Magic Kingdom meets Middle Kingdom in Hong Kong. Can Hong Kong re-engineer the economy for a post-recession world?By George Lauriat, Editor-in-Chief, AJOTDisney Land is by all accounts a very popular place with Chinese tourists. Not the Disney Land in California or even the one in Florida. No, it’s the Magic Kingdom in Hong Kong. Perhaps not as well known in the West as it’s cousin sites but the mouse has faired well enough. On July 10th, Disney and the Hong Kong government agreed on an expansion of the Lantau Island theme park. The $468 million expansion of Disney Land is only one of a number of multi billion dollar projects in the works as the territory re-engineers itself for the post recession economy. It’s worth noting that the Hong Kong Government is more than proactive, it has a 52% stake (down from 57% before expansion with equity shift) in mouse land. Besides Disney Land expansion, there is Hong Kong-Zhuhai-Macao Bridge, (which will start construction this year) and Guangzhou-Shenzhen-Hong Kong Express Rail Link and the Hong Kong-Shenzhen Airport Rail Link, among others. These projects are ambitious for Hong Kong has been slammed by the global recession. For Hong Kong, the first half numbers aren’t magical. In the first half of this year the exports dropped 17.2% over the same period last year. Re-exports (part of the export tally) fell 16.3%, while the value of domestic exports fell almost 42%. The value of goods imports fell 18.6%. In the 4th quarter of 2008, Hong Kong’s GDP fell 2.6% and the territory’s GDP has posted year-on-year decline of 7.8% for the 1st quarter of 2009. Despite the difficulties, Hong Kong is forging ahead with projects designed to improve its infrastructure both locally and regionally and embarking on policies to secure economic growth post-recession. In a sense Hong Kong is in the midst of doing what it does best, reinventing itself. HONG KONG, CEPA AND THE PAN-PRD Hong Kong has been hard hit by the recession on a number of levels. As an entrepot economy, trade is the lifeblood that sustains everything else. Without global trade, the real estate and construction sectors slump, financial services retreats and export oriented manufacturing tumbles. But for Hong Kong, the global recession is a double whammy. Hong Kong’s entrepreneurs are heavily invested in export factories in Mainland China, particularly in the neighboring southern provinces of Guangdong, Guizhou, Guangxi Hunan, Fujian, Yunnan, Jiangxi and Hubei. This are is sometimes called the Pan-Pearl River Delta (Pan-PRD) region of China. The sudden collapse of exports to the US and Europe has created multiple headaches both with Hong Kong’s economic elite and the region’s factory workers, many who are migrants to the region. In June of 2003, Hong Kong and Beijing inked a document laying the groundwork for the future economic relationship between the SAR (Special Administrative Region) and the Mainland. Entitled CEPA (Closer Economic Partnership Arrangement). Under CEPA, all goods of Hong Kong origin exported to the Mainland are tariff free, upon applications by local manufacturers and upon the CEPA rules of origin (ROOs). Secondly, Hong Kong service providers enjoy preferential treatment in the China market in a variety of service sectors. Additionally, Beijing and Hong Kong have used CEPA as a platform for enhanced co-operation for trade and investment. The Pan-PRD is in essence a fine-tuning of CEPA. The Pan-PRD is a proposed economic zone consisting of eleven southern provinces along with Hong Kong SAR and Macau SAR. Since the late 1980s, Hong Kong manufactures have been relocating factories to Guangdong (and recently to other southern provinces) to take advantage of lower labor costs and the availability of land. The importance of the PRD to Hong Kong is hard to understate. According to the Hong Kong Trade & Development Council more than 80% of Hong Kong manufacturers and exporters produce or source their goods in Guangdong. Additionally, 70% of H