Hong Kong

Politics:

• Analysis

  Hong Kong politics: Quick View - Court rules against residency rights for f

  Event

  Hong Kong's Court of Final Appeal (CFA) on March 25th rejected an appeal by Filipino domestic workers denied the right to permanent residency. The court declined to refer the case to the standing committee of the National People's Congress (NPC, China's legislature) for an interpretation of Hong Kong's Basic Law.

  Analysis

  The case before the CFA concerned two foreign domestic workers who had lived in Hong Kong for 27 and 28 years, respectively. The court determined that this did not constitute "ordinary residence", because maids are employed on temporary contracts and are admitted to the territory on the understanding that they will not be able to gain residency. Other types of foreign workers are normally eligible for residency after seven years. Nearly 300,000 foreign domestic helpers, mainly from the Philippines and Indonesia, are resident in Hong Kong; government data had suggested that, as of 2010, over 100,000 of these may have stayed in the territory for more than seven years.

  Many people in Hong Kong had feared that granting long-term maids residency rights would open the doors to mass immigration by their families, straining the territory's already tight resources. The government has played upon these concerns, arguing that such a step would lead to additional public expenditure, and appealing against a 2001 court ruling granting one of the maids residency. The case has echoes of a decision in 1999, during which the CFA ruled that the children of parents with the right of abode in Hong Kong also had right of abode. That case also prompted fears about a surge of immigration and resulted in the government referring the court decision to the NPC standing committee, which overturned it. The CFA's decision to reject the domestic workers' case does at least avoid a similar result, which would have raised concerns over the mainland government's political interference in the territory.

  However, by continuing to treat foreign domestic workers as a distinct class, with fewer rights than the other foreign workers that live in Hong Kong, the government is perpetuating a discriminatory system. The approach feeds populist suspicions over immigration, and, in the long run, this could damage the territory's reputation as a global business centre.

  March 25, 2013

• Background

  Hong Kong: Political and institutional effectiveness

  Political outlook: Political and institutional effectiveness

  Effective political debate and policy implementation in Hong Kong will continue to be impeded by several factors. The most important is the issue of political legitimacy. The chief executive is the most powerful politician in the territory, but the policies that he advocates arguably lack popular legitimacy, as he is elected by a committee rather than by all voters. Mr Tsang attempted to take popular concerns into account in policymaking, and his successor is likely to continue this approach, but the former's poor poll ratings showed that the tactic was not effective. On the one hand, this often looked like populism. On the other hand, Mr Tsang often seemed unable to connect with underlying public opinion. The administration will remain constrained by the need to take into account the wishes of the mainland government, which exercises its influence directly through the role of the National People's Congress (China's legislature) in interpreting the Basic Law, and indirectly through the sway that it holds over Hong Kong's political and business class. The tendency of elements of the pro-democracy movement to engage in crowd-pleasing confrontation rather than genuine policy debate can also hinder effective policy formation. However, the territory's judicial and regulatory systems remain admirably effective and impartial.

  July 25, 2012

• Structure

  Hong Kong: Political structure

  Official name

  The Hong Kong Special Administrative Region (SAR) of the People's Republic of China

  Form of state

  Special administrative region of China, with its own mini-constitution (the Basic Law), guaranteeing "a high degree of autonomy" until 2047. Presided over by a chief executive, whose appointment is strongly influenced by China

  The executive

  The Executive Council (Exco), which is selected from among the principal officials of the executive authorities, members of the Legislative Council and public figures, serves the chief executive in an advisory role

  Head of state

  Hu Jintao, president of the People's Republic of China

  Legislature

  Unicameral Legislative Council (Legco) with 70 members, comprising 40 directly elected members and 30 members elected by "functional" constituencies

  Local government

  District boards were renamed district councils after the 1999 elections. Local government municipal councils (urban and regional) were abolished shortly afterwards. The powers of the municipal councils were retained by government departments, with only small increases in the budgets of the advisory and partly appointed district councils

  Legal system

  Based on English law and the Basic Law (a mini-constitution underpinned by an international treaty). Foreign affairs and defence fall within the ambit of the Chinese central government; Hong Kong has autonomy in other matters

  Elections

  Leung Chun-ying was elected as chief executive in March 2012, and assumed the position in July. The most recent Legco election took place in September 2012. The next poll for the chief executive will take place in 2017; the next elections for Legco will occur in 2016

  Main political parties

  The pro-government Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) is the largest party in Legco, with 13 seats. The pro-business Liberal Party (LP) has five seats, and the pro-government Hong Kong Federation of Trade Unions six. The pro-democracy camp holds 27 of Legco's 70 seats, including six held by the Democratic Party (DP) and six by the Civic Party

  Chief executive: Leung Chun-ying

  Chief secretary for administration: Carrie Lam

  Financial secretary: John Tsang

  Secretary for justice: Rimsky Yuen

  Principal officials

  Civil service: Paul Tang

  Commerce & economic development: Gregory So

  Constitutional & mainland affairs: Raymond Tam

  Development: Paul Chan

  Education: Eddie Ng

  Environment: Wong Kam-sing

  Financial services & the Treasury: Ceajer Chan

  Food & health: Ko Wing-man

  Home affairs: Tsang Tak-sing

  Labour & welfare: Matthew Cheung

  Security: Lai Tung-kwok

  Transport & housing: Anthony Cheung

  Chief executive of the Hong Kong Monetary Authority

  Norman Chan

  March 08, 2013

• Outlook

  Hong Kong: Key developments

  Outlook for 2013-17

  • Growing popular discontent with the government may pose a minor threat to political stability in 2013-17, and calls for the introduction of full democracy will grow louder. However, Leung Chun-ying, is expected to serve a full term.
  • Mr Leung has called for the government to provide more low-cost housing. However, broadly speaking, his policies have not differed greatly from those of his predecessor, Donald Tsang.
  • Interest rates are not expected to be raised until 2015, owing to the Hong Kong dollar's peg to the US dollar (which is expected to remain in place in 2013-17). Annual consumer price inflation will average 3.9% in the forecast period.
  • In fiscal year 2013/14 (April-March), the government will maintain a relaxed fiscal stance in order to boost weak economic growth. However, substantial fiscal surpluses will continue to be recorded throughout the forecast period.
  • Real GDP growth will be respectable in 2013, at 3.2%. It will edge higher to an average annual rate of 3.3% in 2014-17, with stronger demand growth in OECD markets offsetting the effect of domestic property sector troubles.
  • Despite an expanding trade deficit, large surpluses on the services and income accounts will enable Hong Kong to post average annual current-account surpluses equivalent to 6.2% of GDP in 2013-17.

  Review

  • The government announced in February that it expected a surplus of HK$64.9bn (US$8.4bn) to be recorded in 2012/13. In the budget for 2013/14 measures to support the economy worth HK$33bn were unveiled.
  • In February new measures were announced to cool soaring real estate prices, notably in non-residential parts of the property market, including an increase in stamp duties on most real estate transactions.
  • Economic activity accelerated in the final quarter of 2012, with real year-on-year GDP growth hitting 2.5%. This took full-year economic growth to 1.4%. Private consumption was the main driver of growth in 2012.
  • Consumer price inflation slowed sharply in January, to 3% year on year from 3.8% in December, but the data were distorted by the timing of the Chinese New Year holidays.
  • Growth in merchandise exports and imports accelerated to 17.6% and 23.9%, respectively, year on year in January. However, growth rates are also likely to have been boosted by effects linked to the timing of the Chinese New Year.
  • New passenger car registrations surged by 41.7% year on year in January. The strength of the rise indicates that this was not just a result of New Year effects.

  March 08, 2013

Economy:

• Background

  Hong Kong: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	7.2	Population growth	0.4
  GDP (US$ bn; market exchange rate)	263.0b	Real GDP growth	2.1
  GDP (US$ bn; purchasing power parity)	370.0	Real domestic demand growth	3.7
  GDP per head (US$; market exchange rate)	36,768	Inflation	2.4
  GDP per head (US$; purchasing power parity)	51,725	Current-account balance (% of GDP)	8.5
  Exchange rate (av) HK$:US$	7.757b	FDI inflows (% of GDP)	30.2
  a The Economist Intelligence Unit estimates. b Actual.

  Download the numbers in Excel

  Background: The territory of Hong Kong came under British control in the 19th century. Under the terms of the Sino-British Joint Declaration on the Question of Hong Kong, signed in 1984, Hong Kong reverted to Chinese sovereignty in 1997 as a Special Administrative Region (SAR) of China and was promised "a high degree of autonomy" for at least 50 years. The territory is ruled according to the Basic Law of the Hong Kong SAR, which functions as a mini-constitution.

  Political structure: Leung Chun-ying, who was previously the convenor of the Executive Council (Exco, the cabinet), began his five-year term as chief executive in July 2012. He replaced Donald Tsang, who had held the post since 2005. The chief executive, who is advised by Exco, is the dominant force in the government. However, his public mandate is weaker than that of the Legislative Council (Legco, Hong Kong's parliament), as the majority of Legco's members are now directly elected. In 2010 political reforms were passed that expanded the size of the chief executive election committee from 800 to 1,200 and increased from 30 to 40 the number of Legco members chosen by popular vote.

  Policy issues: The debate on electoral reform will continue in 2013-17, but other challenges will also confront the territory's leadership. The government will have to guard against a sudden collapse in property prices, which will reach exorbitant new heights in the forecast period. Pollution and poverty are also moving up the political agenda, with the high cost of housing a particular source of public concern. The government is seeking to expand Hong Kong's role as an entrepôt, focusing on financial services, logistics, tourism and professional services. The Closer Economic Partnership Arrangement with China will continue to broaden Hong Kong's firms access to mainland markets, particularly in the services sector.

  Taxation: The tax rate on corporate profits stands at 16.5%, while the standard rate of salary tax is 15%. The government-supervised pension scheme, the Mandatory Provident Fund, requires employers and employees each to make a minimum contribution of 5% of relevant income.

  Foreign trade: On a balance-of-payments basis the trade account moved into the red in 2011, to the tune of US$9.1bn, having recorded a US$2.4bn surplus in 2010. The current-account surplus in 2011 stood at US$14.1bn, equivalent to 5.7% of GDP, down from US$15bn (6.6% of GDP) in 2010.

  Major re-exports, 2011	% of total	Major imports, 2011	% of total
  Capital goods	36.9	Raw materials & semi-manufactures	34.6
  Raw materials & semi-manufactures	33.5	Capital goods	32.9
  Consumer goods	26.4	Consumer goods	24.9
  Foodstuffs	1.2	Foodstuffs	3.8
  Leading markets 2012	% of total	Leading suppliers 2012	% of total
  China	54.1	China	47.0
  US	9.9	Japan	8.0
  Japan	4.2	Singapore	6.3
  Taiwan	2.4	Taiwan	6.3

  Download the numbers in Excel

  Download text file (csv format)

  March 14, 2013

• Structure

  Hong Kong: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 08, 2013

• Outlook

  Hong Kong: Country outlook

  Hong Kong: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: In July 2012 a former convenor of the Executive Council (Hong Kong's cabinet), Leung Chun-ying, became the territory's new chief executive. He will struggle to bridge the gap between the expectations of the central Chinese government and those of the local electorate in 2013-17. In trying to accommodate the wishes of the central leadership, he is likely to continue antagonising public opinion in Hong Kong, and this will lead to growing political tensions over the forecast period. Mr Leung will nevertheless serve a full term in office.

  ELECTION WATCH: Mr Leung was appointed as chief executive by an election committee of around 1,200 people. His victory owed much to backing from the Chinese government. Although the process by which Hong Kong's head of government is chosen remains closed and undemocratic, the 2012 election differed from earlier ones in that it was a genuine contest between the top two candidates. It may therefore have offered a foretaste of the next election, when the chief executive may be chosen by popular vote for the first time.

  INTERNATIONAL RELATIONS: Under Hong Kong's mini-constitution, the Basic Law, defence and foreign affairs are the preserve of the central Chinese government. The Hong Kong government has authority over domestic matters and external issues relating to trade. A new free-trade agreement (FTA) between the territory and Iceland, Liechtenstein, Norway and Switzerland came into force in late 2012. Hong Kong would be adversely affected by any deterioration in China's relations with other countries--a significant rise in Sino-US trade tensions, for example, could hurt market sentiment in the territory and might also be detrimental to external trade. Foreign governments have generally been reluctant to interfere in Hong Kong's internal affairs, but the US and the UK continue to publish regular reports on subjects such as freedom of speech and progress towards democracy in the territory.

  POLICY TRENDS: Policymakers will remain concerned about the potential for asset prices to decline sharply. Property prices are at record levels at present, but confidence in the real-estate market is likely to be fragile in 2013-17. Domestic monetary conditions will remain loose until 2015 as a consequence of the Hong Kong dollar's peg to the US dollar. However, as US rates rise from 2015 and monetary policy in mainland China simultaneously tightens, the risk of a large fall in house prices will be high in the second half of the forecast period. The government and the Hong Kong Monetary Authority (HKMA, which performs many of the functions of a central bank) have introduced measures to restrain rises in property prices. These include a 15% tax on purchases of housing by non-residents and companies, introduced in October 2012, and increases in stamp duties on property deals that were announced in February 2013. These moves are unlikely to prevent high levels of volatility in real-estate prices in 2013-17.

  ECONOMIC GROWTH: The local economy is heavily exposed to trends in global trade, and struggled in 2012 as a result of contracting demand in the EU and weak growth in exports to the US. Slower economic expansion in China also hit local trade, and real GDP growth in Hong Kong last year stood at only 1.4%. The local economy will expand by 3.2% in 2013 as global trade flows return, falteringly, to faster rates of expansion. Private consumption growth will slow to 3.2% in 2013, from 3.9% in 2012. The Economist Intelligence Unit expects Hong Kong to record GDP expansion of 3.3% a year on average in 2014-17. Private consumption will expand at an average annual rate of 3.7% and will make the largest contribution to economic growth in the period. This will reflect the extremely tight labour market, which will support rapid wage growth. The key role non-resident buyers have played in pushing property prices higher recently means that consumption should be more insulated from potential trouble in the housing market than it has been in the past. However, an anticipated drop in real estate prices in 2016 will adversely affect investment in that year. Over the forecast period as a whole, gross fixed investment will nevertheless be supported by business investment, and also by major public infrastructure projects, such as the Hong Kong-Macau-Zhuhai bridge (which is due to be finished in 2016) and the third runway at the territory's international airport.

  INFLATION: Despite a fall in external inflationary pressures as food costs in China moderated, consumer prices in Hong Kong rose by a relatively rapid 4.1% in 2012, driven partly by continued increases in housing costs. In 2013-17 annual inflation is expected to remain fairly strong, at an average of 3.9%. This will be partly because of persistently high inflation in the prices of imports from mainland China, where food prices are expected to rise strongly in the forecast period. It will also reflect the impact of rapid increases in local rents, which tend to move in tandem with house prices. The strong growth expected in house prices early in the forecast period may force rents up sharply, but there is a risk that housing prices and rents will fall more quickly than we expect later in the period if Hong Kong's property market slumps. This would cause inflation to decelerate.

  EXCHANGE RATES: The HKMA has repeatedly reaffirmed its commitment to maintaining the Hong Kong dollar's peg to the US dollar, and no change in this policy is expected in the next five years. We assume that Hong Kong's large foreign-exchange reserves, supplemented by its current-account surplus, will enable the HKMA to resist pressure to alter its exchange-rate policy. Given the potential for volatility in global financial and foreign-exchange markets, the currency peg will remain an important source of economic stability in the territory. There will nevertheless be growing discussion of the options for a move away from the US dollar peg towards a closer link to China's renminbi, perhaps via a peg to a basket of currencies, as is used in Singapore. The timing of such a move (which will not occur in the next five years) would depend on how quickly China opens its capital account.

  EXTERNAL SECTOR: At the equivalent of 6.2% of GDP on average, Hong Kong's current-account surplus will remain large in 2013-17. Persistently weak economic growth in important OECD markets will keep export expansion in the forecast period sluggish compared with the rates recorded in the period preceding the 2008-09 global economic crisis. This, combined with import growth, will cause the merchandise trade deficit to widen steadily in the forecast period. In balance-of-payments terms, the larger trade gap will be offset by the burgeoning surplus on the services account--a consequence of both Hong Kong's role as a financial services entrepôt to mainland China and of the large number of tourists who visit the territory. The rising volume of merchandise trade will also push up exports of port and logistics services. The surplus on the income account will remain sizeable, reflecting earnings from Hong Kong's foreign-exchange reserves and the large stock of overseas investments held by local residents. The income surplus will increase in 2015 in particular, as global interest rates begin to rise in line with those in the US. Repatriation of earnings by resident foreigners will mean that the transfers account remains in deficit.

  March 11, 2013

• Forecast

  Hong Kong: Country forecast summary

  Country forecast overview: Highlights

  • In his first annual policy address in January 2013, Hong Kong's chief executive, Leung Chun-ying, suggested that he would pursue an agenda focusing on issues of social justice. Affordable housing will be his main priority, but his policies will not be radical. Mr Leung is aware that any sudden moves that destabilise the property market or hurt Hong Kong's blue-chip firms would be opposed by the territory's middle class, who are heavily invested in both.
  • Mr Leung will need to be seen to be making progress towards the introduction of full democracy in time for the next chief executive poll in 2017. He will meanwhile have to deal with an increasingly confident Legislative Council (Hong Kong's parliament), the majority of whose members are now chosen by popular vote and which thus arguably has a stronger claim to legitimacy than the chief executive. However, the Chinese government will ultimately dictate the pace of the territory's transition to full democracy.
  • Hong Kong's government will pursue the territory's closer integration with mainland China. The ongoing liberalisation of China's capital account will also support Hong Kong's development as an offshore centre for renminbi financial services, allowing it to maintain its lead over rival financial hubs on the mainland, such as Shanghai. More multinational firms are likely to site global functions in Hong Kong in 2013-17, boosting investment.
  • The Economist Intelligence Unit expects the budget to remain in surplus in 2013-17, despite a rise in expenditure on social welfare as the government strives to address public concerns about inequality. Fiscal inflows from land sales should be strong as Mr Leung pushes for more public housing to be built. Rising revenue from business and personal income tax will provide another fillip to the public finances in the latter years of the forecast period.
  • Hong Kong's real GDP growth rate will be respectable in 2013, at 3.2%. We believe that house prices in the territory are likely to fall in 2015 or 2016 as interest rates rise and liquidity conditions in external markets tighten. However, economic growth will be supported in the later part of the forecast period by stronger external demand. Real GDP growth will average 3.3% a year in 2014-17.
  • The current account will post sizeable surpluses as Hong Kong continues to develop as a centre for tourism and as an exporter of high-value services. The existing exchange-rate regime, which pegs the Hong Kong dollar to the US dollar at the rate of HK$7.8:US$1, will be maintained in the forecast period.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	1.4	3.2	4.0	2.8	3.2	3.3
  Consumer price inflation (av; %)	4.1	4.3	4.0	4.2	4.1	3.0
  Budget balance (% of GDP)	3.2	2.3	2.2	2.0	2.0	2.1
  Current-account balance (% of GDP)	6.6	6.6	6.6	6.8	5.8	5.2
  Commercial banks' prime rate (av; %)	5.0	5.0	5.0	6.1	7.4	7.9
  Exchange rate HK$:US$ (av)	7.76	7.76	7.80	7.80	7.80	7.80
  Exchange rate HK$:¥100 (av)	9.69	8.37	8.25	8.10	8.00	8.08

  Download the numbers in Excel

  Download text file (csv format)

  March 14, 2013

View detailed map

Country Briefing

Land area

1,104 sq km

 Hong Kong island: 81 sq km

 Kowloon: 47 sq km

 New Territories & outlying islands: 976 sq km (reclamation since 1887: 67 sq km)

Population

7,103,700 (mid-2011 government estimate)

Main regions

Population in '000 (mid-2011):

 Hong Kong island: 1,271

 New Territories: 3,691

 Kowloon: 2,108

Climate

Subtropical

Weather in Victoria (altitude 33 metres)

Hottest months, July and August, 26-31°C; coldest month, January, 15-19°C; driest month, January, 23 mm average rainfall; wettest month, August, 391 mm average rainfall (climatological norms)

Languages

English and Chinese (mainly Cantonese)

Measures

UK imperial system, changing to metric system. Local measures used include: 10 fan = 1 tsun (Chinese inch) = 0.037 metres; 10 tsun = 1 chek (Chinese foot) = 0.371 metres; 10 tsin = 1 leung (tael) = 37.8 g; 16 leung = 1 kan (catty) = 0.605 kg; 100 kan = 1 tam (picul) = 60.48 kg

Currency

Hong Kong dollar (HK$); HK$1 = 100 cents. Average exchange rate in 2012: HK$7.76:US$1

Fiscal year

April-March

Time

GMT plus 8 hours

Public holidays

January 1st (New Year's Day); February 11th-13th (Chinese New Year); March 29th-30th (Good Friday holiday); April 1st (Easter Monday); April 4th (Ching Ming Festival); May 1st (International Labour Day); May 17th (Buddha's Birthday); June 12th (Dragon Boat Festival); July 1st (Hong Kong Special Administrative Region Establishment Day); September 20th (Mid-Autumn Festival holiday); October 1st (China's National Day); October 14th (Chung Yeung Festival holiday; December 25th-26th (Christmas)

January 11, 2013