Hong Kong, China WT/TPR/S/241 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW OF RECENT ECONOMIC DEVELOPMENTS  
1. The Hong Kong Special Administrative Region (HKSAR) economy expanded rapidly in 2006 
and 2007 buoyed by the strong global economic upturn, and China's vibrant growth.  The HKSAR 
and China have developed a closer economic relationship in recent years, and preferential access to 
China's market under the Closer Economic Pa rtnership Arrangement  (CEPA) has provided 
Hong Kong, China with an immense opportunity to exploit its comparative advantage (Chapter II(4)(i)).  Furthermore, the HKSAR econom y plays an important intermediary role for 
China's external trade, and has thus benefited fro m China's fast-growing trade with the rest of the 
world. 
2. With the escalation of the global financial crisis  in the autumn of 2008, the economic upswing 
came to an abrupt end.  As a small open and service-oriented economy (the ratio of trade in goods and 
non-factor services to GDP was 380% in 2009), the fortune of Hong Kong, China's economy hinges 
on the global economic environment.  The economy w as hard hit in the first quarter of 2009, due 
mainly to the plunge in world trade as a result of  the severe recession in th e advanced economies.  
Real GDP contracted by 7.7% in the first quarter of 2009 compared with the same quarter in 2008.  
Yet the local economy benefited notably from the retu rn of China's economy to strong growth from 
the second quarter of 2009.  The HKSAR Government 's counter-cyclical fiscal stance and a series of 
stimulus and relief measures under the strategy of  "stabilizing the financial system, supporting 
enterprises, preserving employment" also contributed to stabilizing Hong Kong, China's 
macroeconomic situation.    
3. The Hong Kong Monetary Authority introduced, inter alia , a temporary full 
deposit-protection scheme to help maintain confidence in the banking sector (Chapter IV(5)(ii)).  Other government measures to support the local eco nomy included a Special Loan Guarantee Scheme 
of up HK$100 billion (equivalent to US$12.8 billi on), increased government-backed export credit 
insurance cover, tax incentives (Chapter III(4 )), and waiving of business registration fees 
(Chapter II(5)).  The Government also provided one-off relief to tax-paye rs through tax concessions 
and exemptions (Chapter III(4)(i)), paying rent fo r public housing tenants, and subsidies for low 
income groups, such as additional social security allowances.  Overall, the stimulus and relief 
measures introduced by the Government in 200 8-09 and 2009-10 amounted  to HK$87.6 billion, 
equivalent to 5.2% of GDP, estimated to have increased GDP growth in 2009 by around 2 percentage 
points.
1  In the fourth quarter of 2009, the HKSAR ec onomy returned to positive year-on-year growth.  
For 2009 as a whole, however, the economy contracted by 2.8%, the first annual recession since 1998 (Table I.1).  
4. Hong Kong, China's relatively quick rebound from the financial crisis (faster than during the 
1997 Asian financial crisis) also reflects its sound economic fundamentals, such as its strong external 
financial position, stable banking system, the fl exibility of its labour market, and healthy public 
finances.  Nonetheless, the Government is expecting to run a deficit of HK$25.2 billion 
(US$3.2 billion) for 2010-11, mainly because of accelerated infrastructure projects, initiatives to 
promote the development of new industries, as well as various measures to consolidate the recovery, 
develop the economy, and build "a caring society".  Annual public expenditure is  expected to be close 
to 20% of GDP during the period 2010-11 to 2014-15.   
 
                                                     
 
1 This is before taking into  account the commitment under the loan guarantee schemes and the 
expenditure arising from estimated loan default. WT/TPR/S/241 Trade Policy Review 
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Table I.1 
Selected macroeconom ic indicators, 2006-09  
  2006 2007 2008 2009 
Real GDP (HK$ billion, in chained (2008) dollars) 1,541.5  1,639. 8  1,675.3  1,629.1  
Real GDP (US$ billion, in chained ( 2008) dollars) 198.4  210.2  215.1  210.1  
Current GDP (HK$ billion) 1,475. 4  1,615.5  1, 675.3  1,632.3  
Current GDP (US$ billion) 189.9  207.1  215.1  210.6  
GDP per capita at current market prices (HK$) 215,158  233,248  240,096  233,060  
GDP per capita at current market prices (US$) 27,698  29,900  30,833 30,064  
National accounts  (%age change, unless otherwise indicated)  
Real GDP (in chained (2008) dollars) 7.0 6.4 2.2 -2.8 
   Consumption 5.2 7.8 2.3 0.0 
        Private consumption 5.9 8.5 2.4 -0.4 
        Government consumption 0.3 3.0 1.8 2.4 
   Gross domestic fixed capital formation 7.1 3.4 0.8 -1.8 
   Exports of goods and services (XGS) 9.4 8.3 2.5 -10.1 
   Imports of goods and services (MGS) 9.1 9.1 2.3 -8.8 
          XGS/GDP (%) (at current market prices) 205.5 208.0 212.6 193.8 
          MGS/GDP (%) (at current market prices) 194.1 197.1 202.4 186.7 
Unemployment rate (%) 4.8  4.0  3.6  5.4  
Labour force participation (%) 61.2  61.2  60.9  60.7  
Prices and interest rates  (%)  
Inflation (CPI, % change) 2.0 2.0 4.3 0.5 
Best lending ratea (period average) 7.90 7.59 5.39 5.00 
Deposits rate (period average) 2.70 2.42 0.45 0.01 
Exchange rate     
HK$/US$ (period average) 7.768  7.801  7.787  7.752  
Real effective exchange rate (%  change) -3.2 -5.9 -2.0 2.4 
Nominal effective exchange rate (% change) -1.3 -4.4 -5.2 1.3 
  (% of GDP, unless otherwise indicated)  
Fiscal balanceb     
Government opening reserve balance 22.5 25.0 30.5 29.5 
Total revenue 19.5 22.2 18.9 19.5 
   Operating revenue 15.9 17.1 16.8 16.1 
        Tax revenue 12.8 14.2 13.0 12.7 
Total expenditure 15.4 14.5 18.6 17.7 
   Operating expenditure 13.1 12.7 15.4 14.4 
Government consolidated ba lance after repayment of 
bonds and notes 4.0 7.7 0.1 1.6 
Fiscal reserves (at 31 March) 25.0 30.5 29.5 31.9 
Government debt 1.5 1.2 1.0 0.7 
Saving and investment     
Gross national savings 33.8 33.3 34.1 31.3 
Gross domestic investment 21.7 20.9 20.4 22.6 
Savings-investment gap 12.1 12.3 13.6 8.7 
External sector     
Current account balance  12.1 12.3 13.6 8.7 
Goods balance  -7.4 -9.5 -10.7 -12.8 
   Goods exports 167.2 167.1 169.8 152.8 
   Goods imports 174.6 176.6 180.5 165.6 
Services balance 18.8 20.3 20.9 19.9 
Capital account -0.2 0.6 1.0 2.2 
Table I.1 (cont'd) Hong Kong, China WT/TPR/S/241 
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  2006 2007 2008 2009 
Financial account -14.0 -16.7 -14.8 -12.3 
   Direct investment 0.0 -3.3 4.2 -1.8 
Balance of payments 3.2 7.1 15.8 33.6 
Terms of trade (2005=100) 98.9 98.9 98.4 99.6 
Goods exports (% change)c 9.5 8.7 5.3 -12.2 
Goods imports (% change)c 11.7 9.8 5.7 -10.6 
Service exports (% change)c 14.2 16.4 8.7 -6.3 
Service imports (% change)c 9.1 14.9 10.5 -5.7 
Foreign exchange reserves (US$ b illion, end period) 133.2 152.7 182.5 255.8 
      in months of imports of goodsd 18.6 19.5 22.0 33.9 
Total external debt (HK$ b illion) 4,014.9 5,547. 7 5,141.8 5,219.6 
a Best lending rate refers to the average of the rates over th e period quoted by the Hong Kong and Shanghai Banking Corporation  
Limited.  
b Fiscal figures are based on fiscal year beginning 1 April.   The GDP denominator is base d on calendar year GDP figures. 
c Growth rates based on trad e figures in US$ million. 
d Figures are calculated based on past 12 mont hs average of retained imports of goods. 
 
Source : Census and Statistics Depart ment online information.  Viewed at:  http://www.censtatd.gov.h k;  International 
Monetary Fund, International Fi nancial Statistics ;  and data provided by the authorities. 
5. The increased adaptability and flexibility of  the labour market ha ve enabled the HKSAR 
economy to adjust to shocks (domestic or external ) better than before.  There has been a continuous 
upgrading of the quality of the labour force, faci litated by investment in education and human 
resources development.  Over the past decade, th e number of employed persons in Hong Kong, China 
has been growing at an average annual rate of 0.9%, but the number of higher skilled workers has 
been growing at a much faster rate of 2.9%.  Currently, more than one out of three workers in 
Hong Kong, China belongs to this latter group.  Th is development has been conducive to Hong Kong, 
China's transition to a high-value-added, know ledge-based economy.  In July 2010, Hong Kong, 
China adopted a new minimum wage law. 
6. The HKSAR Government remains committed to ma intaining a low and simple tax regime.  
However, Hong Kong, China has a narrow tax base, with government revenues depending 
substantially on volatile sources of revenues, su ch as land premiums and stamp duties (from leasing 
and sale of land) and investment income (Table III.7).2  A Public Consultation on Tax Reform was 
launched in 2006 to seek public views on ways to br oaden the tax base.  However, the proposal to 
introduce a goods and services tax was not pursued because of the lack of public support 
(Chapter III(4)(i)).   
7. Inflationary pressures have been modest over the past few years, except in the latter part of 
2007 and the first three quarters of 2008, when surging food and oil prices in international markets led 
to higher imported inflation (Table  I.1).  Due to the global reces sion, both local and external 
inflationary pressures subsided in 2009.  The relief measures implemented by the Government, 
including electricity subsidies for residential consum ers (Chapter IV(3)(ii)), also contributed to lower 
consumer prices.  Hong Kong, China operates a currency board system, referred to as the Linked 
Exchange Rate system, the primary objective of whic h is to maintain a stable exchange rate of the 
Hong Kong dollar against the U.S. dollar at around HK$7.8 to US$1 (Table I.1).  
                                                      
2 Hong Kong, China's Basic Law provides for the independence of the HKSAR's finances and taxation 
system, as well as a balanced budget (Articles 106 to  108) (HKSAR Government online information.  Viewed 
at:  http://www.basiclaw.gov.hk/ en/basiclawtext/index.html). WT/TPR/S/241 Trade Policy Review 
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Traditional economic pillars 
8. The service industries have remained the dominan t driving force of the economy, contributing 
over 92% of GDP (Table I.2).  Hong Kong, Ch ina's mainly services-oriented economy has 
traditionally been dominated by four pillar industries, namely financial services, trading and logistics, 
tourism, and professional services.  These accounted  for roughly 55% of GDP and almost half of 
employment in 2008, implying that their labour prod uctivity as a whole is higher than in the rest of 
the economy.   
9. Hong Kong, China's high reliance on services and exports of services as engines of growth 
contrasts with China's reliance on manufacturing.  However, China now seems to be shifting towards 
services and the challenge will be to maintain these service industries in  the face of increased 
competition from such cities as Shanghai, and Shenzhen  in China, as well as other countries in the 
region.  Jobs in pillar industries, just like those in  manufacturing, may eventually be inclined to move 
to China.  The authorities do not expect such a scenario.  They believe that Hong Kong, China can 
support China's development strategy by attracti ng foreign investment and providing quality services 
that are essential to the restructuring and upgrading of China's economy; and can provide a platform 
for China's enterprises to expand overseas, and play  an important role in meeting international 
financial needs of Mainland investors:  all of th is means economic growth and job opportunities for 
the HKSAR's services sector. 
Table I.2 
Basic economic indicators, 2006-09  
    2006 2007 2008 2009 
GDP by economic activity in real terms (annual %age change)  
Agriculture and fishing -5.0 -6.4 -18.8 0.9 
Mining and quarrying 10.2 13.7 -3.2 -16.1 
Manufacturing 2.2 -1.5 -6.6 -9.2 
Electricity, gas and water 0.8 1.2 0.2 1.9 
Construction -9.4 -1.1 8.8 1.6 
Services 7.1 7.0 2.5 -2.0 
 Wholesale and retail trade 7.1 6.8 4.2 -3.5 
 Import and export trade 9.0 6.0 7.2 -8.9 
 Restaurants and hotels 9.4 11.0 1.9 -4.3 
 Transport, storage and communications 6.8 5.1 2.4 -4.9 
 Financing and insurance 19.7 17.6 -1.3 1.9 
 Real estate 0.0a 5.5 0.9 1.8 
 Business services 3.8 7.3 1.9 -0.1 
 Community, social and personal services 1.3 1.7 2.2 1.4 
 Ownership of premises 2.4 3.3 1.7 0.7 
Share to GDP at current factor cost (%)     
Agriculture and fishing 0.1 0.1 0.1 .. 
Mining and quarrying 0.0a 0.0a 0.0a .. 
Manufacturing 3.2 2.5 2.5 .. 
Electricity, gas and water 2.8 2.6 2.5 .. 
Construction 2.7 2.6 3.1 .. 
Services 91.2 92.3 92.0 .. 
 Wholesale and retail trade 3.6 3.4 3.9 .. 
 Import and export trade 21.4 20.4 21.0 .. 
 Restaurants and hotels 2.9 3.1 3.4 .. 
Table I.2 (cont'd) Hong Kong, China WT/TPR/S/241 
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    2006 2007 2008 2009 
 Transport, storage and communications 9.6 9.1 7.7 .. 
      Transport and storage 7.9 7.5 6.1 .. 
      Communications 1.8 1.6 1.6 .. 
 Financing and insurance 15.9 19.5 16.1 .. 
 Real estate 4.4 4.6 5.4 .. 
 Business services 4.7 5.0 5.3 .. 
 Community, social and personal services 18.0 17.1 17.9 .. 
 Ownership of premises 10.6 10.1 11.5 .. 
Share of sector in total employment (%)b     
Manufacturing 5.1 4.9 4.6 3.8 
Construction 7.9 7.9 7.6 7.6 
Services 86.3 86.7 87.2 88.0 
 Wholesale, retail and import and export trades, restaurant 
and hotels 34.0 33.9 33.5 32.8 
 Transport, storage and communications 10.5 10.4 10.4 11.8 
 Financing, insurance, real estate and business services 15.6 15.8 16.7 18.2 
 Community, social, and personal services 26.3 26.5 26.6 25.1 
Other  0.7 0.6 0.6 0.6 
.. Not available. 
a Percentage less than 0.05%. 
b Starting from 2009, figures are compiled based on the Hong Kong Standard Industrial Classification (HSIC) Version 2.0, which 
is modelled on ISIC (Rev.4).  
Source : Census and Statistics Department online information.  Viewed at:  http://www.censtatd.gov.hk;  and data provided 
by the authorities.  
10. The financial services industry is the most im portant pillar of the economy.  To strengthen 
Hong Kong, China's status as an international financial centre, the HKSAR Government has 
positioned the city as a testing ground for the liberalization of China's capital account and as a 
renmimbi (RMB) offshore centre.  RMB business was introduced in Hong Kong, China in 2004 and 
has been expanding steadily.  In July 2009, the RM B trade settlement scheme was introduced by 
China's authorities, and its expansion in June 2010 has enabled more Mainla nd enterprises to settle 
their cross-border trade transactions in RMB.  As liquidity of RMB outside China increases, the 
demand for RMB financial products is likely to increas e.  In this respect, the financial industry in 
Hong Kong, China has been developing a range of RMB products to meet market demand (there are 
some RMB 90 billion in deposits and RMB 30 bil lion in outstanding RMB bonds).  To promote 
RMB business opportunities in the area of intern ational asset management, the Government has 
introduced tax and other incentives.  A number of re gulatory changes are also planned to strengthen 
Hong Kong, China's competitiveness as a financia l centre, including the establishment of an 
independent Insurance Authority (Chapter IV(5)(ii)) and a revised Companies Bill aimed, inter alia , 
at improving corporate governance (Chapter III(4)(v)).    
11. Hong Kong, China's trading and logistics industry plays an important role in the global supply 
chain, notably to and from China.  The trading and logistics sector accounted for 26% of GDP and 
24% of total employment (about 830,000 jobs) in 2008.  The industry has benefited from rapidly 
increasing demand for logistics, professional, a nd other services from manufacturing activities that 
have been re-located from Hong Kong, China to the Pearl River Delta region and other parts of Asia.  
Competitive challenges arise for the trading and logistics industry from the proliferation of FTAs in 
the region, including the Economic Coopera tion Framework Agreement (ECFA) between 
Chinese Taipei and China.  Hong Kong, China has traditionally served as a bridge between China and 
Chinese Taipei for re-export or transhipment.  Improved cross-strait trade relations with the direct sea WT/TPR/S/241 Trade Policy Review 
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and air links to China have placed Hong Kong, Ch ina's trading and logistics sector in a more 
competitive environment.   To meet some of these challenges as well as opportunities, Hong Kong 
International Airport is expanding its cargo ha ndling capacity (Chapter IV(5)(iv)), and the 
Government is making available land nearby fo r the development of a logistics cluster. 
12. Furthermore, Hong Kong, China is trying to position itself as a regional cruise hub.  A new 
cruise terminal, capable of berthing the largest cruise  ships in the world, is under construction and is 
expected to be opened in mid-2013 (Chapter IV(5)(iv)).   
The role of government 
13. Hong Kong, China is ranked highly in terms of well-known indicators of economic freedom, 
competitiveness, ease of doing business, intell ectual property protec tion, and others.3   
14. The Government has traditionally seen its role mainly in establishing a fair and open market-
driven system and providing adequate human re sources (for instance, through its education and 
training policies influencing the size and quality of the labour force) to ensure the optimal allocation of resources.  It has also been investing heavily in  physical infrastructure (e.g. airport, railways, and 
cross-boundary infrastructure) .   While the HKSAR Government continues to uphold the principles of 
"market leads, government facilitates" and "big mark et, small government", the global financial crisis 
has prompted the decision "to revisit the Governme nt's role in promoting economic development".
4  
Development of new economic pillars 
15. In October 2008, the Government establishe d the Task Force on Economic Challenges 
(TFEC), comprising ten distinguished personalities from  different fields, to assess the impact of the 
global financial crisis, consider ways to res pond, and identify new opportunities for enhancing the 
economy's competitiveness.  The TFEC identified six economic areas where it considered that 
Hong Kong, China enjoys "competitive advantages":   testing and certification services;  medical 
services;  innovation and technology;  cultural and cr eative industries;  the environmental industry;  
and education services.   
16. The task force advised the Government to support the development of these six industries, 
and its recommendations were endorsed by the HKSAR Government in June 2009.  Specific measures 
were introduced almost immediately, with the obj ective of removing barriers to Hong Kong, China's 
industries and helping them tap into new markets.5  First steps involved the provision of government 
funding and land resources, relaxing constraints on redevelopment or conve rsion of old industrial 
buildings, establishment of new institutions, and some  regulatory changes (Chapter IV(5)(vi)).   The 
authorities believe that many of these measure s not only promote the development of the 
six industries but also benefit Hong Kong, China's economic development in general. 
17. The six industries are already important for the Hong Kong, China economy.  The private 
sector part of the industries directly contributed 8% of GDP in 2008, and employed about 11% of the 
total workforce (380,000 workers), which implies, how ever, that their combined labour productivity is 
below the level of the rest of the economy.   
                                                      
3 World Economic Forum (2009);  The Heritage Foundation (2010);  and World Bank Doing Business 
Project (2010). 
4 Chief Executive (2009). 
5 Chief Executive (2009). Hong Kong, China WT/TPR/S/241 
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18. The HKSAR Government's strategy is to pos ition Hong Kong, China as a regional centre for 
testing and certification.  According to the TFEC , Hong Kong, China's advantages in developing the 
testing and certification industry are based, inter alia , on its robust accreditation system;  the 
industry's high reputation locally and internationally;  its position to act as an independent third party 
to provide quality certification and product testing services for Mainland enterprises;  and 
Hong Kong, China's strategic location to China's huge and rapidly growing market. 
19. The selection of environmental services for prom otion by the Government is linked to the 
pollution problems in the Pearl River Delta (P RD) region.  Market opportunities arise from 
strengthened environmental standards combined with  increased public expenditure for environmental 
projects in China, as well as through closer environmental cooperation with Guangdong Province.  A 
framework agreement on cooperation between H ong Kong, China and Guangdong Province aims, 
inter alia , to develop the PRD region into a "green and quality living area".6  However, Hong Kong, 
China's environmental industry has been geared mainly towards low- value-added activities, such as 
waste recycling, which may hamper its internati onal competitiveness (Chapter IV(5)(vi)).  According 
to the authorities, the environmental industry in  Hong Kong, China is developing progressively 
towards high-end products. 
20. For the promotion of innova tion and technology, the HKSAR Government has committed 
additional resources – notably a HK$200 million R&D C ash Rebate Fund (Table III.8) – to strengthen 
the research culture in the private sector and to encourage enterprises to establish stronger 
partnerships with local public research institutions.  This is because private-sector investment in R&D 
and high-tech projects is relatively low compared with other advanced economies (Chapter III(4)(ii)). 
21. Hong Kong, China's creative industries (ranging from motion pictures to design, architecture, 
and advertising) are vital for the economy, cont ributing about 4% of GDP.  The Government is 
seeking to promote the city as Asia's creative capital.  While government support for the local film industry and design enterprises is not new, supp ort for creative industries has been increased 
considerably (Chapter IV(5)(vi)).    
22. The selection of medical services for government promotion is linked to the aim of 
developing private hospital services, to help addr ess an imbalance between the public and private 
sectors, and to increase the overall capacity of the healthcare system.  The HKSAR Government is 
also pursuing the strategy of developing Hong Kong , China's position as a major medical centre in the 
region.  For education services, the Government's objective is to enhance Hong Kong, China's status 
as a regional education hub and nurture talents for other industries, with a view to enhancing 
Hong Kong, China's long-term competitiveness. 
Land-related policies 
23. Prices on Hong Kong, China's property market remain a sensitive public matter, not least 
because of the experience during the Asian financia l crisis, when prices collapsed and the economy 
plunged.  Supply and demand on the housing market are closely monitored by the HKSAR government, since property price bubbles forming and bursting could have profound effects on 
macroeconomic stability, and the pop ulation.  As Hong Kong, China allows the free flow of capital 
without restrictions, such inflows, in particular as a result of expansi onary credit policy in China, have 
fuelled an increase in demand in the local market  for luxury apartments, with prices reaching the 
inflated levels prior to the 1997 Asian financial cris is.  The "mass market" for residential property is 
                                                     
 
6 HKSAR Government press announcement, 7 April 2010.  Viewed at:  http://www.info.gov.hk/gia/ 
general/201004/07/P201004070108.htm. WT/TPR/S/241 Trade Policy Review 
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still below that level, while disposable incomes are higher now.7  The Government has responded to 
public concerns about asset-price bubbles, through increasing land supply, increasing the transaction 
cost of property speculation through tax measure s, strengthening the regulation of the sale of 
first-hand private residential prope rties to enhance transparency, and policy guidance directed at 
banks' mortgage lending (Chapter IV(5)(ii)). 
24. As a supplier of new land, the Government in fluences prices and industrial activities through 
its land policies.  The Government maintains a mark et-driven Application List System for the lease of 
government land for commercial or residential development through public  auction or tender.8  The 
market-driven approach is comple mented by a targeted land allocation policy (through private treaty 
grants) to meet the economic, social, and community needs.  As part of its policy to promote new 
industries, the Government has set aside land fo r investors to develop private hospitals and 
self-financing tertiary e ducational institutions.9  Land may also be purchased on the private market;  
and developers may apply to modify the lease of  their existing land holdings or purchase existing 
buildings for re-development.    
Competition 
25. The HKSAR Government is committed to maintaining a level playing field for business.  
Currently, competition legislation exists onl y for the telecoms and broadcasting sectors 
(Chapter IV(5)(iii)).  Since 2005, Hong Kong, Chin a's competition policy has been subject to review 
and public consultation, with a view to introducin g a cross-sectoral competition law.  A Competition 
Bill was introduced for scrutiny in the 2009-10 legi slative session (Chapter III(4)(vi) and Box III.1).   
(2) DEVELOPMENTS IN TRADE  
26. In 2009, Hong Kong, China was the world's 6th largest exporter of goods and 5th largest 
importer of goods (counting the EU27 as one).10  As a highly services-oriented economy, the HKSAR 
continues to depend heavily on imports of goods fo r its own consumption.  The goods trade account 
of the balance of payments has always been in defici t, but this has been more than offset by a surplus 
from trade in services (Table I.3).   
27. Following years of expansion in 2006 and 2007,  merchandise exports (domestic exports and 
re-exports) decelerated rapidly in the latter part of  2008, followed by a double-digit decline for most 
of 2009, due to the plunge in global trade flows du ring the global recession.  Merchandise exports 
showed an improvement towards the end of 2009 with  rising growth in Asia and demand picking up 
from the advanced economies (most had resumed grow th by the third quarter of 2009).  For 2009 as a 
whole, however, the 12.2% drop in exports (in US$) was the biggest on record.  
                                                      
7 In the mass market for residential apartments (i.e ., about 45 square metres), residents pay, as a 
long-term average, ov er 50% of their income for servicing mort gages;  the share was about 42% in the 
first quarter of 2010. 
8 This system was described in the last TPR of Hong Kong, China.  As one of the responses to public 
concerns about asset-price bubbles, the Government announced in early 2010 that it would, depending on the 
market situation, put up six designated sites for sale by public auction or tender if they had not been successfully 
triggered in the next two years.  This fine-tuning measure is complementary to the market-driven Application List System. 
9 Financial Secretary (2010). 
10 Preliminary data published by the WTO.  Viewed at:  http://www.wto.org/english/news_e/ 
pres10_e/pr598_e.htm. Hong Kong, China WT/TPR/S/241 
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28. In 2009, Hong Kong, China was the 5th largest exporter of services, and 10th largest importer 
of services (counting the EU27 as one).11  Compared with trade in goods , trade in services saw even 
faster expansion in 2006 and 2007 (Table IV.2), a nd was less affected (in relative terms) by the global 
recession of 2008-09.  Overall, exports of services d eclined by 6.3% in 2009 (in US$), after 8.7% 
growth in 2008.  Inbound tourism grew strongl y during most of 2009, except for a brief setback 
mid-year due to concerns over the spread of H1N1 human swine flu.  Exports  of financial and other 
business services recovered in the second half of 2009 together with an improvement in financial 
market and commercial activities.  Merchanting a nd other trade-related services (mainly offshore 
trade), and to some extent exports of transporta tion services, were sluggish during most of the year, 
reflecting the plunge in global trade flows in early 2009 and their subsequent slow recovery (see also 
Charts IV.2 and IV.3).   
Table I.3 
Balance of payments, 2006-09 
(HK$ million)  
  2006 2007 2008 2009 
Current account 178,166 199,160 228,125 141,687 
Goods and services balance 168,171 174,816 170,674 116,786 
Goods balance -108,983 -153,672 -180,091 -208,220 
Exports 2,467,357 2,698,850 2,843,998 2,494,746 
Imports 2,576,340 2,852,522 3,024,089 2,702,966 
Services balance 277,154 328,488 350,765 325,006 
Credit 565,054 660,728 717,249 669,015 
Transportation 174,186 199,561 224,953 194,342 
Travel 90,399 107,304 119,171 127,616 
Insurance 3,240 3,648 4,262 4,252 
Financial 71,997 96,930 92,044 84,138 
Other 225,233 253,286 276,818 258,667 
Debit 287,900 332,240 366,484 344,009 
Transportation 90,234 108,627 123,289 106,033 
Travel 109,088 117,346 125,326 123,716 
Insurance 4,764 5,543 5,651 5,059 
Financial 15,671 21,859 24,426 26,565 
Other 68,143 78,828 87,791 82,636 
Income 27,348 44,437 81,443 49,392 
Credit 651,503 894,850 923,300 791,489 
Investment 649,219 892,380 920,534 788,869 
Compensation of employees 2,284 2,470 2,767 2,620 
Debit 624,155 850,413 839,994 742,097 
Investment 621,230 847,388 836,933 738,982 
Compensation of employees 2,926 3,024 3,061 3,115 
Current transfers, net -17,353 -20,093 -25,855 -24,491 
Credit 7,456 7,316 4,759 3,671 
General Government 0 0 0 0 
Other sectors 7,456 7,316 4,759 3,671 
Debit 24,809 27,409 30,613 28,162 
General Government 1,520 1,749 2,256 1,788 
Other sectors 23,289 25,660 28,357 26,374 
Capital and fina ncial account -209,935 -259,247 -231,162 -164,924 
Capital and financial non-reserve assets (net change) -163,199 -144,749 32,707 384,338 
Capital account -2,900 10,338 16,393 36,154 
Table I.3 (cont'd) 
                                                      
11 Preliminary data published by the WTO.  Viewed at:  http://www.wto.org/english/news_e/ 
pres10_e/pr598_e.htm. WT/TPR/S/241 Trade Policy Review 
Page 10 
 
 
  2006 2007 2008 2009 
Financial account -207,035 -269,585 -247,555 -201,078 
Financial non-reserve assets (net change) -160,300 -155,086 16,314 348,184 
Direct investment 635 -52,577 70,393 -29,610 
HKSAR's direct investment abroad -349,386 -476,515 -393,862 -405,177 
Foreign direct investment in HKSAR 350,021 423,938 464,255 375,567 
Portfolio investment -207,879 -21,452 -295,148 -342,329 
Assets -324,582 -607,148 -195,761 -380,158 
Equity securities -121, 349 -540,607 - 142,343 -295,656 
Debt securities -203, 233 -66,541 - 53,418 -84,502 
Liabilities 116,704 585, 696 -99,387 37,829 
Equity securities 112, 364 340,325 136,083 31,963 
Debt securities 4, 340 245,371 -235,470 5,865 
Financial derivatives 25,925 43,534 63,338 25,641 
Other investment 21,019 -124,592 177,732 694,483 
Net errors and omissiona 31,769 60,087 3,037 23,237 
Reserve assets (net change)b -46,735 -114,498 -263,869 -549,262 
a In principle, the net sum of credit entr ies and debit entries is zero.  In practic e, however, discrepancies between the credi t and 
debit entries may occur for various reasons as the data are collected from different sources.  Equality between the sum of cred it 
entries and debit entries is brought about by the inclusion of  a balancing item, which refl ects net errors and omissions. 
b The estimates of net changes in reserve and non-reserve assets  under the balance of payments framework are transaction figure s. 
Effects of valuation changes (including price changes and exchange rate change s) and reclassifications are excluded. 
Source : Census and Statistic s Department (2010), Balance of Payments Statistics of Hong Kong, First Quarter 2010 .  
Viewed at:  http://www.censtatd.gov.hk/ products_and_services/produc ts/publications/statis tical_report/national_ 
income_and_bop/index_cd_B1040001_dt_latest.jsp. 
(i) Composition of trade 
29. In 2009, domestic exports declined by 36 .1% over 2008 (in US$).  Office machines and 
telecommunication equipment were the largest compone nt of domestic exports (Chart I.1), followed 
by chemicals (mainly plastics).  Textiles and cl othing remain among the main exported commodities, 
although their share in total domestic exports dec lined significantly during the review period (from 
41.9% in 2006 to 11.6% in 2009).  The main share of textiles and clothing ex ports (over 75% in 2009 
in value terms) went to China, the Unite d States, and the EU (Chapter IV(4)).   
30. Hong Kong, China's re-exports declined by 11. 4% over 2008 (in US$), but remained the main 
driving force in Hong Kong, China's total exports  in 2009.  Principal commodities re-exported in 
2009 included office machines and telecommunications equipment, and other electrical machinery.  
China, Japan, and Chinese Taipei were the main or igins of re-exports, while China, the United States, 
and Japan were the major destinations.  
31. In 2009, imports declined by 10.6% over 2008 (in US$).  Office machines and 
telecommunications equipment represented the larg est share of Hong Kong, China's total imports.  
China, Japan, the EU, and Chinese Taipei were the main suppliers of Hong Kong, China's imports in 
2009. 
(ii) Direction of trade 
32. China remained Hong Kong, China's main trading partner during 2006-09, followed by the 
United States, the EU, and Japan (Chart I.2).  The value of Hong Kong, China's total trade with China 
increased by 7.2% from 2006 to 2009, i.e. from US$302.4  billion (46.4% of the total trade value) to 
US$324.1 billion (48.7%).  Conversely, Hong Kong, Ch ina was China's fourth largest trading partner 
(after the EU, the United States, and Japan) throughout the period. Hong Kong, China WT/TPR/S/241 
 Page 11 
 
 
Chart I.1
Product composition of merchandise trade, 2006 and 2009
2006 2009
Imports
Source :WTO calculations, based on data provided by the authorities.Chemicals
6.0Office machines & 
telecommunication
equipment
38.7
Textiles
4.2Other consumer 
goods
13.5Per cent
Domestic exports
Re-exportsAgriculture
3.6Other semi-
manufactures
7.9
Other electrical  machinery  
9.3Chemicals
5.2Office machines & 
telecommunication
 equipment
40.8Mining 
 5.5
Textiles
2.9Other consumer 
goods
14.8Agriculture 
 4.9Other semi-
manufactures
6.8
Other electrical  machinery 
 8.8
Office machines
 & telecom. equip.  
19.8
Textiles 
3.1
Clothing
38.8Other consumer 
goods
13.4Other semi-manuf. 
2.1
Non-electrical
 machinery  
3.8
Office machines & 
telecom. equip.  
20.0
Textiles
3.8Clothing
7.8Other consumer 
goods
21.7Mining  
10.7Other semi-
manufactures  
2.1
Other electrical
 machinery
4.2
Chemicals
4.8Office machines & 
telecom. equipment  
40.5
Textiles 
4.5Agriculture  
1.4
Other consumer 
goods
17.5Other semi-
manufactures  6.2
Other electrical
 machinery
10.9Mining
2.1Chemicals  4.4Office machines & 
telecom. equipment
 43.7
Textiles 
3.1Other consumer 
goods
17.4Other semi-
manufactures   5.7
Other electrical
machinery
10.3Non-electrical
 machinery
4.5
Mining 1.8Clothing 
4.5
Total:  US$334.7 billion Total:  US$347.3 billion
Total:  US$17.3 billion Total: US$7.4 billion
Total:  US$299.5 billion Total:  US$311.1 billionMining  5.4Non-electrical 
machinery
5.8Non-electrical 
machinery 
5.7
Agriculture
 8.9
Agriculture
3.3Other electrical
  machinery  5.4
Mining  5.3Non-electrical 
machinery 
  2.0
Non-electrical 
machinery
5.0Clothing
5.6
Chemicals  7.0Chemicals
 17.0
Clothing
7.2Clothing
7.2Agriculture  2.0
 WT/TPR/S/241 Trade Policy Review 
Page 12 
 
 
Chart I.2
Direction of merchandise trade, 2006 and 2009
2006 2009
Imports
Source :Data provided by the authorities.Other 
11.0 EU27
7.3
China
45.9Japan
10.3Per cent
Domestic exports
Re-exportsSingapore
6.3
Chinese
Taipei 
7.5Korea, Rep. of
3.8United
States
5.3
Singapore
6.5
Chinese Taipei
6.5
Japan
8.8EU27
7.7
China
46.4
United States
24.6
EU27
20.4China
29.9Japan
3.7Chinese Taipei 
3.3Other
22.3United States
12.7
EU27
8.8Other 
15.0
Japan  2.9Singapore  3.9
China
46.2
United States
14.5
EU27
13.6Chinese Taipei 
2.0
China
48.0United States
11.5
EU27
12.6
China
51.3Other
18.0
Japan 
 5.0Chinese Taipei   
2.2Total:  US$334.7 billion Total:  US$347.3 billion
Total:  US$17.3 billion Total: US$7.4 billion
Total:  US$299.5 billion Total:  US$311.1 billionKorea, Rep. of
4.6United 
States
4.8Other
12.4
Chinese Taipei  3.3Singapore 
 3.1
Other
16.9
Japan 
4.4Malaysia
2.3 Malaysia
2.5
 Hong Kong, China WT/TPR/S/241 
 Page 13 
 
 
33. Given its strategic geographical location, well- developed infrastructure, and international 
communication network, Hong Kong, China plays an im portant entrepôt role for trade between China 
and the rest of the world.  The value of re-e xport goods originating from China increased by 11.0% 
between 2006 and 2009, i.e. from US$143.7 billion (48.0% of Hong Kong, China's total re-export 
trade in 2006) to US$159.5 billion (51. 3% of total re-export trade in 2009). 
(iii) Foreign investment 
34. Hong Kong, China's stock of inward FDI am ounted to HK$6,326 billion in 2008, almost 
four times its GDP in that year, reflecting the c ity's international orientation.  Foreign direct 
investment inflows and outflows increased marked ly in 2006 and 2007, due to the increase in direct 
investment by China.  Hong Kong, China remains the la rgest external investor in  China.  While direct 
investment inflows continued to increase in 2008,  outflows declined sharply, as a result of the 
economic downturn in the advanced economies, leading to reduced investment opportunities 
(Tables AI.1 to AI.4). 
35. The sectoral pattern of direct investment has not changed significantly since the last TPR of 
Hong Kong, China.  Most inward and outward FDI h as been in services, led by "investment holding, 
real estate and various services".