Hong Kong Economic and Trade Information in 2013

1. Latest Developments

The Hong Kong economy expanded moderately by 3% year-on-year in real terms in the first three quarters of 2013, after growing by 1.5% in 2012. Domestic demand continued to render the key impetus to growth, with private consumption growing robustly by 4.4% in the first three quarters of 2013, amid the stable income and employment conditions. Investment expenditure, on the other hand, increased 2.1% in the first three quarters of 2013, from the distinctly high level last year. However, the performance of the external sector remained modest amid the weak global economic conditions. In the first three quarters of 2013, Hong Kong’s total exports of goods increased 6.6% but that was largely attributed to the surge in non-monetary gold, while exports of services picked up visibly by 7.2%, thanks to expansions of inbound tourism and cross-border financial activity. Looking forward, a moderate growth is likely attainable. The government forecast Hong Kong’s economy to grow by 3% for 2013 in the latest round of review in November. The value of retail sales, in nominal terms, increased 12.5% year-on-year in January-September 2013, after growing by 9.8% in 2012. Local consumption demand and tourist spending remain fairly resilient to render some support to the retail business. The labour market conditions have also remained decent. The unemployment rate registered 3.3% for the three-month period ending September 2013, same as that for the full year of 2012. Meanwhile, consumer prices increased 4.3% year-on-year in the first nine months of 2013, after rising by 4.1% in 2012. Looking forward, the subdued imported inflation and the moderated increases in fresh-letting residential rentals since early 2013 should help contain the upside risks to inflation in the near term. The government remained its inflation forecast for 2013 to 4.3% in the latest round of review in November. In 2012, a total of 48.6 million visitors, almost seven times the size of Hong Kong’s local population, were recorded, with those from the Chinese mainland accounted for 72% of the total. In the first nine months of 2013, visitor arrivals to Hong Kong increased 12.7% year-on-year while those from the Chinese mainland increased 18.9% year-on-year. Total tourism expenditure associated to inbound tourism in 2012 amounted to $296.6 billion, or 14.6% more than in 2011. In addition, the per capita spending of overnight visitors increased by 4.7% to $7,818 for 2012. The four pillar economic sectors of Hong Kong are: trading and logistics (25.5% of GDP in terms of value-added in 2011), tourism (4.5%), financial services (16.1%), and professional services and other producer services (12.4%). On the other hand, the six industries which Hong Kong has clear advantages for further development are cultural and creative, medical services, education services, innovation and technology, testing and certification services and environmental industries, which together accounted for 8.5% of GDP in terms of value-added in 2011.

2. Budget and Government Initiatives

The Chief Executive, Mr C Y Leung delivered his maiden Policy Address on 16 January 2013, laying out plans to tackle the key issues of housing and land supply, poverty, ageing population and the environment. Mr Leung proposes a range of initiatives which include increasing supply of subsidized housing, setting a poverty line and thoroughly investigating the causes of poverty, launching the Pilot Scheme on Community Care Service Voucher for the Elderly and setting aside $10 billion as subsidies to phase out diesel commercial vehicles. Mr Leung said that to overcome the challenges ahead, Hong Kong had to achieve sustained economic growth. The Economic Development Commission (EDC) will be established to formulate a holistic industrial policy, focusing on efforts to broaden Hong Kong’s economic base, work on the overall strategy and policy to enhance long-term development, and identify industries which present opportunities for further economic growth. The Government will strengthen Hong Kong's external trade and economic co-operation, for example, by fostering comprehensive co-operation with Guangdong, setting up a working group under CEPA to provide targeted assistance to sectors which have encountered relatively more entry barriers and seeking to join the China-ASEAN Free Trade Area. On industry development, the Financial Services Development Council (FSDC) will be established to promote Hong Kong’s financial services industry and complement the internationalisation of China’s financial market.

3. Investment Flows

Hong Kong is a highly attractive market for foreign direct investment (FDI). According to the UNCTAD World Investment Report 2013, Hong Kong’s global FDI inflows ranked third in 2012, after the US (US$167.6 billion) and China (US$121.1 billion). Against the backdrop of a global decline in investment, FDI flows into Hong Kong exceeded US$75 billion in 2012, compared to a revised US$96 billion in 2011. On the other hand, Hong Kong is the third largest source of FDI in Asia after Japan and China, with FDI outflows amounting to US$84 billion in 2012. According to a government survey, Hong Kong's total stock of inward direct investment was estimated at US$1,074 billion at the end of 2011, more than 4 times of its GDP in that year. One distinct feature of such direct investment was the indirect channelling of capitals from non-operating companies in tax haven economies. Against this background, British Virgin Islands, Bermuda and Netherlands accounted for 31.1%, 7.1% and 7% of the total stock of inward direct investment in 2011. Even including tax haven economies, the Chinese mainland was the most important source of direct investment in Hong Kong (accounting for 36.3% of the total). Other major sources include the US (4.3%) and Japan (2.3%). The majority of the stock of investment was related to service industries including investment and holding, real estate, professional and business services; banking; and import/export, wholesale and retail.

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