Hong Kong SAR, China: Economic and Political Overview
In this page: Economic Outline | Political Outline | COVID-19 Country Response
For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.
As the tenth largest trading power and the third largest financial centre in the world in 2023, Hong Kong is often cited as a model of liberal economics. However, the economy has been experiencing a slowdown in recent years, with a GDP growth of -6.1% in 2020, against -1.2% in 2019. This slowdown results largely from the impact of the COVID-19 pandemic, but also from the cooling Chinese economy, trade tensions with the United States, decreased FDI, and tighter credit conditions forcing the Hong Kong Monetary Authority (HKMA) to imitate rate increases. According to Financial Times, Hong Kong’s economy has also suffered from the many protests in 2019 and 2020. Positive GDP growth came back in 2021 with + 6.3% (IMF, October 2022). According to the latest IMF forecasts growth is expected to decline at -0.8% in 2022 and come back in positive territory at 3.9% in 2023, subject to the post-pandemic global economic recovery.
Due to the impact of the global economic context of 2020, the Hong Kong Government closed the year 2020 with a -5.2% budget deficit from -3.3% in 2019. It recorded a Budget deficit equal to 3.60% of the country's Gross Domestic Product in 2021 (Hong-Kong Government, 2023). The protests and the export pressure from the US-China trade war also affect the government balance. Hong Kong continues to have solid public finances despite a public debt increasing from 1% of GDP in 2020 to 2.1% in 2021 and 3.3% in 2022. According to the IMF, the inflation rate was 1.6% in 2021 and 1.9% in 2022. Inflation rate should increase to 2.4% in 2023 and 2.5% in 2024 according to the latest World Economic Outlook of the IMF (October 2022). Credit expansion and a tight housing supply have caused Hong Kong property prices to rise rapidly in recent years. Lower and middle-income segments of the population are increasingly unable to afford adequate housing. Tourism is largely affected by the ongoing protests and pandemic and tourism from China (75% of total visitors) is also expected to remain weak because of slower economic growth in mainland China and the depreciation of the RMB in relation to the HKD.
The unemployment rate increased from 2.9% in 2019 to 5.8% in 2020 and 5.6% in 2021 but started to decline at 4.5% in 2022. The IMF expects a reduction in the unemployment rate to 4% in 2023 and 3.7% in 2024. Risks and opportunities coexist for Hong Kong. There are dawning signs of an end to the pandemic, and Hong Kong is resuming customs clearance with the outside gradually. In 2023, the country’s most immediate challenge remains related to the economic, social and public health impacts of the COVID-19 pandemic.
| Main Indicators | 2020 | 2021 | 2022 (E) | 2023 (E) | 2024 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 344.94 | 368.92 | 360.98 | 382.85 | 403.55 |
| GDP (Constant Prices, Annual % Change) | -6.5 | 6.4 | -3.5 | 3.5 | 3.1 |
| GDP per Capita (USD) | 46,446 | 49,845 | 49,226 | 52,429 | 55,220 |
| General Government Balance (in % of GDP) | -5.5 | 1.0 | -5.2 | -2.9 | -0.2 |
| General Government Gross Debt (in % of GDP) | 1.0 | 1.9 | 4.3 | 6.1 | 7.1 |
| Inflation Rate (%) | 0.3 | 1.6 | 1.9 | 2.3 | 2.4 |
| Unemployment Rate (% of the Labour Force) | 5.8 | 5.2 | 4.2 | 3.4 | 3.3 |
| Current Account (billions USD) | 24.12 | 43.53 | 38.72 | 30.57 | 26.24 |
| Current Account (in % of GDP) | 7.0 | 11.8 | 10.7 | 8.0 | 6.5 |
Source: IMF – World Economic Outlook Database, Latest data available.
Note : (E) Estimated data
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 was practically null at 0.1% of GDP in 2022 and 0.1% of the workforce employed (World Bank, 2022). Hi-tech vertical farming is being adopted as an alternative to traditional farming (South China Morning Post). Concerns over food safety from Chinese products, have also been a factor in the boom of local farming initiatives (EcoWatch).
The manufacturing industry represents a larger, albeit still small share of GDP (6% in 2022) and employment with 11.5% of the workforce (World Bank, 2023). Main industries include electronics, electrical appliances, informatics and telecommunications. In 2022, the industrial sector stagnated.
The tertiary sector is the heart of Hong Kong's economy. Financial services, trading and logistics, tourism, import/export, air transport, professional and producer services are traditional key industries in Hong Kong. The services sector contributes around 89.6% of GDP and employed over 88% of the workforce in 2022 (World Bank, 2023). Hong Kong acts as a service centre for Asian companies, particularly for those trading with China. According to figures published by the Commercial Register, there are over 900 thousand companies registered in Hong Kong.
Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024 (International Monetary Fund - IMF, 2023). The impact of the 2022 world events appears to have affected both sides of most sectors and markets in this country for the third year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 0.2 | 11.1 | 88.8 |
| Value Added (in % of GDP) | 0.1 | 6.0 | 89.6 |
| Value Added (Annual % Change) | -2.8 | 2.1 | 5.8 |
Source: World Bank, Latest data available.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
See the country risk analysis provided by Coface.
An overhaul of Hong Kong's electoral system, including the Legislative Council, took place after the National People's Assembly of China passed a resolution on Hong Kong electoral reforms in March 2021. 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. The new process for examining potential candidates for parliamentary elections allows only government-approved candidates to run for office. The changes ensured that virtually all seats in the December 2021 election were won by pro-establishment candidates and effectively ended political opposition to Beijing in the territory (CIA).
In the latest six-monthly assessment of the situation in Hong Kong, the former colonial power in the territory, the United Kingdom government, cited events including the closely-controlled process under which John Lee became the territory’s new leader, the continued arrest and prosecution “of those who dissent” and ongoing national security trials as evidence of the deterioration of Hong Kong’s political and civic life.
The new electoral system and expanded legal means to tackle political dissent mean that there is a very low risk of social unrest flaring up again. Increasing housing supply is now a centrepiece of government policy. The recovery from a prolonged economic downturn will be slow in 2023-24 amid higher interest rates and ebbing demand in the West, despite a move away from the zero-covid strategy on the mainland. Political reform and pandemic-related restrictions in 2020-22 have permanently diminished Hong Kong's attractiveness to non-financial international firms, but the territory will remain a major global financial centre, owing mainly to its links to mainland China.
The government answers to the Chief Executive and is composed of 12 ministers (Secretaries) who are assisted by 17 senior functionaries who hold the title of "Permanent Secretaries". 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 the government ministers and 15 non-official members who are parliamentarians nominated by the Chief Executive; personalities from the business world or from civil companies. The Exco serves as the Council of Ministers by being the venue for formulation of 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.
The council votes for and amends laws and can also introduce any new proposal. It examines and approves the budget, taxes and public expenditure, appoints the judges for the Court of Final Appeal and the President of the High Court. 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 not have the power to dissolve the parliament. He cannot refuse to sign a bill which has been voted in by two-thirds of the parliament.
The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
To find out about the latest public health situation in Hong Kong and the current sanitary measures in vigour, please visit the Hong Kong government’s portal Coronavirus.gov.hk, as well as the document "Preparedness and Response Plan for Novel Infectious Disease of Public Health Significance" and the daily "Updates on Infection Situation".
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The UK Foreign travel advice also provides comprehensive travelling abroad advice for all countries, including the latest information on health, safety, security, entry requirements and travel warnings.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.
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