Population 7.173 million
GDP 257.953 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
6.8 |
4.9 |
1.6 |
2.2 |
|
Inflation (yearly average) (%)
|
2.3 |
5.3 |
4.1 |
4.4 |
|
Budget balance (% GDP)
|
4.2 |
3.4 |
1.1 |
1.1 |
|
Current account balance (% GDP)
|
6.6 |
6.5 |
5.4 |
5 |
|
Public debt (% GDP)
|
34.6 |
33.8 |
33.1 |
31 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Successful specialisation in services (92% of GDP)
- Robust and transparent banking system
- Quality infrastructures
- Retention of the “one country, two systems” principle, considering the complementarity of the two economies
- Good business environment
WEAKNESSES
- Economy vulnerable to China’s economic slowdown
- Industry completely delocalised to mainland China
- Growing competition from mainland China in services sector
- Highly exposed to property sector
- Growing inequalities in the territory
- Lack of transparency of financial data
Risk assessment
Slight recovery expected in 2013
In 2012, growth slowed significantly due to the deceleration in exports – which represent 350% of GDP – in the context of the Euro zone recession. Activity is expected to pick up slightly in 2013, despite the sluggishness of external demand and its significant international financial integration. Trade will have less of an impact than after the Lehman Brothers collapse indeed, thanks to the resilience of the Chinese economy and continued positive growth in the United States. Furthermore, private consumption, the main growth driver, is expected to remain lively, bolstered by higher wages and low unemployment (which reached 3.8%). Investment will be sustained by ongoing infrastructure projects (like the Hong Kong-Macau-Zhuhai bridge) and continued low interest rates. Low rates are attracting private Chinese companies, in particular, as they have limited access to credit in mainland China due to quantitative restrictions. On the supply side, financial services, retail sales and tourism will continue to enjoy rapid growth. As for the property sector, the authorities announced new steps to cool the market in September and October 2012 in response to Quantitative Easing 3 put in place by the United States’ central bank. These measures are intended to increase short- and especially medium-term supply and to reduce fast, speculative selling: increasing the housing supply by constructing 20 000 new private residential units a year, higher taxes on property transactions (special stamp duty) with rates up to 20% if a property is sold within 6 consecutive months of purchase and introduction of an additional tax of 15% for foreign investors (buyer’s stamp duty). Nevertheless, these measures are likely to have only a limited impact on prices due to ongoing very low interest rates linked to the accommodative monetary policy in the United States. Besides, even if the property bubble bursts, banks will remain solid due to the limits placed on household borrowing and the regular stress tests carried out by the supervisory authorities.
Coface payment experience is thus expected to remain relatively stable. However, company account information may be sparse for unlisted companies which are not obliged to publish their financial statements. But this shortcoming is offset by the claim collection possibilities afforded by an effective legal system inherited from British law.
Solid financial system and development of offshore yuan market in Hong Kong
The current account surplus fell in 2012 due to the deceleration in exports to the eurozone (11% of total exports). It is expected to remain stable in 2013 thanks to the slight recovery expected in mainland China and to a boom in services (tourism, financial services). In this context, foreign exchange reserves will remain at satisfactory levels. The Hong Kong dollar will continue to be pegged to the U.S. dollar in 2013, even though the Chief Executive has mentioned the long-term possibility of establishing a link between the yuan and the Hong Kong dollar.
Finally, the Hong Kong offshore yuan market for non-residents established by the Chinese authorities developed quickly in 2012 acting as a testing ground for the yuan's internationalisation. This market is accompanied by an offshore yuan bond market called the Dim Sum Bond market. This market will make Hong Kong the world's financial centre for offshore yuan, much like London became the financial centre for eurodollars in the 1960s, when controls on capital outflows were introduced in the United States.
Continuity of economic policies after the elections
Leung Chun-ying was elected as Chief Executive in March 2012 by the 12,000-member Election Committee making up the Electoral College and representing the local elite. He will have to deal with various demonstrations by democrats seeking to institute universal suffrage. Reform of the voting system is not likely, however, in the short term, with Beijing having announced that universal suffrage will not be introduced before 2017 for the chief executive and not before 2020 for Parliament (Legco).
