Hong Kong VS Mainland China: Understanding the Differences

By?Madhav Trivedi?Updated June 29, 2021

The Hong Kong Special Administrative Region is an inalienable part of the People's Republic of China.

– Article 1

"The National People's Congress authorizes the Hong Kong Special Administrative Region to exercise a high degree of autonomy and enjoy executive, legislative and independent judicial power, including that of final adjudication, in accordance with the provisions of this Law."–Article 2,

Most people know Hong Kong as an?international financial hub , business center, shopping paradise, and tourist destination. However, the region's identity crisis and resistance to Beijing's interference are at the heart of the civil unrest in the former British colony. Pro-democracy activists in Hong Kong would like the region to remain different from other Chinese cities. So is Hong Kong a de facto country or is it truly a part of China? As with many things in Hong Kong, the answer is not clear-cut.

The relationship between Hong Kong and mainland China is far more complex than most people realize. It involves politics,?economics , trade, laws, and, above all, the people. "Hongkongers," as they're known, who lived for years under the influence and ways of former ruler Great Britain, are wary about China’s intentions and indignant about the mainland’s meddling in its political affairs.

Mainland China and Hong Kong complement each other economically. However, their political differences remain entrenched. The century-long separation between the People's Republic of China and Hong Kong created gaps that cannot be easily bridged even if the two are officially one country. Before Hong Kong and mainland China can truly unify, they must overcome significant differences.

KEY TAKEAWAYS

• Hong Kong exists as a Special Administrative Region controlled by The People's Republic of China and enjoys its own limited autonomy as defined by the Basic Law.
• The principle of “one country, two systems” allows for the coexistence of socialism and capitalism under “one country,” which is mainland China.
• The Hong Kong economy is characterized by low tax rates, free trade, and less government interference.
• The mainland Chinese stock markets are more conservative and restrictive.

Hong Kong

To understand the root of Hong Kong's separation from the mainland, one must go back to the Opium Wars between Great Britain and China (1839–1860). During these military and trade clashes, China was forced to cede Hong Kong Island and a part of Kowloon to Great Britain in perpetuity. In 1898, Britain negotiated a major land expansion of the Hong Kong colony and signed a 99-year lease with China. The lease ended in 1997, at which time Britain returned Hong Kong to China as a Special Administrative Region (SAR) called the?Hong Kong Special Administrative Region ?of the People's Republic of China (HKSAR).2

Differences in Stock Markets

The?Hong Kong Stock Exchange ?has been the preferred destination choice for most Chinese companies looking to raise capital, as the mainland Chinese stock markets are more restrictive and have higher financial requirements. Hong Kong's stock market also attracts more overseas investors.

"Hong Kong has multiple advantages that are missing in China. First, a registration-based IPO system, which enables listing to be relatively faster and easier than in the mainland. Second, the absence of capital controls and greater international exposure, which allows Hong Kong to serve as an anchor point for global expansion. Third, a sound financial infrastructure, which mitigates operational costs. Fourth, an effective regulatory framework, which focuses on transparency and prudent minimum standards," wrote Tianlei Huang?research analyst at the Peterson Institute for International Economics. "Neither Shanghai nor Shenzhen is likely to win this competition with Hong Kong, at least over the short term."