Country Report Hong Kong October 2009

Outlook for 2010-11

• Hong Kong's chief executive, Donald Tsang, will remain in his position throughout 2010-11, despite concerns that his popularity may decline in the wake of the economic downturn. No major elections are expected.
• 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.
• Although revenue inflows are set begin to pick up again in 2010 and spending pressures will ease, the public finances will remain fragile. The fiscal deficit will narrow, but will still average 1.2% of GDP a year in 2010-11.
• Economic growth is forecast to recover from an estimated 3.2% contraction in 2009 to average 3% annually over the outlook period. The recovery in 2010 will be led by a bounce-back in investment and private consumption.
• Hong Kong's current-account surplus will remain large. 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 remain moderate in 2010-11, averaging just 1.6% a year. However, inflationary risks are firmly on the upside.

Monthly review

• In late August leaders of the pro-government Democratic Alliance for the Betterment and Progress of Hong Kong called on the administration to begin consultations on political reform.
• Many in the territory were angered by the mainland authorities' treatment of Hong Kong journalists covering unrest in China's Xinjiang region in September.
• For the 13th year in a row a US-based think-tank, the Cato Institute, declared Hong Kong the world's freest economy.
• The World Bank has rated Hong Kong's business environment the world's third-best after Singapore and New Zealand, although it noted cumbersome bureaucracy for property registration.
• In September China began issuing Rmb6bn (US$880m) of renminbi-denominated sovereign bonds in Hong Kong. The Hong Kong government also issued HK$3.5bn (US$450m) in debt.
• The drop in its share price suffered by the Metallurgical Corporation of China and other mainland firms in first-day trading in September suggests that appetite for new offerings may be waning.

Source: Country Report

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