financial crisis. GDP recovered strongly in 2000, growing at 10.5%, but the collapse of consumer demand in the U.S. and Europe interrupted that recovery, dragging the economy into recession in 2001. Strong economic growth in China will buffer Hong Kong to some extent from the global economic slowdown, especially as compared to its rivals Singapore and Taiwan. However, increasing unemployment (now 5.3%) and uncertainty about the future have created a growing popular unease. In response to these economic difficulties, the government unveiled a series of modest stimulus measures in October 2001, including infrastructure expenditures, small tax cuts, and development funds for small and medium enterprises. Authorities generally resisted pressure for largescale government expenditures to stimulate the economy. The deficit for fiscal year 2001-02 will be considerably larger, primarily because of declining revenues caused by the economic downturn.

Over the long term Hong Kong enjoys a number of positive economic factors, including accumulated public and private wealth from decades of unprecedented growth, virtually no public debt, a strong legal system, and an able and rigorously enforced anti-corruption regime. The need for restructuring and redefinition--possibly as a high-tech, information center--as Hong Kong's advanced, high-cost, service-based economy continues to evolve, poses difficult challenges and choices for the government. Hong Kong is endeavoring to improve it competitiveness, especially in preparation for China's entry into the WTO, and continues to refine its financial architecture. U.S. companies have a generally favorable view of Hong Kong's business environment, including its legal system and the free flow of information, low taxation, and infrastructure. The American Chamber of Commerce's annual business confidence survey, released in December 2000, reflects what was then an emerging economic recovery, with 95% indicating the outlook for 2001 was "good" or "satisfactory"--compared to 85% last year. Survey results showed a positive outlook through 2005.

On the international front, Hong Kong is an active member of the World Trade Organization (WTO) and the Asia Pacific Economic Cooperation (APEC) forum, where it is an articulate and effective champion of free markets and reduction of trade barriers. Despite growing competition from the Mainland, Hong Kong residents across the political spectrum have supported China's accession to the WTO, believing this will open new opportunities on the Mainland for local firms and will stabilize relations between Hong Kong's two most important trade and investment partners, the United States and China.

Although the situation has improved substantially in recent years, intellectual property rights violations--pirated movies, audios and software--remain one of the highest issues on the bilateral trade agenda. Introduction of effective new legislation to control illicit production and improved enforcement has made Hong Kong a regional model of effective IPR protection. USTR and other U.S. agencies now regularly cite Hong Kong as an example for others. Hong Kong enjoys a high degree of autonomy as a separate customs territory, with no changes in borders, staffing, or technology export controls since the 1997 handover. The U.S. is pressing Hong Kong to liberalize significantly its civil aviation regime because of the benefits that would bring to U.S. airlines, shippers, and passengers.