Country Report Hong Kong July 2009

Summary

Hong Kong's chief executive, Donald Tsang, is becoming increasingly unpopular. Although he is safe in his position, the Chinese government is becoming concerned that unrest will grow as the recession deepens.
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 will limit the options for political reform available to Mr Tsang.
As revenue streams weaken and government spending increases to support economic growth, the fiscal deficit will widen. The deficit will average 3.9% of GDP in the next two years.
The Economist Intelligence Unit expects real GDP to shrink by 6% in 2009. The contraction will be broad-based and will affect all sectors of the economy, including exports, private consumption and fixed investment.
Hong Kong's current-account surplus will remain substantial. The territory will continue to record a large trade deficit, but this will be offset by a huge surplus on the services account.
Consumer price inflation is forecast to fall to 1% in 2009, from 4.3% in 2008. Falling food prices and weak domestic demand will be the two main factors bringing down inflation in 2009.

On June 4th record numbers of demonstrators gathered in Hong Kong to commemorate the 20th anniversary of the bloody conclusion to the Tiananmen Square protests in China's capital, Beijing.
The government has adopted a series of measures to prevent the spread of swine flu among humans in Hong Kong, as the number of cases has risen sharply.
Extra fiscal stimulus measures have been announced, but proposals to trim the pay of civil servants have run into opposition from those affected.
Unemployment stood at 5.3% in March-May. The number of personal bankruptcy orders issued in January-May rose by 71.7% year on year, to 7,406.
Tourist arrivals increased by 1.5% year on year in January-April, supported by an 11.4% increase in mainland Chinese visitors that offset falls elsewhere.
Retail sales fell by 4% year on year in January-April, led by a 34.8% decline in the value of motor vehicle and parts sales. However, cosmetics and medicines, and alcohol and tobacco continue to see rising sales.

This report covers the following industry codes:
SIC Code: 10;49;70
NAICS Code: 212;22;72