Hong Kong SAR, China: Economic and Political Overview

Economic Overview

As the tenth-largest trading power and the third-largest financial centre in the world in 2024, Hong Kong is often cited as a model of liberal economics. However, the economy has been experiencing a slowdown in recent years and is gradually recovering after three years of recession. The removal of COVID-19 restrictions in early 2023 led to a strong rebound in domestic demand and tourism, and a drop in unemployment to historic lows. However, recovery has slowed due to softening demand, high interest rates, and a sluggish property market. Regional competition has also impacted growth. Despite these challenges, the financial system remains resilient, supported by strong frameworks and liquidity buffers. With weak domestic demand, real GDP growth is expected to moderate to 2.7% in 2024, down from 3.3% in 2023. Growth is projected to reach 2.7% in 2025, then decelerate slightly to around 2½% over the medium term, driven by rapid population ageing and slower capital accumulation. The outlook remains highly uncertain, with key downside risks including a sharper-than-expected slowdown in Mainland China due to escalating trade tensions or a deeper, prolonged property market adjustment.

Concerning public finances, Hong Kong's deficit for this fiscal year is expected to be just below HKD 100 billion (USD 13 billion). The estimated deficit for the year ending in March is about double the previous forecast of HKD 48.1 billion in the budget presented in February 2024, attributed mainly to a sharp decline in land sales revenue. According to the IMF, although increasing, Hong Kong’s debt-to-GDP ratio is one of the lowest in the world: it stood at around 9% in 2024, from 6.3% one year earlier, and is expected to reach 13% by 2026. By the end of the third quarter of 2024, the gross external debt totalled USD 14,959.6 billion (4.8 times its GDP). As a major global financial centre, Hong Kong has a significant portion of external debt linked to the local banking sector through normal banking activities. At the end of the period, 54.1% of Hong Kong's external debt was attributed to the banking sector. The remainder mainly comprised external debt from other sectors (27.6%) and debt liabilities in direct investment (intercompany lending – 17.3%). For 2024, the underlying consumer price inflation rate averaged 1.1% (official governmental data). Looking ahead, overall inflation is expected to remain moderate in the near term. While the Hong Kong economy continues to grow, domestic costs may face some upward pressure. External price pressures are likely to stay contained, though uncertainties in the external environment should be monitored.

The IMF estimated a 1.1% rise in employment in 2024, with the unemployment rate decreasing to 2.8%, from the peak of 5.8% in 2020. Over the forecast horizon, the unemployment rate is expected to stabilize around 2.7%. Overall, Hong Kong citizens enjoy a high standard of living, with a GDP per capita (PPP) estimated at USD 75,128 in 2024 by the IMF; however, inequalities persist: according to Oxfam, in the first quarter of 2024, Hong Kong's overall poverty rate exceeded 20%, with 1.39 million people living in poverty, a 42.9% increase compared to the same period in 2019.

Main Sectors of Industry

Hong Kong relies heavily on financial services, production of electronics, and tourism as its main industries. The agricultural sector is almost non-existent since Hong Kong possesses no natural resources and is completely reliant on raw material and energy imports. The contribution of agriculture to the economy is practically null at 0.1% of GDP and 0.1% of the workforce employed (World Bank, latest data available). The focus of local production is to complement, rather than compete with, major market suppliers, primarily targeting high-value fresh food. According to official governmental data, in 2023, the gross value of local agricultural production reached USD 1,027 million. Local farms supplied 2% of the vegetables consumed in Hong Kong, 100% of live poultry, and 12% of live pigs. The value of crop production reached USD 391 million in 2023. Vegetable and flower production contributed approximately 96% of the total, amounting to USD 374 million.  As of 2023, there were 43 pig farms and 29 poultry farms. Local pig production was valued at USD 353 million, while poultry production, including eggs, amounted to USD 283 million.

The industrial sector represents a larger, albeit still small share of GDP (6.3%) and employment with 14% of the workforce (World Bank). Hong Kong's industrial and manufacturing sector, once dominant, has shifted towards a service-oriented economy. Key subsectors include textiles and garments, electronics and electrical appliances, plastics and chemicals, printing and publishing, and jewelry and watches. While manufacturing activities have declined, the city is witnessing growth in innovative technologies, environmental and sustainable technologies, and advanced manufacturing. With a focus on biotechnology, information technology, and green technology, startups and tech firms are receiving support to foster growth. Hong Kong remains a regional hub for certain manufacturing activities, particularly in luxury items like jewelry and watches. According to the provisional data from the Census and Statistics Department (C&SD), the index of industrial production for manufacturing industries as a whole increased by 3.7% in 2023 compared with a year earlier.

The tertiary sector dominates Hong Kong’s economy, marked by finance, trade, and services, accounting for  around 91.5% of GDP and 86% of employment (World Bank, latest data available). Major subsectors include finance and banking, logistics and transportation, tourism and hospitality, professional services, and retail. The city's role as a global financial center underscores the significance of finance and banking services, while its strategic location fosters a thriving logistics and transportation industry. Tourism and hospitality sectors benefit from Hong Kong's attractions and international connectivity. Professional services, including legal, accounting, and consulting, contribute significantly to the economy. Retail remains vibrant, serving both local residents and international visitors. The total value of retail sales stood at HKD 376.6 billion in 2024, down by 7.3% compared to one year earlier (data C&SD). Moreover, Hong Kong acts as a service centre for Asian companies, particularly for those trading with China.

Source: World Bank, Latest data available.

Indicator of Economic Freedom

Score:

89.6/100

Position:

Free

World Rank:

1/178

Regional Rank:

1/42

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

Business environment ranking

Score:

8.20/10

World Rank:

3/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

Sources of General Economic Information

Ministries

Business and Trade (HK government information)
HK Trade Development Council
Commerce and Economic Development Bureau
Financial Services and the Treasury Bureau
Agriculture, Fisheries and Conservation Department

Statistical Office

Census and Statistics Department

Central Bank

HK Monetary Authority (HKMA)

Stock Exchange

Hong Kong Stock Exchange (SEHK)

Other Useful Resources

HK Economy
The Economist - Hong Kong

Main Online Newspapers

South China Morning Post
China Daily HK Edition e-paper
The Standard
Hong Kong Free Press
Bloomberg Asia

Political Outline

Current Political Leaders

Head of State: President of China, Xi Jinping (since 14 March 2013) - Chinese Communist Party
Chief Executive: John Lee Ka-Chiu (since 1 July 2022).

Next Election Dates

President: March 2028
Chief Executive: 2027
Legislative Council: December 2025

Current Political Context

Beijing has used a number of measures to pull Hong Kong into political alignment with the Chinese Communist Party after the national security law went into effect in 2020, marking the end of years of work. This trend has since been intensified.
In March 2021, the National People's Assembly of China issued a resolution on Hong Kong election reforms, which led to an amendment of Hong Kong's electoral system, including the Legislative Council. The reform increased the number of seats (70 to 90) but reduced the number of those who are directly elected (35 to 20), without any coming from the local council. The electoral committee elects 40 seats, while 30 remain functional trade-based constituencies. Furthermore, the new process for examining potential candidates for parliamentary elections allows only government-approved candidates to run for office. With no opposition presence in the LegCo, the current government, led by John Lee since May 2022, is anticipated to experience unchallenged political stability until the forthcoming elections in 2025.
The Safeguarding National Security Bill was unanimously approved by the Legislative Council in March 2024. China's control over the city's liberties and rights was further solidified by this law. In addition, in the biggest trial under the 2020 national security law, the High Court found 14 pro-democracy activists guilty on May 30.

Main Political Parties

Hong Kong is not independent of Chinese politics. As such, there are no governing political parties. Legislative matters are largely carried out through the business or professional sectors; political parties will often officially register under the auspices of a company or business corporation. The main parties include:

- Democratic Alliance for Betterment and Progress of Hong Kong (DAB): centre to centre-right, conservative, pro-government
- Federation of Hong Kong and Kowloon Labour Unions (HKCTU): liberal, pro-government
- Business and Professional Alliance for Hong Kong (BPA): conservative, liberal
- Liberal Party (LP): centre-right, conservative
- New Territories Association of Societies (NTAS): Chinese nationalist, conservatism
- Hong Kong Federation of Education Workers (HKFEW): pro-Beijing teachers union
- Roundtable (RT): moderate, conservative
- Professional Power (PP): centrist
- Kowloon West New Dynamic (KWND): centre-right
- New Prospect (NPHK): conservatism
- New Century Forum (NCF-1): middle-class-oriented political group.

Type of State

Hong Kong is a Special Administrative Region (SAR) of the People's Republic of China. Its status is defined by the basic law (adopted in 1990 by the National People's Assembly of China), which serves as the "constitution" of the Territory, and confers its scope to the "one country, two systems" principle.

Executive Power

The territory is governed by a Chief Executive, elected for five years by a college of 1,500 large voters including parliamentarians, eminent personalities and representatives of the professional sectors. The Chief Executive represents Hong Kong to the authorities of the People's Republic of China.

The government answers to the Chief Executive and comprises 15 policy bureaux, each headed by a Secretary. In hierarchical order, the three main government posts are the Chief Secretary (who is second to the Chief Executive), the Financial Secretary and the Secretary for Justice. If the Chief Executive is unable to conduct his functions temporarily, they will be conducted in this order of precedence by the title holders of the main posts.

In addition, the Chief Executive is assisted by an Executive Council or Exco which includes official members (the 15 Secretaries) and non-official members appointed by the Chief Executive selected among personalities from the business world or from civil companies. The Exco serves as the Council of Ministers by being the venue for the formulation of the government's policies. This council is consulted for all important political decisions. It meets once a week, under the chairmanship of the Chief Executive who should specially justify his decisions in case of disagreement with the majority of its members.

Legislative Power

The unicameral legislative power is conferred to a Legislative Council (LegCo). The Legislative Council is composed of 90 members elected for 4 years, with 20 Members returned by geographical constituencies through direct elections, 40 by election committee and 30 by functional constituencies. The President of the Legislative Council is elected by and from among Members of the Legislative Council.

The council votes for and amends laws and can also introduce any new proposal. It examines and approves the budget, taxes and public expenditure. It is also responsible for monitoring the conduct of the Chief Executive and ensuring the Government appropriately applies its policy. The absence of political responsibility of the ministers can make the Legislative Council limit the control exercised by this assembly on the executive power.

Members are on the Council for four years. The Government is dependent on parliament's support, which is often given through a vote of confidence. The Chief Executive does have the power to dissolve the Legislative Council, but only under specific circumstances, such as if the LegCo refuses to pass a budget or an important bill. He cannot refuse to sign a bill which has been voted in by two-thirds of the parliament.

Indicator of Freedom of the Press

World Rank:

80/180