# Hong Kong SAR: A Leading Global Financial Hub in China

![Hong Kong skyline during sunrise](https://www.investopedia.com/thmb/Kid8_otgMObv4bF2W0F4m0Qejjw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TAL-header-hong-kong-skyline-VISITHG0123-844e61f1569b452298c603b73e6a4539.jpg)

*— DuKai photographer/Getty Images*

## What Is Hong Kong SAR, China?

Hong Kong is a [special administrative region (SAR)](https://www.investopedia.com/terms/s/special-administrative-region.asp) of China, established after the 1997 handover from British to Chinese rule, and it operates under a separate legal, administrative, and judicial system from the mainland. Known as one of the world's leading financial hubs, Hong Kong consistently ranks among the top global financial centers. Its free market economy, international financial market, and role as a gateway to China make it a central player in global business and investment.

### Key Takeaways

*   Hong Kong functions under the "One Country, Two Systems" doctrine, maintaining distinct political and economic systems from mainland China, upheld until at least 2047.
*   As a leading global financial hub, Hong Kong ranks third in the Global Financial Centres Index in 2025, demonstrating its significance in global finance.
*   The region enjoys economic autonomy, with a service economy anchored by low taxes and a vibrant international financial market, distinct from China's more centralized economy.
*   Despite recent tensions with mainland China, Hong Kong remains a financially stable region with its own currency, the Hong Kong Dollar, pegged to the U.S. dollar.
*   The economic growth of Hong Kong has slowed in recent years, causing an increase in political and economic influence from mainland China.  
    

## The Dynamics of Hong Kong's Semi-Autonomy 

Hong Kong is a special administrative region (SAR) that exists as part of the People’s Republic of China under the “One Country, Two Systems” doctrine, negotiated in the Sino-British Joint Declaration, negotiated and signed in 1984, but taking effect in 1997.

The "One Country, Two Systems" doctrine stipulated that the People's Republic of China's socialist system would not be practiced in Hong Kong, and Hong Kong would maintain its political and economic quasi-independence for 50 years after the transfer of sovereignty, until 2047.

What does that mean? Since July 1, 1997, when the United Kingdom transferred the sovereignty of Hong Kong to China, Hong Kong has maintained a separate political and economic system from China—democratic(ish), and capitalist—and a separate currency (the [Hong Kong Dollar, HKD$](https://www.investopedia.com/terms/forex/h/hkd-hong-kong-dollars.asp)).

Hong Kong has its own executive, legislative, and judiciary powers, except in defense and foreign affairs. English and Chinese are the two official languages.

## Analyzing Hong Kong's Economic Landscape

Hong Kong was ranked as the world's freest economy in the Heritage Foundation's [Index of Economic Freedom](https://www.investopedia.com/terms/i/index-of-economic-freedom.asp) from the index's inception in 1995, until 2020 when Singapore knocked it off the top spot to number two. However, the following year, in 2021, the index stopped including Hong Kong and Macau due to an increase in China's influence.

In 1990, [Milton Friedman](https://www.investopedia.com/terms/m/milton-friedman.asp) said Hong Kong was the best example of a free market. Its service economy features low taxes, almost free port trade, and a strong international financial market. This means the economy focuses on financial services, health, hospitality, and tech instead of manufacturing.

Using its political and economic autonomy, Hong Kong has positioned itself as the place where international and Chinese businesses find common ground. It is also considered the principal financial center in China. As a result, more than 9,000 companies in Hong Kong have parent companies located outside of Hong Kong in 2023.

This democratic government and the [free market](https://www.investopedia.com/terms/f/freemarket.asp) have been successful, to some extent. It's the world's 43rd largest economy in 2022 with a population smaller than the city of Tokyo, at 7.35 million in 2022. Hong Kong had a GDP of $359.8 billion in 2022, giving it the world's 28th highest GDP per capita, at $48,983 in 2022.

## Navigating Political Tensions Between Hong Kong and China

Historically, China has had considerable incentive to refrain from interfering in Hong Kong's political and economic systems. At the transfer of sovereignty in 1997, Hong Kong, with a population of 6.5 million at the time, had an economy one-fifth the size of the Chinese economy, which had a population of over 1.2 billion.

This is no longer the case. In the last 20 years, Hong Kong's economy has hardly changed, with slow [GDP](https://www.investopedia.com/terms/g/gdp.asp) growth and rising inequality, while China has become a major economic force. As of 2022, Hong Kong now accounts for just 2% of Chinese GDP.

Some think that the greatest risk to Hong Kong's autonomy is political and business elites in the region ceding it to the Liaison Office, to remove political tensions from the region, and return Hong Kong to an economic city.

This may prove a poor decision though, as a marriage of business and government has proven counterproductive in Hong Kong, leading to an increase in conflicts of interest and cronyism, not to mention a non-responsive government that refuses to broaden its tax base or lower [property taxes](https://www.investopedia.com/terms/p/propertytax.asp), and has excluded political parties from democratic participation. All of this has led to a public perception of the Hong Kong SAR government as not as legitimate as it once was.

Given these recent trends, the Liaison Office, the People's Republic of China representative in Hong Kong, has been taking steps to meaningfully increase its influence and clout in the region, interfering in both domestic affairs and elections.

For example, the Liaison Office bought Hong Kong's largest publishing house (removing titles critical of the Communist Party) and lobbied for Hong Kong's 2017 chief executive, Carrie Lam. In 2022, Lam stepped down.

## What Is the Financial System of Hong Kong?

Hong Kong is a large financial center with many banks and financial institutions. The region has favorable tax laws and a strong financial market with its own stock market. The currency, the Hong Kong dollar, is pegged to the U.S. dollar.

## What Is Hong Kong Ranked in the Financial Market?

According to the Global Financial Centres Index 34, published in Sept. 2023, Hong Kong ranks fourth in a list of the top global financial centers, behind New York, London, and Singapore.

## Is Hong Kong Financially Stable?

Yes, Hong Kong is financially stable. Despite protests and China's ever-expanding grip to bring Hong Kong further under its laws, Hong Kong remains a financially stable region.

## The Bottom Line

Hong Kong holds a unique position as a Special Administrative Region (SAR) of China under the "One Country, Two Systems" policy, which has long given it a high degree of political and economic autonomy separate from the mainland. It remains one of the world's top financial hubs, ranking third in the Global Financial Centres Index in March 2025.

Tensions, however, have grown in the past few years as China's influence over Hong Kong has increased, raising concerns about the region's independence. Despite these political shifts, Hong Kong continues to thrive economically thanks to its strong financial markets, low taxes, and near-free port trade, maintaining its role as a leading financial hub in Asia and across the globe.

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