Hong Kong secures No.1 ranking in Globalization Index for third consecutive year

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Hong Kong, 25 February 2013 – Hong Kong continues to lead the Globalization Index, ranking first among 60 largest economies in the world for the third consecutive year, according to the EY’s  annual globalization report, “Looking beyond the obvious: globalization and new opportunities for growth” (See table attached for 2012 rankings of all economies).

The report draws on two sources of original research: EY’s Globalization Index, which measures the world’s largest economies according to their degree of globalization relative to their Gross Domestic Product (GDP), and a survey of 730 senior business executives worldwide, conducted in late 2012, canvassing their opinion on globalization. The Index is based on a comprehensive coverage of the key drivers for globalization across five main pillars: openness to trade, capital flows, exchange of technology and ideas, labor movements and cultural integration.

For 2012, Hong Kong achieved an overall score of 7.81, where much of its success is due to an increase in broadband penetration and in internet subscriptions. Overall, the market has experienced outstanding performances in comparison to the index average in all categories (8.89 for cultural integration; 8.46 for capital flows; 8.54 for exchange of technology and ideas and 8.27 for openness to trade), but has decreased in labor movements (4.81) due to a significant fall in the net migration rate between 2011 and 2012 (from 17 per 1,000 people to 7.9).

“Once again, Hong Kong has topped the Globalization Index ranking given its main strength in the exchange of technology and ideas – which ranks head and shoulders over other markets within the survey,” says Agnes Chan, Regional Managing Partner, Hong Kong and Macau, EY.

“The government has also adopted a more proactive stance towards attracting foreign investment. This includes promoting the development of sectors such as education, the creative industries and innovation under the “four pillars and six industries” policy. Together with favourable forecasted economic spinoffs, we may expect the scores for trade, capital and technology to sustain its strong lead going forward.”

“Having said that, the modest dip in trade for 2012 is a reflection of the negative impact that slackened growth in the US and Europe has on Hong Kong’s trade-dependent economy. However, the territory did chalk up significant gains in capital and this can be attributed to the strong growth in attracting Foreign Direct Investments  – which in recent years has increased to more than five to sixfold than 1998. “adds Chan.

Cross-border financial flows in Hong Kong also continue to benefit from the territory's role as China's main offshore financial center. Despite weak global economic growth in 2012 and uncertain outlook for 2013, the development of both renminbi-denominated financial services and  listings by China-based firms remain favorable, and face brighter prospects in 2013, according to findings from the globalization report.

“Hong Kong’s reunification with mainland China in 1997 has been instrumental given that it serves as the major conduit for trade and finance between mainland China and the rest of the world. While continuing to operate under the "One country, two systems" mandate,  the introduction of new initiatives under the Central Government's National 12th Five Year Plan allows Hong Kong to differentiate itself from the other growth markets as China's offshore global financial hub and hence consistently remain number one,” Chan says.

Winnie Ki, Assurance Partner, EY in Hong Kong says, “Hong Kong’s high ranking in technology and idea exchange could be further harnessed to ensure it remains a premier location as an information and communications technology hub. Benefiting from its proximity to the Mainland, sound protection of data privacy, reliable power supply and comprehensive telecommunications infrastructure, the HKSAR government should continue to support the development of data centers in Hong Kong as the backbone to the territory’s economic growth.”

“However, there are certain factors such as limited living space and international school places as well as poor air quality that could potentially deter expatriates from moving to Hong Kong. To this end, the government has to improve the 3“Es” – namely Estate, Environment and Education through undertaking conducive measures to allocate more land for international schools, provide properties with affordable rentals and ensure even better quality of life to attract foreign talent to the territory,” cautions Chan.

“It’s also timely for Hong Kong to review its draw as a holiday destination and a global city. This allows the territory the ability to maintain its lead in terms of cultural integration and ensures that it continues to top the Globalization Index, not only owing to its high score margin over other markets in terms of cultural integration, but also on the back of its forecasted increased trade and capital flows as well as improvements in technology,” adds Chan.

BRICs face competition as globalization creates new emerging MIST players

The Index highlights that non-BRIC rapid-growth markets are emerging as hot spots for global business, thanks to a perception of being more globally integrated on a range of trade, investment, cultural and technological criteria than the BRICs. The executives who participated in the EY survey view rapid-growth markets, other than the BRICs, as the most important source of new revenue nearly doubles from 26% today to 45% in three years time. And they are planning accordingly with Mexico, Indonesia, South Africa and Turkey (MIST) reported to be the most competitive locations. Executives from all geographies expect to increase investment in these markets – 82% plan to do so, and 4 in 10 expect to increase it by more than 10%.

Ki explains: “Leading companies are adopting a multi-market approach. While the BRICs remain critical to their strategy, executives are also looking closely at opportunities in non-BRIC emerging markets, where they are seeing improvements in the ease of doing business, infrastructure, government policies and labor productivity.”

While many of the non-BRIC rapid-growth economies are worth a big, mostly long-term bet, the report reinforces that they are only part of the picture. To create a well-rounded portfolio, investors will need to diversify their bets to include several mature markets, which are making a comeback in certain areas and sectors.

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About The Globalization Index
The Globalization Index developed for this report measures and tracks the performance of the world’s 60 largest economies according to more than 20 separate indicators that capture the key aspects of cross-border integration of business. The indicators fall into five broad categories: openness to trade; capital movements; exchange of technology and ideas; labor movements; and cultural integration. The Index measures “relative” rather than “absolute” globalization. This means that a country’s* trade, investment, technology, labor and cultural integration with other countries is measured relative to its GDP rather than by the absolute value of these elements being exchanged. The Index, therefore, reflects the degree to which the global integration of a country is observable or experienced from within that country.

*Country or, where applicable, territory

About the survey
The Economist Intelligence Unit surveyed 730 business executives in November 2012

About EY
EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information, please visit www.ey.com.

EY refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

This news release has been issued by EY, China, a part of the EY global network.