Economic & Trade Information on Hong Kong

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Last updated: 27 April, 2009

Photo Highlights
Photo Major Economic Indicators
Photo Merchandise Trade Performance
Photo Service Trade Performance
Photo Current Economic Situation
Photo Latest Trade Performance
Photo Economic Relations with the Chinese Mainland
Photo Hong Kong as a Regional Centre
Photo Infrastructure Developments

Highlights

  • The Hong Kong economy expanded by 2.5% in 2008, after growing by 6.4% in 2007. The global downturn triggered by intensifying financial market turbulence has started to affect the Hong Kong economy.

  • Consumer prices rose by 4.3% in 2008 and 1.7% year-on-year in January-March 2009.

  • The unemployment rate was 3.6% for 2008 and 5.2% for the three-month period ending March 2009.

  • Retail sales grew strongly by 10.6% in 2008, but dropped 2% in January-February 2009.

  • Total exports grew by 5.1% in 2008, but dropped by 21.9% year-on-year in the first three months of 2009.

  • A total of 29.5 million visitors, or more than four times the size of local population, came to Hong Kong in 2008, representing a 4.7% increase from a year earlier. In January-February 2009, visitor arrivals reached 5 million, up 1.8% year-on-year.

  • On top of the provisions granted in earlier phases of the CEPA, further liberalisation measures covering 17 services sectors were announced on 29 July 2008 to deepen the economic and trade relations between Hong Kong and the mainland. These measures, effective from January 2009, have further expanded the business scope allowable in China for Hong Kong companies.

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Major Economic Indicators

-

2006

2007

2008

Forecast/Latest

Population, Mid-year (million)

6.86

6.93

6.98

7.01a

Gross Domestic Products (US$ billion)

189.1

207.1

215.2

209.8-212.0b

Real GDP Growth (%)

+7.0

+6.4

+2.5

- 2-3b

GDP Per Capita (US$)

27,600

29,900

30,800

29,800-30,100b

Inflation (% Change in Composite CPI)

+2.0

+2.0

+4.3

+1.7c

Unemployment Rate (%)

4.8

4.0

3.5

5.2d

a end-2008, b government forecast for 2009; c year-on-year change in January-March 2009; d January-March 2009

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Merchandise Trade Performance

-

2007

2008

January-March 2009

US$ billion

Growth %

US$ billion

Growth %

US$ billion

Growth %

Total Exports

344.6

+9.2

362.1

+5.1

64.7

-21.9

Domestic Exports

14.0

-18.9

11.6

-16.8

1.6

-44.3

Re-exports

330.6

+10.8

350.4

+6.0

63.1

-21.1

Imports

367.7

+10.3

387.9

+5.5

69.1

-22.8

Total Trade

712.2

+9.8

749.9

+5.3

133.9

-22.4

Trade Balance

-23.1

N/A

-25.8

N/A

-4.4

N/A


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Service Trade Performance

-

2006

2007

2008

US$ billion

Growth %

US$ billion

Growth %

US$ billion

Growth %

Exports

72.4

+14.1

84.7

+16.9

92.3

+9.0

Imports

36.9

+9.0

42.6

+15.4

45.8

+7.5

Total Trade

109.4

+12.3

127.3

+16.4

138.1

+8.5

Trade Balance

35.5

N/A

42.1

N/A

46.5

N/A


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Current Economic Situation

  • The world's freest economy
  • The world's most services-oriented economy (services sectors accounting for more than 90% of GDP)
  • The world's second highest per capita holding of foreign exchange reserves
  • The world's eighth largest foreign exchange reserves holding
  • The second largest source of foreign direct investment (FDI) in Asia
  • The second largest recipient of FDI in Asia


1. Latest Developments

The Hong Kong economy expanded by 2.5% in 2008, after growing by 6.4% in 2007. The global downturn triggered by intensifying financial market turbulence has started to affect the Hong Kong economy. Domestic demand has slowed after a long period of exceptionally strong performance. Following a 8.5% growth in 2007, private consumption growth slowed significantly to 1.8% in real terms in 2008. Fixed investment registered a slight decline of 0.3% in 2008, compared to a 3.4% growth in 2007. As for the external sector, growth of exports of goods and services also slowed to 2% and 5.6% respectively in real terms in 2008, after growing by 7% and 14.1% respectively in 2007. The government forecast the Hong Kong economy to contract by 2-3% in real terms for 2009, in the latest round of forecast exercise in February 2009.

After a strong growth of 10.5% in 2008, the value of retail sales dropped slightly by 2% in the first two months of 2009. The stock market corrections since mid-2008 and dimmer global economic prospects have dented consumer sentiment. Both local and external price pressures receded after the outbreak of the global financial turmoil. Consumer prices rose by 1.7% year-on-year in January-March 2009, compared to 4.3% in 2008. Looking ahead, inflation in Hong Kong is expected to come down further over the course of 2009 as the impact of the global synchronised downturn continues to play out and weigh on local economic activity. Meanwhile, the labour market condition has worsened amid business contraction triggered by the global economic crisis. The unemployment rate has been on an uptrend for a few months, registering 5.2% for the three-month period ending March 2009, compared to 3.6% for 2008.

In 2008, visitor arrivals rose by 4.7% (arrivals from the Chinese mainland rose by 8.9% while non-mainland arrivals dropped by 0.3%). Arrivals from the Chinese mainland reached 16.9 million (57% of the total), of which 9.6 million travelled under the individual visitor scheme. In January-February 2009, visitor arrivals reached 5 million, up 1.8% year-on-year. As for the flow of goods, please refer to the section on Latest Trade Performance and Issues below.

The four pillar economic sectors of Hong Kong are: trading and logistics (25.8% of GDP in terms of value-added in 2007), tourism (3.4%), financial services (19.5%), and professional services and other producer services (11%).

2. Budget and Government Initiatives

In the 2009-10 Budget released on 25 February 2009, the Financial Secretary announced to adopt counter-cyclical strategies to boost the economy, with a forecast budget deficit of $40 billion, equivalent to some 2% of GDP, for the fiscal year 2009-10. The focus of the 2009-10 Budget is on preserving employment for the short term; promoting a more sustainable economic development by strengthening the fundamentals and developing new economic initiatives in the longer run; and developing a caring community and provide assistance to the disadvantaged. For example, the government would make a provision of $1.6 billion to create 62,000 jobs and internship opportunities in the next three years; earmark $300 million to support creative industries; enhance Hong Kong/Guangdong/Taiwan/Macao co-operation; promote conventions, exhibitions, tourism and wine industries; and promote bond market development by implementing a programme to issue government bonds.

In his Policy Address delivered on 15 October 2008, the Chief Executive responded to Hong Kong's new challenges, including the global financial crisis and environmental pollution. He said the government would use the economic crisis as an opportunity to reinforce Hong Kong's position as a global financial centre, which includes enhanced banking supervision, tightened regulation of fund managers, and increased efforts to broaden the scope of stock exchange listings. To further economic and trade development, the government will put forward the large-scale infrastructure projects; step up cooperation with Guangdong, with a focus on service industries; reinforce Hong Kong's intermediary role in technological cooperation between the mainland and the rest of the world; foster closer links with Taiwan in areas such as trade, investment and tourism; promote the development of creative industries and wine trading and distribution businesses; and examine the feasibility of increasing the exhibition area in Hong Kong.

As part of the government's efforts to lead Hong Kong out of the economic downturn, the Chief Executive announced on 8 December 2008 that the government would provide up to $100 billion in loan guarantees for enterprises and make available over 60,000 employment opportunities in 2009. Besides, the government would work with the central government and Guangdong province to undertake measures to alleviate the difficulties faced by Hong Kong enterprises operating in the Pearl River Delta, including financing, tax rebate and development of domestic markets, etc; expand the scope of RMB business in Hong Kong to enhance Hong Kong's function as a global financial centre; and increase the number of mainland residents visiting Hong Kong. Later, Premier Wen Jiabao also announced 14 schemes to help revive Hong Kong's economy by opening up its trade with the Chinese mainland, encourage more cross-border economic co-operation and ease business restrictions on Hong Kong firms on the mainland.

On top of the provisions granted in earlier phases of the Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA), further liberalisation measures were announced on 29 July 2008, covering 17 services sectors, bringing the total number of services areas covered by CEPA to 40. These measures, to be effective from January 2009, will further expand the business scope allowable in China for Hong Kong companies and lower the thresholds for them to set up business or provide services there. Hong Kong and Guangdong will also implement a package of liberalisation and facilitation measures on an early and pilot basis to enhance mutual economic and trade co-operation. CEPA was firstly concluded in June 2003, and supplemented with further liberalisation measures in subsequent years. At present, all products of Hong Kong origin, except for a few prohibited articles, can be imported into the mainland tariff free under CEPA. Details and new developments about CEPA, including our analysis of its impacts on Hong Kong, can be found in
http://cepa.hktdc.com/.

3. Investment Flows

Hong Kong is a highly attractive market for foreign direct investment. According to the UNCTAD World Investment Report 2008, Hong Kong was ranked the second in Asia and sixth in the world in 2007, with FDI inflows surging by 33% to US$60 billion. In terms of FDI outflows, Hong Kong was the second largest source of FDI in Asia, with FDI outflows increasing by 18% to US$52 billion.

According to a recent government survey, Hong Kong's total stock of inward direct investment was estimated at US$1,178 billion at the end of 2007, corresponding to 5.7 times of its GDP in that year. One distinct feature of such direct investment was the indirect channelling of capitals from non-operating companies in tax haven economies. Against this background, British Virgin Islands, Bermuda and Cayman Islands accounted for 36.6%, 4.2% and 1.2% of the total stock of inward direct investment in 2007. Excluding tax haven economies, the Chinese mainland was the most important source of direct investment in Hong Kong (accounting for 40.7% of the total), followed by the Netherlands (5.8%), the US (3%) and Japan (1.8%). The majority of the stock of investment was related to service industries including investment holding, real estate and business services; wholesale, retail and trading; banking, finance and insurance; and transport and communications.

For more information and assistance in establishing an operation in Hong Kong, contact InvestHK (
http://www.InvestHK.gov.hk).

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Latest Trade Performance *

  • The world's 13th largest trading economy
  • The world's 12th largest exporter of commercial services

After expanding by 5.1% in 2008, total exports contracted by 21.9% in the first three months of 2009 over a year earlier amid the deepening global economic downturn. Hong Kong's major export markets are the Chinese mainland, the EU, the US and Japan, which respectively made up 49%, 14%, 13% and 4% of Hong Kong's total exports in 2008. In the first two months of 2009, exports to the Chinese mainland, the EU, the US and Japan dropped markedly by 26%, 17%, 20% and 10% respectively. Hong Kong's trade performance is in part fuelled by outward processing activities in Guangdong where the majority of Hong Kong companies have extended their manufacturing base. In 2008, 34.4% of Hong Kong's total exports to the Chinese mainland were related to outward processing activities; the figure was 38.1% for domestic exports and 34.3% for re-exports.

Since the fourth quarter of 2008, Hong Kong's exports have deteriorated as the external environment has become increasingly challenging. The slowdown of the world economy and the lingering effect of financial turbulence are putting a curb on external demand. On the supply side, Hong Kong exporters have been confronted with high production costs on the mainland amid sustained wages, rising social security benefits, as well as the introduction of the new Labour Contract Law effective from January 2008 and more stringent overseas safety requirements. However, the Chinese government has recently announced some relief measures such as raising the VAT rebate rates for certain exports, which may help ease the pain of Hong Kong exporters producing on the mainland.

Imports dropped by 22.8% year-on-year in January-March 2009, after a 5.5% growth in 2008. A visible trade deficit of US$4.4 billion, equivalent to 6.4% of the value of imports of goods, was recorded in the first three months of 2009, compared to 6.6% in 2008.


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Economic Relations with the Chinese mainland

  • The most important entrepot for the Chinese mainland
  • The largest foreign investment source of the Chinese mainland
  • The key offshore capital-raising centre for Chinese enterprises
  • The Chinese mainland as Hong Kong's second largest source of external investment

Hong Kong is so far the most important entrepot of the Chinese mainland. If re-exports to and from the Chinese mainland are included, about 17% of the mainland's foreign trade was handled via Hong Kong. The figure will be higher if transhipment of goods to and from the mainland via Hong Kong is also included. According to the HKSAR government statistics, in 2008, 62.5% of re-exports were of China origin and 48.9% were destined for the Chinese mainland. According to China's Customs statistics, Hong Kong is the third largest trading partner of the Chinese mainland after the US and Japan, accounting for 8% of its total trade in 2008.

Hong Kong is the largest source of overseas direct investment in the Chinese mainland. By the end of 2008 among all the overseas-funded projects registered in the Chinese mainland, 45% were tied to Hong Kong interests. Utilized capital inflow from Hong Kong amounted to US$350 billion, accounting for 40% of the national total.

The Chinese mainland is one of the leading investors in Hong Kong. According to the HKSAR Census and Statistics Department, the mainland's cumulative direct investment in Hong Kong was US$479 billion or 41% of Hong Kong's total stock of inward direct investment at the end of 2007.

As of January 2009, there were six banks and seven representative offices, incorporated in Chinese mainland, operating in Hong Kong. Big lenders including the Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China and China Construction Bank have opened their branch operations in Hong Kong. Some other mainland commercial banks such as the Shenzhen Development Bank, China Everbright Bank and Shanghai Pudong Development Bank have representative offices in Hong Kong.

Hong Kong is also a key offshore capital-raising centre for Chinese enterprises. As of December 2008, 465 mainland companies were listed in Hong Kong, comprising H-share, red-chip and private companies with total market capitalization of US$790 billion, 60% of the market total. For the past 10 years, mainland companies have raised more than $1.4 trillion (US$180 billion) via stock offerings in Hong Kong.

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Hong Kong as a Regional Centre

  • A popular venue for hosting regional headquarters or representative offices
  • A leading telecommunications hub for the Asia-Pacific region
  • The world's busiest airport for international cargoes
  • The world's third busiest container port
  • The largest venture capital centre in Asia
  • The third largest stock market in Asia, the seventh largest in the world
  • The third largest foreign exchange market in Asia, the sixth in the world

Hong Kong is a popular venue for hosting regional headquarters or representative offices for multinational companies to manage their businesses in the Asia Pacific, particularly the Chinese mainland. Based on a government survey, as at 2 June 2008, there were 3,882 regional headquarters (RHQs) and regional offices (ROs) in Hong Kong representing their parent companies located outside Hong Kong, a 21% increase from five years ago. Of these companies, 84% were responsible for business in the Chinese mainland, confirming Hong Kong's role as a gateway to the mainland. These companies came from diverse countries and sectors. The US had the largest number of RHQs/ROs in Hong Kong (24%), followed by Japan (19%), the UK (9%) and the mainland (6%). Half of the RHQs/ROs in Hong Kong were in wholesale, retail and I/E trades. Others are in business service (18%), finance and banking (10%), and transports (9%).

Hong Kong is an important banking and financial centre in the Asia Pacific. As at end-2008, there were 200 authorised banks and 71 representative offices in Hong Kong, and the total loans provided by the authorised banks to finance international trade, and other loans for use outside Hong Kong totalled US$23.9 billion and US$70.1 billion respectively. According to the Bank for International Settlements, Hong Kong is the third largest foreign exchange market in Asia and the sixth largest in the world, with the net daily turnover of foreign exchange transactions reaching US$175 billion in 2007.

As at June 2008, Hong Kong's stock market ranked the third largest in Asia and the seventh largest in the world in terms of market capitalisation. There were 1,254 companies listed on the stock exchange, including 189 companies on the growth enterprise market (GEM). The total market capitalisation of Hong Kong's stock market reached US$2 trillion. Hong Kong is also the largest venture capital centre in Asia, managing about 27% of the total capital pool in the region as at mid-2007.

Hong Kong is a leading telecommunications hub for the Asia-Pacific region. As at end-2008, there were 3.71 million telephone lines and 319,000 fax lines in Hong Kong. There were 11.4 million mobile phone subscribers, even outnumbering Hong Kong's total population. The penetration rate of broadband internet exceeded 77% among household. International Direct Dialing services are available to most countries and regions in the world, with the total international telephone traffic growing at an annualised rate of 11% to 10 billion minutes between 2003 and 2008.

Hong Kong is a favourite place in the world to do business and host major conferences. Over 300 international conventions and exhibitions are held in Hong Kong each year. To name a few, in December 2005, Hong Kong hosted the sixth session of the WTO ministerial conference where a Hong Kong declaration was concluded. In December 2008, Hong Kong played host to the first Clinton Global Initiative international meeting outside the US.

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Infrastructure Developments

The governments of the Hong Kong SAR, Guangdong and Macao SAR are working together to implement the Hong Kong-Zhuhai-Macao Bridge (HZMB) project. The HZMB main bridge will be a 29.6km dual three-lane carriageway in the form of a bridge-cum-tunnel structure comprising an immersed tunnel of about 6.7km. It will run within mainland waters from the artificial island off Gongbei, Zhuhai, to the eastern artificial island for the tunnel section just west of the HKSAR boundary. The funding issue for the main body of the HZMB has been fully resolved. Construction will commence by 2010 and be completed in 2016.

The Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL) will be 26-km long, running from the terminus in West Kowloon to the boundary at Huanggang, where it will connect with the XRL Mainland section. With the XRL, passengers could travel from Hong Kong to Shenzhen in about 15 minutes and to Guangzhou in about 50 minutes. The XRL will also link Hong Kong to the National High Speed Rail Network. Upon completion of the railway, the travelling time from Hong Kong to Beijing and Shanghai will be shortened to about 10 hours and eight hours respectively. The MTR Corporation Limited is proceeding with the design of the XRL and intensive public engagement is underway. Subject to the authorisation of the scheme, construction will commence in end 2009 for completion by 2014/2015.

Besides the cross-boundary endeavours, the government has undertaken other large-scale infrastructure projects for the next five years to improve the local transportation system, promote long-term development of arts and culture, and provide quality living space to citizens. The MTR Corporation Limited is working on the detailed design of the West Island Line, and has started the preliminary planning and design of the eastern section of the South Island Line. The Executive Council has approved the further planning of the Shatin to Central Link (SCL) also by the MTR Corporation Limited. The 17-kilometer SCL will have nine stations, serving a residential population of 300,000 and working population of 280,000, connecting the Northeast New Territories and Hong Kong Island via South East Kowloon. The Kai Tak Development, with its funding approval recently, has entered the construction stage.

To enhance the competitiveness of the Hong Kong International Airport (HKIA), the Airport Authority (AA) keeps upgrading the airport's infrastructure to increase its passenger and cargo handling capacities and strengthen transport links between the airport and the Pearl River Delta. In 2008, HKIA and Shenzhen International Airport (SZIA) jointly launched the Hong Kong-Shenzhen Airports Link, a service that enables passengers at HKIA or SZIA to check in and obtain boarding passes for connecting flights at either airport. Besides, AA has invested $300 million to build 10 new cargo stands, bringing the total number to 34. AA and the government are working closely to maximise the two existing runways' capacity. Hourly air traffic movements will see an increase from 55 to 68 in 2015. AA has also launched a study on the construction of a third runway in 2008.

Turning to the port, the latest forecast shows that container throughput will continue to increase in the future after reaching a handling capacity of 24 million twenty-foot equivalent units (TEUs) of containers in 2007. The government has been identifying suitable locations for the development of Container Terminal 10 to meet this demand and is studying the environmental impact of the proposed Container Terminal 10 in Tsing Yi. Although the site at Southwest Tsing Yi will require the relocation of the existing oil depot, it can achieve synergy with the container terminals in Kwai Chung and Tsing Yi.

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* In this economic profile, Hong Kong's trade performance is analysed in a narrow context that does not take into account of offshore trade. The latter makes up a significant share of the export business managed by Hong Kong companies but it is not being captured by ordinary trade statistics.