Hong Kong, China Economy

Hong Kong, China Economy


  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

Although Hong Kong remains highly competitive and open to the outside world, its primary currency is gradually becoming linked to the PRC market. Most GDP is generated by services (finance), industry plays only a marginal role. HK is the center of re-export in the region, the most important port of entry for China, the largest source of investment in the PRC and the place where off-shore capital is created for Chinese companies, at the same time the PRC is the largest source of foreign investment in HK. The de facto closure of HK to the world has a negative impact on forecasts of the economic development of HK, for the year the economy is expected to grow at a value of only 0.8% of GDP. Household income and wealth inequality in Hong Kong are among the highest in the world, with more than a quarter of the population living in relative poverty. During the first months of 2022, unemployment remained above 5%. Check ebizdir for economical facts of China.

The hotel and restaurant industry, along with construction and industrial production, saw the most dramatic increase in unemployment. Due to the ongoing border closure, it is not expected that tourism and retail trade will recover in the foreseeable future. Strict rules, separation of family members, impossibility of departure/arrival and the threat of lock-down led many foreign workers to leave the territory. As a result, companies now face significant difficulties in finding qualified workers, especially for senior/expert positions. Subsequently, a substantial change in the structure of the workforce can be expected with an increasing number of workers from the PRC, which may prove difficult for international companies to accept.

Table from MOP + additionally balance of payments, indebtedness/GDP.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) -1.3 -6.1 6.3 0.9 3.4
GDP/population (USD/PPP) 63,095.00 58,823.40 64,810.00 68,080.00 71,850.0
Inflation (%) 2.9 0.3 1.6 2.8 0.7
Unemployment (%) 3 5.8 5.2 4.4 3.5
Export of goods (billion USD) 509.6 507 639.1 658.6 695.3
Import of goods (billion USD) 563.8 550.8 683.3 711.7 747.1
Trade Balance (Billion USD) -16.1 -5.4 -14 -22.3 -19.2
Industrial production (% change) 0.4 -4.9 3.5 1.7 1.9
Population (millions) 7.4 7.5 7.5 7.5 7.5
Competitiveness II.63 V.63 VII.64 ON ON
OECD export risk 03.VII 03.VII 03.VII ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -4.2
Public debt (% of GDP) 51.8
Current account balance (billion USD) 16.7
Taxes 2022

If the amount of funds released into the economy in 2020 and 2021 seemed unprecedented, in 2022 it can almost be said that this is a new norm. In order to mitigate the severe impact of the COVID-19 pandemic on the local economy, maintain economic vitality and ease the financial burden on citizens, the Hong Kong government has implemented relief measures on an unprecedented scale in recent years.

In 2021, the budget deficit reached -4.2% of GDP. The slow return to a budget surplus, which is not expected until 2025, can be explained not only by spending on covid stimulus packages, but also by the government’s efforts to focus more consistently on the quality of life of the socially weaker part of the population through more efficient spending on public services and thus act preventively against the increase in dissatisfaction resident.

Public finances are in relatively good condition despite the economic downturn and increased state budget expenditures. The budget deficit is covered by fiscal reserves in combination with the newly established green bond program. The fiscal reserve fell to 28% of GDP at the end of 2021 and will continue to decline in the medium term unless there are compensatory revenue measures (e.g. tax increases). Nevertheless, this reserve represents a significant buffer to dampen the impact of future shocks.

Banking system

Over the past 20 years, Hong Kong has become an important global financial center. Hong Kong’s banking system is three-tiered:

  • Fully licensed banks offer companies and individuals the opportunity to open current and savings accounts and do not impose any restrictions on the value of the deposit accepted: HSBC, Hang Seng Bank, DBS Bank and others.
  • Limited license banks engaged in capital market and merchant banking activities: Allied Banking Corporation, Bank of America Securities Asia Limited, Citicorp International Limited, Goldman Sachs, JPMorgan
  • Deposit-Taking Companies: Public Finance Limited, Fubon Credit (Hong Kong) Limited, BCOM Finance (Hong Kong) Limited.

There are currently 163 fully licensed banks, 17 limited licensed banks and 13 “Deposit-Taking Companies” operating in HK. There are 42 representative offices of other banks and 8 companies licensed to provide virtual banking in the territory. Since 1993, it has been operating as the central bank of the Hong Kong Monetary Authority, performing the functions of money management and banking supervision.

However, the HKMA is not a central issuing bank, 3 banks are entrusted with issuing banknotes: the Hong Kong and Shanghai Banking Corporation (HSBC), the London-based Standard Chartered Bank and the Chinese Bank of China. The HKD exchange rate is firmly linked to the USD (set at 7.8 HKD/USD, trading possible in the range of 7.75-7.85). China is one of the most important investors in HK. Eleven Chinese banks are registered here, the largest of which are Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Citic Bank International. HK is the largest offshore center for RMB trading, accounting for 75% of global Chinese currency operations.

Tax system

The tax system in Hong Kong is one of the most transparent and simple in the world, at the same time the entire system shows high stability and there are no major unplanned changes. The tax burden is low.

Income taxation of natural persons ranges from 2-17% depending on the amount of income. No taxes apply to dividends, interest or capital gains for natural persons. Profits from trade or business in the case of legal entities are subject to a profit tax of 8.25% / 7.25% in the case of an annual profit of up to 2 million HKD, or 16.5% or 15% if the profit is higher. Income from real estate is subject to real estate tax. The territorial principle is applied to all taxes, i.e. the tax is paid only on profits arising from activities in Hong Kong. There is a set of court rules by which disputed “territorial” cases are judged. Foreign-sourced income is not taxed in Hong Kong, even if it is remitted to Hong Kong.

In the medium term, a significant increase in tax rates is not expected – in the order of a few percentage points at most. At the level of EU-HK relations, the problem of avoiding double non-taxation is currently being solved, if HK does not make the necessary adjustments to its system, the EU will include it on the list of non-cooperative jurisdictions.

Hong Kong, China Economy