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Economic and political overview

Economic Overview

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 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 359.84385.55410.36431.71453.69
GDP (Constant Prices, Annual % Change) -3.54.42.92.92.7
GDP per Capita (USD) 48,15451,16854,07856,56459,102
General Government Balance (in % of GDP) -4.6-3.1-0.40.50.8
General Government Gross Debt (in % of GDP) 4.36.17.07.68.7
Inflation Rate (%) n/a2.22.32.42.5
Unemployment Rate (% of the Labour Force) 4.33.23.13.02.9
Current Account (billions USD) 38.0227.2525.8726.1326.37
Current Account (in % of GDP) 10.67.16.36.15.8

Source: IMF – World Economic Outlook Database , October 2021

Country Risk

See the country risk analysis provided by La Coface.

 

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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 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 13.5 86.3
Value Added (in % of GDP) 0.1 6.0 89.7
Value Added (Annual % Change) -6.0 3.2 -3.1

Source: World Bank - Latest available data.

 
Monetary Indicators 20152016201820192020
Hong Kong Dollar (HKD) - Average Annual Exchange Rate For 1 USD 7.757.767.847.807.76

Source: World Bank - Latest available data.

 

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Foreign Trade

Hong Kong's economy is considered a model of capitalism due to its commitment to free trade, with foreign trade representing 402% of its GDP (World Bank, 2023). Top exports include Electrical and electronic equipment (56% of all export) as well as machinery (13%) and gold, business services, travel, transportation and financial services. Main imports include electronic equipment (53%), machinery (11%), gold, transportation and business services (WTO, 2023). The International Monetary Fund (IMF) is forecasting an increase of 1.6% in the volume of exports of goods and services of the territory in 2023, after a fall of 7.3% in 2022 due to the COVID-19 pandemic, and an increase of 1.8% of its imports, after a fall of 7.1% in 2022.

Export destinations include China (57% of all export in 2022), the U.S. (7.5%), India (3%) and Japan (3%) while imports come from China (49%), Singapore (7%), Japan (6.3%), South Korea (5.3%) and the US with 5.1% (World Bank, 2023). Hong Kong was the world's 6th exporters and 7th importers in 2021 (WTO, 2023). The greatest threat to Hong Kong's trade involves tensions and tariffs between the U.S. and China (Nikkei Asian Review). The continued effects of the COVID-19 pandemic may be affecting the economy (Fitch) in particular through tourism and air traffic.

In 2021, the total value of exported goods and services reached 203% of GDP while imports of goods and services closed at 198.7% of GDP. Hong Kong trade deficit widened to USD 27.1 billion in November 2022, from USD 11.1 billion in the same period a year earlier. Exports fell by 24.1% to $360 billion, amid dropped in sales for most commodities, led by electrical machinery, appliances and parts (-20.1%), telecommunications, sound recording and reproducing equipment (-34%), and office machines and automatic data processing machines (-35.7%). Meanwhile, imports also fell by 20.3% to $387.1 billion, as arrivals considerably decreased for electrical machinery, appliances and parts (-18.8%), telecommunication, sound recording and reproducing equipment (-34%), and office machines and automatic data processing machines (-29%). Considering January to November, the trade deficit widened to USD 343.7 billion from USD 314.4 billion in the same period of 2021, as exports dropped by 6.4% and imports by 5.4%. source: Census and Statistics Department, Hong Kong

Hong Kong is an externally oriented economy. In 2021, the value of Hong Kong’s total exports of goods amounted to 669.9 billion USD, while that of imports of goods was 712.35 billion USD. With regards to services, Hong Kong registered for the same year 76.65 billion USD for export and 61.55 billion USD for import. Foreign trade has slowed down in 2022 with a decrease of -7.1% for imports and -7.3% for exports. Hong Kong has no tariffs on imported goods. It levies excise duties on only four commodities which are imported or produced locally: hard alcohol, tobacco, hydrocarbon oil and methyl alcohol. There are no quotas or dumping laws.

 
Foreign Trade Values 20182019202020212022
Imports of Goods (million USD) 626,616577,834569,769712,358667,554
Exports of Goods (million USD) 568,456534,887548,773669,903609,925
Imports of Services (million USD) 81,64280,94054,94961,75463,048
Exports of Services (million USD) 113,144101,98266,93279,12682,921

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20182019202020212022
Foreign Trade (in % of GDP) 376.9353.7350.7402.5383.8
Trade Balance (million USD) -32,272-15,362-5,3153,160-5,702
Trade Balance (Including Service) (million USD) -7655,6686,66420,53514,171
Imports of Goods and Services (Annual % Change) 4.5-7.2-6.915.8-12.2
Exports of Goods and Services (Annual % Change) 3.7-6.1-6.717.0-12.6
Imports of Goods and Services (in % of GDP) 188.6176.1174.4198.5189.9
Exports of Goods and Services (in % of GDP) 188.3177.7176.3204.0193.9

Source: World Bank ; Latest available data

Foreign Trade Forecasts 2023 (e)2024 (e)2025 (e)2026 (e)2027 (e)
Volume of exports of goods and services (Annual % change) -5.18.65.44.03.9
Volume of imports of goods and services (Annual % change) -4.48.35.64.14.1

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Hong Kong is a member of the following international economic organisations: IMF, Asia-Pacific Economic Cooperation (APEC), ICC,  World Customs Organization (WCO), WTO, among others. For the full list of economic and other international organisations in which participates Hong Kong click here. International organisation membership of Hong Kong is also outlined here.
Free Trade Agreements
The complete and up-to-date list of Free Trade Agreements signed by Hong Kong can be consulted here.
 

Main Partner Countries

Main Customers
(% of Exports)		 2022
China 57.4%
United States 6.2%
India 3.7%
Vietnam 2.4%
Japan 2.1%
See More Countries 28.1%
Main Suppliers
(% of Imports)		 2022
China 40.1%
Singapore 7.7%
South Korea 5.6%
Japan 5.3%
United States 4.2%
See More Countries 37.1%

Source: Comtrade, Latest Available Data

 

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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 2023
Chief Executive: 2025
Legislative Council: 2025
Current Political Context
Since the national security law took force in 2020, the culmination of years long efforts, Beijing has deployed a series of actions to bring Hong Kong into political lockstep with the Chinese Communist Party, a move reinforced since then.

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.

Main Political Parties
Hong Kong is not independent from 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:

- Democratic Alliance for Betterment and Progress of Hong Kong (DAB): centre to centre-right, conservative, pro-government
- Business and Professional Alliance for Hong Kong (BPA): conservative,liberal
- The Democratic Party: centre-left, pro-democracy
- Hong Kong Federation of Trade Unions (HKCTU): liberal, pro-government
- Civic Party (CP): social-liberal , constitutionalist.
- New People's Party (NPP): Conservatist
- Professional Commons (PC): Liberal
- New Territories Association of Societies (NTAS): Chinese Nationalist, Conservatist
Executive Power
The territory is governed by a Chief Executive, elected for five years by a college of 1,200 large voters including parliamentarians, eminent personalities and representatives of the professional sectors. Chief Executive represents Hong Kong to the authorities of the People's Republic of 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.

Legislative Power
The unicameral legislative power is conferred to a Legislative Council. 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, 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.

 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For the general overview of the financial measures undertaken by Hong-Kong in response to the pandemic, refer to the portal of the Hong Kong Monetary Authority.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, 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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