the hong kong polytechnic university 1 economic dimension society and the engineers

The Hong Kong Polytechnic University 1

Economic Dimension

Society and the Engineers


Economic DimensionWhy economic dimension for engineers?

Engineers are wealth builders. – Engineers design the products that are the

lifeblood of many companies directly or indirectly.

– marketing and sales people are just closer to the money, but they are less important to the economy than engineers because they do not produce anything of lasting value.

Reference: TechnoZeal

Why economic dimension for engineers?

• Economics affects Engineers– Most real engineers are somewhat well-paid???,

however, the cyclical nature of the industries they work in can cause their immediate jobs to be in peril at times in their career.

– engineers need to be in tune with what is happening in their industry and in the economy in general so they can position themselves for things to come.

– Keep your skills relevant to the economy, but never abandon the unchanging core knowledge that you, as an engineer, have acquired.”

• What else?



Case example: Apple Inc. • Launch of its first iPhone in June 2007, the

Apple shares closed at $95 (USD). They rose to $122 after the launch, and ended the year a tick under $200.

• After hitting a low of $78.20 in early 2009, Apple shares rebounded strongly and traded at $139.48 by the time the iPhone 3GS hit stores.

More able Apple

• Apple's iPhone 5 sales have not been able to keep the pace with projections and estimates and as a result Apple's share price has fallen 2.5%!

• Chart


http://www.investorguide.com/article/11078/apple-aapl-sells-5-million-iphones-falling-short-of-expectations/

http://mashable.com/2013/09/10/apple-stock-changes/


Case example

• The European Aeronautic Defence and Space Company (EADS), builder of Airbus jets, plunged into a stock market vortex on Wednesday, losing about €7-billion in the first few hours of trading on further production delays to its super-jumbo A380 flagship and a profit warning.


Case example• The Research in Motion Ltd (RIM) is having a

tough time. After they unveiled the new BlackBerry Torch today, expectations were very high. The phone was hyped as the iPhone “killer”. But early reports suggest that the phone will not be able to offer the same functionality and “ease of use” that Apple prides itself for. After the disappointing early reviews the shares of RIM fell down to $56.77.

• What will happen if you are the BlackBerry Torch designer?????

More cases

• Kodak

• Polariod

• Netscape

• Palm



Economic Dimension

• From previous examples, a successful product has great impact to a company’s survival

• What kind of economic awareness should an engineer possess?

Theory


The Hong Kong Polytechnic University 11The Hong Kong Polytechnic University 11

Economic Dimension – What is Economics?

• Economics is the study of the production and distribution of goods and services, it is the study of human efforts to satisfy unlimited wants with limited resources

• It studies how agents allocate scarce resources amongst alternatives to meet unlimited human wants


Approaches to Economics

• Positive Economics:

- Examines how decisions are made and the consequences of such decisions

- Descriptive process exploring the process of decision making and its impacts

Positive economics

The branch of economics that concerns the description and explanation of economic phenomena and their causal relationships

An analysis limited to statements that are verifiable

http://en.wiktionary.org/wiki/positive

http://en.wiktionary.org/wiki/economics


http://en.wiktionary.org/wiki/description

http://en.wiktionary.org/wiki/explanation

http://en.wiktionary.org/wiki/phenomena

http://en.wiktionary.org/wiki/causal

http://en.wiktionary.org/wiki/relationship


Defintion• Normative economics

– economic thought in which one applies moral beliefs, or judgment, claiming that an outcome is "good" or "bad". For example "this tax on cigarettes will be good because it will reduce smoking."

Normative Economics:• Examines how resources should be allocated• Prescriptive process analyzing what should be

done An analysis based on value judgments

http://en.wiktionary.org/wiki/economic

Examples

• http://www.youtube.com/watch?v=AV_p_QntywA&NR=1&feature=endscreen


原業主 07 年 11 月斥資 230 萬元購入，持貨近 5 年，獲利 205 萬元離場，升值 89.1% 。

http://www.youtube.com/watch?v=AV_p_QntywA&NR=1&feature=endscreen

http://www.youtube.com/watch?v=AV_p_QntywA&NR=1&feature=endscreen


Allocation of resources

• Process occurs at many levels– Consumers– Firms– Government– Market System

Allocation decisions impact natural environment– Want decisions to be based upon incentives that reflect

“true” value to society– Unfortunately decision makers do not consider “true” value

in choices– Need for policy intervention to overcome such market

failure


Scarce resources and production

LabourLand Capital

Entrepreneurship organises resources

to produce goods and services

Reference: A. Layton, R. Robinson and I.B. Tucker, ‘Economics for today’, Thomson 2002

Resources are the basic categories of inputs organised by entrepreneurship (a special type of labour) to produce goods and services. Economists divide resources into the three categories of land, labour and capital.


Contemporary Economics

• Macroeconomics – Aggregated analysis

– John Maynard Keynes in 1936 and 1940

– Choices of government

• Monetary Policy - Federal Reserve

• Fiscal Policy – Taxes and Spending

– Macroeconomic targets

• Income Levels

• Inflation

• Employment


Contemporary Economics

• Microeconomics – Disaggregated analysis– Adam Smith’s Wealth of Nations in 1776– Choices of consumers (households) and producers (firms)– Two types of Markets

• Factor Markets 生產– Consumers sell inputs used in production to firms

• Product Markets – Firms sell final output to consumers– Three types of analysis

• Partial Equilibrium – Focus on single factor or good• Multi-Market – Interrelationships amongst key

fundamental markets• General Equilibrium – Economy as a whole


Macroeconomics

• The study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices.


Microeconomics

• That field of economics that deals with the small-scale economic activities such as that of the individual or company.


http://en.wiktionary.org/wiki/small-scale

http://en.wiktionary.org/wiki/economic

http://en.wiktionary.org/wiki/activities

Micro Vs Macro

• http://www.youtube.com/watch?v=DJG-liA19eY


http://www.youtube.com/watch?v=DJG-liA19eY

http://www.youtube.com/watch?v=DJG-liA19eY


Macro vs micro-economicsMicroeconomics• Examining individual trees rather

than the wood• Studies decision making by single

individual, household, firm or industry

• Focus on behaviour of small economic units

• E.g. egg industry, will suppliers decide to supply more less or the same amount of eggs to the market in response to price changes? Will individual consumers decide to buy more, less or the same amount of eggs at new price?

Macroeconomics• Surveys the wood• Studies decision-making for the

economy as a whole• Examines economy-wide

variables, e.g. inflation, unemployment, money supply, flows of experts/imports and international financial capital

• Macroeconomic decision makings considers ‘big picture’ policies as the effect of balancing the federal budget on unemployment, the effect of changing the money supply on prices and the effect of strong economic growth on the value of the currency.


Economic Theory of Value

• Value is reflected in prices determined through interaction of supply and demand

• Supply (demand) reflects trade-offs firms (consumers) make when producing (buying) goods and services– Abundance implies lower prices– Scarcity implies higher prices

• Conceptually market forces reflect “true” value to society, but there are reasons why markets may fail– Externalities– Public Goods– Property Rights

http://www.transtutors.com/economics-homework-help/microeconomics/market-failure.aspx


Case examples

• Market forces reflect “true” value to society but markets fail?– Property market in Hong Kong– Parallel export market ( 水货 ) for IPhone6


Keynesian Economics

• An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.

John Maynard Keynes (1883 – 1946)

http://en.wikipedia.org/wiki/File:John_Maynard_Keynes.jpg

Keynesian Economics

• Can it or should it be applied in Hong Kong?


Basic economics: supply and demand

• A competitive market is a market in which there are many buyers and sellers of the same good or service.

• The supply and demand model is a model of how a competitive market works.


Supply and demand

• Five key elements in this model:– The demand curve– The supply curve– The set of factors that cause the demand curve to shift, and the

set of factors that cause the supply curve to shift– The equilibrium price– The way the equilibrium price changes when the supply and

demand curves shift


Demand Schedule• A demand schedule shows how much of a• good or service consumers will want to buy• at different prices.


Demand Schedule for Tickets

Price Quantity demanded

350 5000

300 6000

250 8000

200 11000

150 15000

100 20000

A demand curve

• A demand curve is the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price.

• Example



Opportunities in China and Hong Kong

Discuss economic opportunities available to

HK, e.g. those provided through

• WTO

• PPRD development ( 泛珠三角合作 )

• CEPA

• FDI (Foreign direct investment )

[Please refer to notes given].


http://www.pprd.org.cn/


WTO

• The World Trade Organization (WTO) – “is the only global international organization dealing with the

rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.” - WTO

– Hong Kong joined WTO on 1 Jan 1995– http://www.wto.org/english/thewto_e/countries_e/hong_kong_china_e.htm

– Mainland China joined WTO on 11 December 2001– http://www.wto.org/english/thewto_e/countries_e/china_e.htm

http://www.wto.org/english/thewto_e/countries_e/hong_kong_china_e.htm

http://www.wto.org/english/thewto_e/countries_e/china_e.htm

http://www.wto.org/index.htm


WTOLocation: Geneva, SwitzerlandEstablished: 1 January 1995Created by: Uruguay Round negotiations (1986–94)Membership: 150 countries (since 11 January 2007)Budget: 175 million Swiss francs for 2006Secretariat staff: 635Head: Pascal Lamy (director-general)Functions:

• Administering WTO trade agreements• Forum for trade negotiations• Handling trade disputes• Monitoring national trade policies• Technical assistance and training for developing countries• Cooperation with other international organizations

http://www.wto.org/index.htm

What is WTO?

• http://www.wto.org/english/res_e/webcas_e/webcas_grid_e.htm?video_type=subject&bookmark=intro


http://www.wto.org/english/res_e/webcas_e/webcas_grid_e.htm?video_type=subject&bookmark=intro




WTO• Challenges for Hong Kong

Despite all the opportunities, a more open mainland China market will not automatically benefit Hong Kong. Hong Kong businesses need to overcome the challenges that lie ahead. For example, foreign banks must currently fulfill the asset

requirement of US$20 billion and various other funding requirements for setting up a branch in China.

To set up a joint venture commercial retail business in China, foreign enterprises need to have an annual turnover of more than US$2 billion and assets of no less than US$200 million.

The asset requirement for joint venture wholesale business is as high as US$300 million.



WTOIncreased Competition

Market liberalization will bring in more outside players, and thus increase competition, not only from multinationals but

also from the Mainland's own developing indigenous (本地的 ) business sector.

Diminishing Gateway FunctionWith a more transparent trade regime in the Mainland, Hong Kong's

gateway function will diminish gradually as more foreign companies may try to go to mainland directly, as mainland itself catches up through, among other things, advancement in telecommunications and information technology.

Hong Kong trading firms that match sellers and buyers without adding any significant value to the process will be faced with a trend toward more direct dealing between customers and manufacturers in the future.



WTOHong Kong's Competitiveness

Besides external factors, Hong Kong businesses are facing internal challenges and weaknesses as well.

• A major factor that can erode Hong Kong's competitiveness is our high operating cost. – High salaries and property prices are the two biggest cost items

for many Hong Kong businesses -- the textiles sector being an obvious example.

– Costs for professional services are also high.

• In addition, there are concerns over the inherent weakness of Hong Kong's education system.



WTOWhat Hong Kong Businesses Can Do

Whether Hong Kong can remain competitive and take advantage of the liberalization in the Mainland will depend on how Hong Kong positions itself.

• Hong Kong businesses should rethink their role, and this will call for restructuring, diversification and upgrading.

• Although Hong Kong is now part of China, it is extremely important for the business community to maintain its international character.

• We must play up our role as the "Value-added, Two-way Bridge" to and from mainland China.


MTR

• MTR is more than a railway operatior– Property development– China and international business

• building and operations of the Beijing Metro Line 4 and Shenzhen Metro Longhua Line and in the operating of the London Overground system in the United Kingdom, the Melbourne Train System in Australia and Stockholm Metro in Sweden.



With the implementation With the implementation of CEPAof CEPA

What are the opportunities offer to you?


63,000 Hong Kong Manufacturing & Trading

firms active in PRD employing around 11 million workers

Department of Industrial and Systems EngineeringThe Hong Kong Polytechnic University

CEPA

• http://www.youtube.com/watch?v=ekiSpk7XC98

• http://www.tid.gov.hk/tc_chi/cepa/index.html

• http://www.youtube.com/watch?v=4CShKVTA8fs&feature=related


http://www.youtube.com/watch?v=ekiSpk7XC98

http://www.youtube.com/watch?v=ekiSpk7XC98

http://www.youtube.com/watch?v=4CShKVTA8fs&feature=related

http://www.youtube.com/watch?v=4CShKVTA8fs&feature=related


CEPA Update

• The Hong Kong Special Administrative Region Government and the Central People's Government on May 9, 2009 agreed on further services liberalisation and trade co-operation under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA).



CEPA

• The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is the first free trade agreement ever concluded by the Mainland of China and Hong Kong. The main text of CEPA was signed on 29 June 2003.

• CEPA opens up huge markets for Hong Kong goods and services, greatly enhancing the already close economic cooperation and integration between the Mainland and Hong Kong.



CEPA

• For Hong Kong, CEPA provides a window of opportunity for Hong Kong businesses to gain greater access to the Mainland market. CEPA also benefits the Mainland as Hong Kong serves as a perfect "springboard" for Mainland enterprises to reach out to the global market and accelerating the Mainland's full integration with the world economy. Foreign investors are also welcome to establish businesses in Hong Kong to leverage on the CEPA benefits and join hands in tapping the vast opportunities of the Mainland market.


http://www.investhk.gov.hk/pages/1/72.html


CEPA ImplementationCEPA covers 3 broad areas: • Trade in goods - All goods of Hong Kong origin importing into the

Mainland enjoy tariff free treatment, upon applications by local manufacturers and upon the CEPA rules of origin (ROOs) being agreed and met.

• Trade in services - Hong Kong service suppliers enjoy preferential treatment in entering into the Mainland market in various service areas. Professional bodies of Hong Kong and the regulatory authorities in the Mainland have also signed a number of agreements or arrangements on mutual recognition of professional qualification.

• Trade and investment facilitation - Both sides agreed to enhance co-operation in various trade and investment facilitation areas to improve the overall business environment.


http://www.tid.gov.hk/english/cepa/tradegoods/trade_goods.html

http://www.tid.gov.hk/english/cepa/tradeservices/trade_services.html

http://www.tid.gov.hk/english/cepa/mutual/mutual.html

http://www.tid.gov.hk/english/cepa/facilitation/summary_invest.html


CEPA 專業人員資格的相互承認 • 建築領域

– 1. 雙方同意開展內地監理工程師與香港建造工程師的專業人員資格（監理）相互承認工作；開展香港建築師取得內地監理工程師資格的認可工作。

CEPA Further Liberalization Measures In 2012

• Construction – Hong Kong professionals, who have obtained the qualifications of Mainland's supervision engineer, registered architect, structural engineer, registered civil engineer (harbour and waterway), registered public facility engineer, registered chemical engineer, registered electrical engineer are recognized as registered practitioners for the purpose of declaration of engineering enterprise qualifications within Guangdong Province in accordance with the relevant Mainland regulations, regardless of whether they are registered practitioners in Hong Kong.



CEPA Update• Under Supplement VI to the CEPA, the Mainland will

introduce 29 liberalisation measures covering 20 service sectors, including two new sectors (research and development, and rail transport). Thus, the total number of service sectors covered by CEPA will be expanded from 40 to 42. Among them, the noteworthy liberalisation measures are:

• On tourism, Mainland travel agents authorised to operate group tours to Taiwan can organise group tours for Mainland residents, who hold a valid exit/entry permit for travelling to and from Taiwan and travel endorsement, to enter and remain in Hong Kong in transit. This measure aims to facilitate the travel trade in the Mainland and Hong Kong to develop multi-destination tour products.



CEPA Update• On telecommunications services, HK Service Suppliers

(HKSS) can distribute in Guangdong Province fixed/mobile telephone service cards which can only be used in Hong Kong.

• On audio-visual services, Hong Kong service suppliers (HKSS) can provide videos and sound recording (including motion picture products) distribution services on the Mainland in the form of wholly-owned operations.

• Regarding research and development services, which is also a newly added sector, HKSS can set up wholly-owned enterprises on the Mainland to provide research and experimental development services in the natural sciences and engineering.



CEPA UpdateMutual recognition of professional qualifications:• Supplement VI to CEPA also includes a number of

measures to encourage mutual recognition of professional qualifications as well as technical exchange work among professionals from the accounting, construction, real estate and printing sectors.

• On medical and dental services, Hong Kong pharmacists can sit for examination and register on the Mainland.

• These measures will provide greater business opportunities for the trade and facilitate the upgrading of the professional standards of the two places.



CEPA Update

• On the whole, the new measures can help enhance HKSS' competitiveness in the Mainland. – Such measures will not only help enterprises overcome the

current financial crisis, – but will also promote the long-term economic development of

both sides.

• Details on CEPA including the newly agreed liberalisation and co-operation measures will be uploaded to the Trade and Industry Department's CEPA website: www.tid.gov.hk/english/cepa/index.html


http://www.tid.gov.hk/english/cepa/index.html


CEPA

• Service sectors under CEPA trade in services– Construction– Engineering and Integrated engineering– IT

• recognition of Hong Kong qualifications: eligible Hong Kong residents are allowed to take qualification examinations for professionals and technicians in the Mainland in a wide range of specialisations and to obtain the relevant professional qualification certificates.

China economic profile 2012

• http://www.indexmundi.com/china/economy_profile.html

• Details


http://www.indexmundi.com/china/economy_profile.html

http://www.indexmundi.com/china/economy_profile.html


Chinese Economic Profile

http://en.wikipedia.org/wiki/File:Prc1952-2005gdp.gif


Chinese Macro-economic Profile 2008• Facing the strong impact of the international financial crisis

and the drastically worsening world's economic environment, Chinese economy still maintained a relatively high growth of 9% in 2008.

• As far as industries are concerned, the added value of the primary industry amounted to RMB3.4t, up by 5.5%; that of the secondary industry RMB14.6183t, up by 9.3%; and that of the tertiary industry RMB12.0487t, up by 9.5%, with the growth of GDP hitting a new record low in the past 7 years while the increase of CPI hitting a new record high in the past 12 years.

• New progress had been made in the work including structural adjustment and energy conservation and emission reduction while the stable and fast development of economy was maintained.



Chinese Macro-economic Profile 2008• The growth of industrial production slowed down, with

profits of enterprises declining quickly. The added value of industries above designed size increased by 12.9% from the previous year, with the growth rate falling by 5.6 percentage points from the previous year.

• The growth speed of investment and industries in central and western regions was faster than that in east China , with regional structure being built and concurrently optimized.

• In 2008, energy consumption of GDP per RMB10,000 dropped by 4.21% year-on-year, and what's more, positive progress has also been made in the energy conservation and emission reduction and the building of a resource-saving and environment friendly society.



What should be included in your submission?

• Talk about economic pros and cons– Such as the GDP increase due to the project

in the next 10 years etc– Annual turn-over of the company– How many jobs can be created– Continuous and future development– How the company/project adapts to changes

in the economic situation


Think Question - Economic Dimension (1)

The market mechanism is commonly seen as the key institution underpinning Western economic society. “Free market” is advocated as the means by which efficiency and material abundance are generated.

In respect of this statement, try to answer the questions in the next slide:


Think Question - Economic Dimension (2)

• Evaluate the opportunities available to HK via China’s entry to the World Trade Organization (WTO), recent Pan Pearl River Delta(PPRD) development, Closer Economic Partnership arrangement (CEPA) and Foreign Direct Investments(FDI) in China.


After-class Reading

Information relevant to this lecture may be

found from following sites:• http://www.chamber.org.hk/wto/report/

wto_summary.asp• http://www.news.gov.hk/en/category/

businessandfinance/070610/html/070610en03002.htm#

• http://www.fdi.gov.cn/pub/FDI_EN/default.htm


the hong kong polytechnic university 1 economic dimension society and the engineers

Documents

technozeal slide

real engineers

economic dimension society

unlimited human wants

apple shares

able apple apples iphone

case example

kind of economic awareness