Country Report Hong Kong January 2010

Outlook for 2010-11

• Hong Kong's chief executive, Donald Tsang, will remain in his position throughout 2010-11, despite concerns about his low popularity ratings. No major elections are expected.
• New proposals for constitutional reform that were launched in November are likely to be rejected by Hong Kong's pro-democracy parties.
• The options for political reform are limited by China's decision in December 2007 not to permit full direct elections for the post of chief executive before 2017 or for the Legislative Council (Legco) before 2020.
• Given the prospect of a rise in revenue from land auctions in 2010 as the government seeks to control property price inflation, the budget deficit is expected to narrow to 0.4% of GDP in fiscal year 2010/11 (April-March).
• Hong Kong's economy is forecast to recover from an estimated contraction of 3.2% in 2009 to average annual growth of 4.2% in 2010-11. The recovery in 2010 will be led by a revival in investment and private consumption.
• Hong Kong's current-account surplus will remain large. The territory will continue to record a substantial trade deficit, but this will be offset by the huge surplus on the services account.
• Consumer price inflation is forecast to be moderate in 2010-11, when it will average just 2.3% a year. However, inflationary risks are firmly on the upside.

Monthly review

• In December the main opposition Democratic Party voted overwhelmingly not to support a plan for a mass resignation of pro-democracy Legco members to force a "referendum" on the government's electoral reform plans.
• The Hong Kong government is seeking the territory's inclusion in China's 12th five-year plan, which will guide development in 2011-15. Chinese politicians have responded positively to the suggestion.
• The banking sector boasted a consolidated capital adequacy ratio of 16.6% at end-September, a very strong level. However, deposits are shifting from long-term time deposits to more volatile savings and demand deposits.
• Retail sales rose by a rapid 9.8% year on year in value terms in October. Sales were boosted by strong growth in tourist arrivals. Visitor numbers increased by 9% year on year in October, driven by tourists from mainland China.
• Several mainland Chinese firms have listed on the Hong Kong stock exchange in recent weeks, but the exchange's listing committee has rejected a proposed listing by a Russian aluminium producer, Rusal.

This report covers the following industry codes:
SIC Code: 70
NAICS Code: 72

• Highlights
• Outlook for 2010-11: Domestic politics
• Outlook for 2010-11: International relations
• Outlook for 2010-11: Policy trends
• Outlook for 2010-11: Fiscal policy
• Outlook for 2010-11: Monetary policy
• Outlook for 2010-11: International assumptions
• Outlook for 2010-11: Economic growth
• Outlook for 2010-11: Inflation
• Outlook for 2010-11: In focus
• Outlook for 2010-11: Exchange rates
• Outlook for 2010-11: External sector
• Outlook for 2010-11: Forecast summary
• The political scene: Plans for political reform divide the democrats
• The political scene: The campaign for freedom of the airwaves continues
• Economic policy: Hong Kong seeks inclusion in China's economic plans
• Economic policy: Hong Kong's carbon-reduction plans lack substance
• Economic performance: Bank performance improves, but the outlook is volatile
• Economic performance: Tourism underpins retail sales
• Economic performance: The export sector remains depressed
• Economic performance: The stock exchange welcomes some IPOs but spurns others
• Data and charts: Annual data and forecast
• Data and charts: Quarterly data
• Data and charts: Monthly data
• Data and charts: Annual trends charts
• Data and charts: Monthly trends charts
• Data and charts: Comparative economic indicators
• Basic data
• Political structure