JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL HONG KONG SPECIAL ADMINISTRATIVE REGION: ANNUAL REPORT 2015
Date: 2016-04-25
Institutions: European Commission, European External Action Service
Subjects: Hong Kong, corruption, democratisation, economic development, equal treatment, freedom of communication, fundamental rights, human rights, political reform, rule of law

EUROPEAN 
COMMISSION 

HIGH REPRESENTATIVE
OF THE UNION FOR
FOREIGN AFFAIRS AND
SECURITY POLICY

Brussels, 25.4.2016  
JOIN(2016) 10 final 

JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

HONG KONG SPECIAL ADMINISTRATIVE REGION: ANNUAL REPORT 2015 

EN 

   EN 

 
 
 
 
  
 
 
JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 
HONG KONG SPECIAL ADMINISTRATIVE REGION: ANNUAL REPORT 2015 

Summary 

Since  the  handover  of  Hong  Kong  to  the  People’s  Republic  of  China  (PRC)  in  1997,  the 
European  Union  (EU)  and  its  Member  States  have  closely  followed  political  and  economic 
developments  in  the  Hong  Kong  Special  Administrative  Region  (SAR)  under  the  ‘one 
country,  two  systems’  principle.  In  line  with  the  commitment  given  to  the  European 
Parliament  in  1997,  an  annual  report  is  issued  on  developments  in  Hong  Kong.  This  is  the 
18th  report,  covering  developments  in  2015.  The  EU  adheres  to  a  ‘one  China’  policy  and 
supports the ‘one country, two systems’ principle and its implementation. 

2015 was a politically challenging year for the Hong Kong SAR and for the functioning of the 
‘one  country,  two  systems’  principle.  On  18  June  the  Legislative  Council  voted  down  the 
government’s proposal to introduce universal suffrage for the election of the Chief Executive 
from  2017.  The  negative  vote  concluded  an  electoral  reform  process  of  almost  18  months’ 
duration, involving polarised debates and, in late 2014, massive demonstrations in favour of a 
higher  degree  of  democracy  in  the  voting  system  than  was  permitted  by  the  August  2014 
decision of the Standing Committee of the National People’s Congress. 

The EU regrets that the principal actors in the electoral reform process were unable to reach a 
compromise on the reform. As a stakeholder in Hong Kong’s future and in line with the Basic 
Law, the EU encourages the Hong Kong SAR and Central Government authorities, through 
constructive discussion, to resume the electoral reform and reach an agreement on an election 
system  that  is  democratic,  fair,  open  and  transparent.  Universal  suffrage  would  give  the 
government  greater  public  support  and  legitimacy  for  reaching  Hong  Kong’s  economic 
objectives and tackling social challenges, such as the socio-economic and generational divides 
in Hong Kong society. 

The functioning of the ‘one country, two systems’ principle was called into serious doubt by 
the  disappearance,  in  late  2015,  of  five  individuals,  two  of  whom  hold  EU  citzenship, 
associated with a Hong Kong publishing house and bookshop known for printing and selling 
material  critical  of  the  Central  Government.  The  circumstances  of  the  disappearances  were 
suspicious; the fifth person who disappeared from  Hong  Kong  SAR  territory  seems  to  have 
been abducted. 

The  EU  considers  the  case  of  the  five  book  publishers  to  be  the  most  serious  challenge  to 
Hong  Kong’s  Basic  Law  and  the  ‘one  country,  two  systems’  principle  since  Hong  Kong’s 
handover to the PRC in 1997. The case raises serious concerns about respect for human rights 
and fundamental freedoms and about the application of PRC criminal law to acts that are not 
punishable  under  Hong  Kong  law.  The  case  has  potentially  lasting  implications  for  Hong 
Kong’s rule of law and could impact on Hong Kong’s standing as an international business 
centre.  The  EU  calls  on  the  Central  Government  to  fully  respect  the  constitutional 
arrangements  for  Hong  Kong  SAR  within  the  PRC,  and  restore  the  trust  placed  by  Hong 

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Kong residents as well as the international community in the Basic Law and the ‘one country, 
two systems’ principle. 

Other aspects of the ‘one country, two systems’ principle continued to function well in Hong 
Kong  during  2015.  The  judiciary  continued  to  demonstrate  its  independence  and  consistent 
adherence to due process. The rule of law remained the guiding principle for the government, 
economic  actors  and  the  population  at  large.  Anti-corruption  action  remained  strong,  as 
shown by the due process in the prosecution of the former Chief Executive and positive good 
governance  indicators.  Freedom  of  speech  and  freedom  of  information  are  generally 
respected. However, a negative trend can be observed in press freedom and pluriformity, as a 
result of caution and self-censorship when reporting about PRC domestic and foreign policy 
developments.  The  disappearance  of  the  five  publishers  is  expected  to  aggravate  this  trend. 
Academic  freedom  remains  largely  respected;  however,  the  institutional  autonomy  of  the 
universities  is  jeopardised  by  the  appointment  of  pro-establishment  figures  to  university 
councils.  

The free market economic system continued to function efficiently and Hong Kong remained 
a  competitive  international  business  centre  as  well  as  the  world’s  premier  hub  for  business 
with  mainland  China.  The  rule  of  law,  the  transparent  regulatory  framework,  very  low 
corruption  levels  and  crime  rates,  along  with  an  efficient  public  administration  and  an 
independent  judiciary  contributed  to  preserving  and  fostering  the  favourable  investment 
climate that lies at the heart of Hong Kong’s success. Upholding these  elements  is  vital for 
Hong  Kong’s  competitiveness,  as  are  the  enactment  of  new  legislation  on  copyright,  the 
automatic exchange of tax information and the implementation of the Competition Ordinance. 
Climate action needs to be reinforced to achieve the low-carbon economy goals in line with 
the COP21 outcome. 

Political developments 

The  reform  of  the  Chief  Executive  election  procedure,  launched  by  the  Hong  Kong  SAR 
Government in 2014, came to an end in June 2015. It had involved two public consultations 
and  a  framework  decision  by  the  Standing  Committee  of  the  National  People’s  Congress 
(NPC), and was marked by massive 79-day street protests by the Occupy campaign. In line 
with the framework laid down by the Standing Committee of the NPC, the SAR Government 
submitted  to  the  Legislative  Council  (LegCo)  a  proposal  for  a  voting  system  with  universal 
suffrage for up to three candidates selected by a nomination committee. 

Pro-democracy  groups  dismissed  the  proposal  as  offering  ‘fake  democracy’,  especially 
because the nomination committee, whose members are largely pro-establishment, would all 
but  rule  out  the  possibility  of  a  pan-democratic  candidate  running.  Opinion  polls  varied  in 
their outcomes, while never pointing to a firm favourable opinion among the general public. 
Government  attempts  to  rally  the  necessary  number  of  pro-democracy  LegCo  members 
behind the proposal did not succeed. Thus, in a tumultuous vote on 18 June, the government’s 
electoral reform package was voted down by a blocking minority of pro-democracy members. 

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The EU regrets that the principal actors in the electoral reform process were unable to reach a 
compromise on reform of the method for electing the 2017 Chief Executive. As a stakeholder 
in  Hong  Kong’s  future  and  in  line  with  the  Basic  Law,  the  EU  hopes  that,  through 
constructive  discussion,  Hong  Kong  will  be  able  to  resume  electoral  reform  and  reach  an 
agreement  on  an  election  system  that  is  democratic,  fair,  open  and  transparent.  Universal 
suffrage  would  give  the  government  greater  public  support  and  legitimacy  for  its  efforts  to 
reach  Hong  Kong’s  economic  objectives  and  tackle  social  challenges,  such  as  the  socio-
economic and generational divides in Hong Kong society. 

Hong Kong’s political climate remained highly polarised between the pro-establishment and 
pro-democracy  camps.  Relations  between  the  executive  and  the  legislature  continued  to  be 
strained  in  2015,  with  opposition  legislators  staging  a  non-cooperation  campaign  and  using 
filibustering  tactics  to  delay  government  initiatives.  The  setting  up  of  the  new  Innovation 
Bureau  took  three  years  to  be  approved  and  the  adoption  of  a  draft  amendment  to  the 
Copyright  Act  was  postponed  to  2016  and  eventually  failed.  The  filibustering  seriously 
hampered the effectiveness of LegCo decision-making and the governance of Hong Kong in 
general. To address this, a review of the LegCo rules of procedure would be in order. 

The  November  District  Council  elections  did  not  produce  a  significant  shift  in  voter 
preferences.  Yet  they  brought  in  several  new  political  groupings  and  voters  appeared  to 
favour  new  and  young  candidates  over  long-standing  ones.  One  new  party,  the  Neo 
Democrats,  won  15  out  of  the  16  seats  it  contested.  Voter  turnout  was  a  record  47 %.  The 
conduct  of  the  District  Council  elections  was  professional  and  fair.  Both  sides  made  some 
allegations of vote-buying, but the Electoral Affairs Commission ruled that these allegations 
were unfounded. 

Relations between Hong Kong and the mainland of China 

In  the  wake  of  the  Occupy  movement  and  the  failure  of  the  electoral  reform,  relations 
between Hong Kong and the mainland are going through a difficult phase. A significant part 
of Hong Kong society is seriously concerned about the gradual erosion of Hong Kong’s ‘high 
degree  of  autonomy’  within  the  People’s  Republic  of  China  and  the  declining  respect  for 
Hong  Kong’s  values  and  way  of  life  under  the  ‘one  country,  two  systems’  principle.  The 
adoption of China’s new National Security Law on 1 July caused concern, as it makes specific 
reference to Hong Kong, raising the risk that it could be used to penalise acts carried out by 
Hong  Kong  residents  on  Hong  Kong  territory,  even  if  they  are  not  punishable  under  Hong 
Kong law.    

The functioning of the ‘one country, two systems’ principle was called into serious doubt by 
the  disappearance,  in  late  2015,  of  five  individuals,  two  of  whom  hold  EU  citzenship, 
associated  with  a  Hong  Kong  publishing  house  and  bookshop  selling  publications  that  are 
critical of the Central Government. While four of those people were last seen on the mainland 
or, in one case, in Thailand, the fifth person disappeared from Hong Kong territory and seems 
to have been an abducted. All of them later reappeared on the mainland and declared that they 
were  voluntarily  collaborating  in  an  official  investigation.  Despite  repeated  requests  for 

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information and explanation by top officials of the Hong Kong SAR as well as by the EU and 
other  members  of  the  international  community,  the  PRC  authorities  failed  to  provide  any 
credible explanation. 

The  case  involves  a  serious  violation  of  human  rights  and  fundamental  freedoms  and  raises 
grave concerns about the rule of law under the ‘one country, two systems’ principle and the 
mainland authorities’ application of PRC laws to acts carried out by Hong Kong residents on 
Hong Kong soil. The EU calls on the Central Government to fully respect the consitutional 
arrangements for the Hong Kong SAR within the PRC, and restore the trust placed by Hong 
Kong residents as well as the international community in the Basic Law and the ‘one country, 
two systems’ principle. 

Tensions  between  Hong  Kong  and  the  mainland  also  reappeared  at  a  societal  level.  There 
were  protests  and  violent  outbursts  directed  at  parallel  traders  and  mainland  visitors  in  the 
northern parts of Hong Kong near the border with the mainland, where parallel trading caused 
shortages  of  basic  necessities  and  put  pressure  on  public  infrastructure  and  transport. 
‘Localist’ groups argued for political and economic choices that focus more on serving Hong 
Kong’s local interests, as opposed to the interests of business. 

Rule of law and the judiciary 
Notwithstanding the concerns arising from the incident of the five missing publishers, the rule 
of law was otherwise respected and the judiciary maintained its high standards in 2015. The 
Global Competitiveness Index 2015-2016 conducted by the World Economic Forum ranked 
judicial independence in Hong Kong 4th worldwide with a score of 6.3 out of 7. The World 
Bank  project  on  Worldwide  Governance  Indicators  gave  Hong  Kong  a  score  of  93.8 %  for 
‘rule of law’ in 2014; Hong Kong has ranked in the top 10 % of countries since 2003. 

A  small  number  of  protestors  arrested  in  the  aftermath  of  the  2014  Occupy  campaign  were 
tried and convicted. Campaign leaders who were also arrested were charged and released on 
bail. Seven police officers were charged with abuse of one demonstrator; the trial is ongoing. 
The  victimised  demonstrator  was  himself  charged  with  assaulting  and  resisting  a  police 
officer, in a demonstration of the prosecutor’s scrupulous even-handedness. The pace of the 
legal  proceedings  has  been  subject  to  criticism  from  some  quarters.  It  is  thus  vital  that  the 
judicial  procedures  connected  with  the  Occupy  campaign  continue,  fully  to  respect  the 
principles of rule of law and due process. 

To  ensure  that  the  judiciary  continues  to  function  effectively,  the  difficulty  in  recruiting 
judges, the shortage of support staff in the courts and the low fees paid to lawyers in legal aid 
cases, especially criminal cases, need to be addressed. Maintaining judicial independence and 
full respect for the rule of law are vital to upholding Hong Kong’s democratic credentials, its 
standing as an international business centre, and its rising role as an international centre for 
arbitration and mediation. 

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Anti-corruption 
Corruption was deemed to be under control and the anti-corruption system remained vigorous 
and  resilient,  despite  the  fact  that  the  number  of  corruption  complaints  filed  with  the 
Independent Commission Against Corruption (ICAC) rose to a record 2 800 in 2015, an 18 % 
increase over 2014. It is difficult to draw a conclusion from this increase, since it may be due 
to a rise in anti-corruption activities but equally to greater public awareness and readiness to 
file complaints. 

On  5  October,  former  Chief  Executive  Donald  Tsang  was  charged  on  two  counts  of 
misconduct  in  public  office,  making  him  the  highest-ranking  SAR  official  ever  to  be 
prosecuted. This is a test case for the ability of the ICAC and the judiciary to investigate and 
try  high-profile  corruption  cases 
impartially  and  free  of  political 
independently, 
considerations. Allegations of an undeclared financial interest of the current Chief Executive 
were under investigation. The allegations prompted some lawmakers to propose a motion to 
amend  the  Prevention  of  Bribery  Ordinance  to  cover  the  Chief  Executive  while  in  office; 
however,  the  Legislative  Council  voted  it  down.  The  overall conclusion  is  nevertheless  that 
Hong  Kong  boasts  very  high  standards  of  transparency  and  anti-corruption  measures.  The 
authorities  and  political  and  business  leaders  recognise  that  decreased  transparency  would 
negatively impact on Hong Kong’s strength as an international business centre, including for 
mainland firms. 

Equal opportunities, rights and freedoms 

The media, including digital media, continued to be largely free and to give voice to a variety 
of views. Nevertheless, there was a growing impression, recorded in the annual report of the 
Hong  Kong  Journalists  Association  (HKJA),  that  both  the  print  and  electronic  media 
exercised  self-censorship,  especially  when  covering  affairs  concerning  mainland  China.  In 
addition, the HKJA pointed out that some digital media outlets were continuously kept out of 
government  press  conferences  on  the  grounds  of  not  having  a  print  edition,  on  top  of  the 
replace  press  conferences  with  one-sided 
government’s 
communication formats. Based on 2014 trends, the 2015 Press Freedom Index from Reporters 
without Borders downgraded Hong Kong by nine places to 70th place, citing self-censorship 
and  a  growing  influence  exerted  by  the  Central  Government’s  Liaison  Office.  There  were 
reports that businesses with strong ties to mainland China were withdrawing their advertising 
from media outlets that were critical of Beijing. 

increasing 

tendency 

to 

Following  the  leak  of  audio  recordings  of  its  closed-door  sessions  regarding  controversial 
appointment matters (see below), the University of Hong Kong obtained a court order to ban 
media  reports  detailing  confidential  discussions  of  its  governing  council.  The  injunction 
raised concerns over press freedom as media outlets retracted their coverage in response to the 
court order. 

In  December  2015,  the  Alibaba  Group,  China’s  e-commerce  giant,  bought  the  South  China 
Morning  Post  (SCMP),  the  century-old  English-language  newspaper.  Journalist  associations 
expressed concern that the SCMP’s editorial independence would be compromised after the 
group said it would aim to provide unbiased and ‘fair’ reporting on China. 

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The  disappearance,  under  suspicious  circumstances,  of  five  people  associated  with  a  Hong 
Kong publishing house producing literature critical of the mainland authorities caused major 
concern about the curtailment of freedom of expression. Some bookstores were subsequently 
reported to have taken critical publications off their shelves. 

Freedom of expression, media freedom and freedom of information form Hong Kong’s core 
values under the ‘one country, two systems’ principle and are an essential component of Hong 
Kong’s strength as a global business centre. The EU calls on all stakeholders to preserve these 
values. 

Academic freedom and the independent governance of higher education institutions faced a 
major  controversy  in  2015.  It  was  prompted  by  a  decision  of  Hong  Kong  University’s 
Governing Council to reject the nominee for the post of Vice-Chancellor because of his links 
to opposition groups. The decision was seen as political interference at the implicit behest of 
the  SAR  Government  and  sparked  protests  against  the  SAR  Government’s  tendency  to 
appoint pro-establishment figures to university councils. This practice threatens independent 
university governance and could in the long run harm academic freedom in Hong Kong. The 
controversy prompted calls for the removal of the Chief Executive as ex officio Chancellor of 
all universities in Hong Kong. 

Hong  Kong  still  does  not  have  a  comprehensive  law  on  anti-discrimination.  A  public 
consultation on how to remedy this, launched by the Equal Opportunities Commission (EOC), 
received  100 000  submissions.  The  EOC  will  draw  up  a  report  with  recommendations  on 
promoting  equal  opportunities  for  lesbian,  gay,  bisexual,  transgender  and  intersex  (LGBTI) 
persons, through legislation as well as practical measures. Hong Kong’s legislation on same-
sex  marriage  and  marriages  involving  transgender  people  is  being  reviewed.  Discrimination 
on grounds of sexual orientation is recurrent. 

Foreign domestic workers, who number around 300 000, continued to suffer from a lack of 
adequate labour and social protection. Two existing laws regarding foreign domestic workers 
are  of  particular  concern,  namely  the  live-in  requirement  and  the  ‘two-week’  rule,  under 
which foreign domestic workers must find work within two weeks following expiry of their 
contract  or  face  deportation.  In  December  2015,  the  United  Nations  Committee  against 
Torture urged the government to abolish the ‘two-week’ rule and allow live-out arrangements 
for  foreign  domestic  workers.  Civil  society  organisations  are  calling  for  a  more  inclusive 
arrangement  that  would  encompass  a  statutory  provision  on  daily  working  hours  and/or 
overtime.  Hong  Kong’s  government  has  introduced  some  regulations,  including  a  minimum 
allowable wage (which was increased in 2015), a weekly day off and a cap on the recruitment 
fee, but the enforcement of these regulations is still open to question. 

Human trafficking remains a concern, particularly in the absence of a single legislative and 
policy framework. The SAR Government has set up a task force to address the matter and is 
collaborating with the EU and other members of the international community. 

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Economic developments 

In  2015  Hong  Kong  continued  to  score  highly  on  a  number  of  global  economic  surveys. 
According to UNCTAD,1 Hong Kong ranked second in global foreign direct investment (FDI) 
flows  and  it  registered  FDI  inflows  of  US$ 103  billion  in  2014,  a  year-on-year  increase  of 
39 %. Hong Kong ranked second only to mainland China and ahead of the USA, the UK and 
Singapore. Hong Kong ranked second also in terms of outflows (US$ 143  billion),  after the 
USA and ahead of mainland China, Japan and Germany. Hong Kong also maintained its fifth 
position in the World Bank’s Doing Business 2016 report, the same as in 2015. 

The Hong Kong economy grew moderately by 2.4 % in real terms in 2015.2  The expansion 
was mainly attributable to resilient domestic demand, upheld by full employment and income 
growth.  The  unemployment  rate  stayed  at  or  below  3.3 %  throughout  the  year.  Consumer 
price inflation was contained at 3 % in 2015. Total exports of goods and services performed 
less well because of the slowdown in the Chinese economy and slow growth in some major 
export markets, including the EU. 

The tourism sector was lacklustre. The trend towards more visitor arrivals was reversed in the 
latter part of the year as Chinese visitor arrivals (accounting for over three quarters of the total 
visitor arrivals) dropped by 3 % in 2015. This was the first decline since the relaxation of visa 
rules  for  mainland  visitors  in  2003,  and  it  had  a  negative  effect  on  the  retail  sector.  Retail 
sales of big-ticket items such as jewellery, watches and valuable gifts fell markedly in 2015. 
The subdued performance of the tourism and retail sectors was also due to the strong Hong 
Kong dollar and Beijing’s crackdown on graft. In April the Chinese State Council approved a 
decision  limiting  Shenzhen  residents’  trips  to  Hong  Kong  to  once  a  week,  in  an  attempt  to 
ease  growing  discontent  in  Hong  Kong  over  frequent  shopping  trips  by  Chinese  mainland 
residents and to create obstacles for the parallel traders seeking to cross the border.    

The financial sector continued to flourish as one of Hong Kong’s most important economic 
pillars. In 2015 Hong Kong regained its position as the world’s top market for initial public 
offerings (IPO), raising a total of HK$ 260 billion;3 over 90 % of all IPO funds raised were 
accounted  for  by  mainland  companies  and  the  rest  was  raised  by  Hong  Kong-based  firms. 
While  the  Central  Government  introduced  some  controversial  measures  to  bring  its  stock 
markets’ volatility under control in the months following June 2015, Hong Kong showcased 
its bourse as the safest and most efficient market for trading  Chinese equities. Furthermore, 
Hong Kong succeeded in being the largest offshore centre for RMB in 2015 in terms of RMB 

1. Cf. United Nations Conference on Trade and Development (UNCTAD) World Investment Report (WIR) 2015 (released on 
24 June 2015). 

2 Unless otherwise stated, all economic indicators pertaining to the Hong Kong economy were sourced from the Hong Kong 
Census and Statistics Department. 

3 Deloitte, 2015 Review and 2016 Outlook of Hong Kong and Chinese Mainland IPO Markets, 21 December 2015. 

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deposits4  and  trade  settlement.  Hong  Kong  regulators  and  its  financial  industry  remained 
confident  that  the  city  would  stay  ahead  in  RMB  business  and  would  be  able  to  meet  the 
challenge of increasing competition from other international financial centres.   

On  the  governance  side,  the  Basel  Committee  on  Banking  Supervision  said  in  its  first 
assessment  of  Hong  Kong  that  the  city’s  framework  for  risk-based  capital  and  liquidity 
coverage was Basel III compliant, and Hong Kong was compliant on 12 out of 13 components 
of  the  assessment.  On  one  component,  which  calls  for  quarterly  disclosure  of  capital  and 
liquidity data from banks, the committee said the Hong Kong Monetary Authority (HKMA) 
was ‘largely compliant’. 

To  mitigate  the  risks  for  the  banking  sector,  on  27  February  the  HKMA  introduced  a  new 
round  of  supervisory  measures  on  property  mortgages.      Despite  the  tame  market  reactions, 
especially  towards  the  end  of  2015,  the  Chief  Executive  said  that  the  government  would 
maintain  the  cooling  measures  put  in  place  since  2012  and  would  continue  to  increase  land 
supply to ease the housing shortage. In anticipation of an interest rate hike by the U.S. Federal 
Reserve,  the  rise  in  overall  residential  property  prices  decelerated  in  the  third  quarter  and 
turned into a decline in the last quarter of 2015. 

Hong  Kong  continued  to  be  the  testing  ground  for  China’s  capital  market  reform,  with  the 
rolling out of new policy initiatives. The mutual recognition of funds scheme between Hong 
Kong and China was a milestone. The Securities and Futures Commission of Hong Kong and 
the  China  Securities  Regulatory  Commission  signed  the  Memorandum  of  Regulatory 
Cooperation on Mainland-Hong Kong Mutual Recognition of Funds (MRF) on 22 May. This 
memorandum allows eligible mainland and Hong Kong funds to be distributed in each other’s 
markets through a streamlined vetting process. The scheme could potentially introduce around 
850  Chinese  funds  into  the  Hong  Kong  market  and  around  100  Hong  Kong  funds  into  the 
Chinese markets to sell up to RMB 300 billion of products on the other side. This landmark 
development  further  opened  up  China’s  capital  markets  and  strengthened  Hong  Kong’s 
position as an asset management hub in Asia. Despite a short delay, the first two batches of 
thirteen  mainland  funds  and  three  Hong  Kong  funds  were  approved  for  public  offering  in 
December, five months after the scheme was officially launched.    

The Shanghai-Hong Kong Stock Connect, which was set up in November 2014, went through 
its  first  year  of  operation  in  a  period  of  extreme  market  volatility.  The  pilot  scheme  was  a 
significant breakthrough in the opening of China’s capital markets and served as a model for 
stock  market  linkages  between  China  and  other  international  financial  centres.  The  scheme 
gives  Chinese  mainland  investors  more  access  to  international  markets,  and  allows 
international  investors  to  buy  A-shares  of  Chinese  companies  through  Hong  Kong.  The 
trading volume of the stock connect scheme in its first year of operation remained lower than 
expected,  however,  partly  because  of  the  stock  market  volatility  in  China  in  the  summer  of 

4 According to the HKMA, total RMB deposits amounted to RMB 1 010 billion (including RMB customer deposits and 
outstanding certificates of deposit) as of the end of 2015. 

9 

 
 
 
                                                            
2015. A similar scheme with Shenzhen (the Shenzhen-Hong Kong Stock Connect), originally 
expected to be launched in 2015, was delayed. 

While  reaping  the  first-mover  benefits,  Hong  Kong  is,  at  the  same  time,  exposed  to  the 
inherent risks of China’s capital markets, in terms of both volatility and governance oversight. 
The challenge for Hong Kong’s authorities is to manage those risks while capitalising on its 
privileged position. Besides, as China gradually liberalises its capital markets and modernises 
its  regulatory  framework,  Hong  Kong  is  poised  to  face  mounting  competition  from  the 
Shanghai and Shenzhen markets. 

The strategic dimension of economic integration with China became increasingly prominent 
in 2015. Hong Kong is positioning itself as a platform to help China implement its ‘go global’ 
strategy. It is also actively exploring its role in the national strategy of ‘One Belt, One Road’5 
(OBOR), presented by Chinese President Xi Jinping in 2013. The Hong Kong Government’s 
vision  is  for  the  SAR  to  be  a  financing  and  asset  management  hub  and  to  make  the  city  a 
centre  of  dispute  resolution  and  arbitration  for  the  Asian  Infrastructure  Investment  Bank 
(AIIB).  The  Hong  Kong  business  sector  was  urged  to  seize  the  opportunity  of  the  ‘OBOR’ 
initiative,  which  is  expected  to  be  a  key  driver  of  growth  in  the  long  run.  Hong  Kong  has 
stated its intention to join AIIB as a non-sovereign member in due course.   

A new agreement on trade in services was signed on 27 November 2015 under the framework 
of  the  Closer  Economic  Partnership  Arrangement  (CEPA)  between  the  Hong  Kong 
Government and the Chinese Ministry of Commerce. When the agreement comes into effect 
on 1 June 2016, China will fully or partially open up to the Hong Kong services industry in 
153 of the 160 WTO services trade sectors. The deal will achieve basic liberalisation of trade 
in services by the end of the 12th Five-Year Plan, as pledged by China in 2011. Hong Kong is 
also  favourably  positioned  to  enjoy  China’s  most  preferential  liberalisation  measures  by 
means of the ‘Most-Favoured Treatment’ provision of the agreement.6 The CEPA framework 
agreement was signed in 2003, and thereafter 10 supplements were signed between 2004 and 
2013. In December 2014, the Guangdong Agreement was signed under the CEPA framework 
for basic liberalisation of trade in services with Hong Kong in Guangdong. 

On the external front, the Hong Kong-ASEAN Free Trade Agreement negotiations, launched 
in July 2014,  progressed to the  fifth round in 2015. On top of the CEPA with China, Hong 
Kong  has  signed  three  other  free  trade  agreements  with  its  trading  partners,  namely  New 
Zealand,  the  European  Free  Trade  Association  and  Chile.  In  2015  Hong  Kong  launched  a 
consultation for a free trade agreement with Macao. 

5 ‘The Silk Road Economic Belt’ and ‘The 21st Century Maritime Silk Road’ are the major components of the ‘One Belt, 
One Road’ initiative, which is a development strategy and framework that focuses on connectivity and cooperation among 
countries primarily in Eurasia. Its programme mainly covers building and improving the infrastructure of these countries. 

6 The ‘Most-Favoured Treatment’ provision of the agreement specifies that any preferential treatment China has accorded to 
other countries or regions, if more preferential than under CEPA, will be extended to Hong Kong. 

10 

 
 
 
                                                            
Competitiveness  remained  high  on  the  agenda  for  both  the  public  and  private  sectors. 
Government and business leaders discussed options to enhance Hong Kong’s competitiveness 
and  one  of  the  main  recurrent  themes  was  ‘innovation’.  The  Innovation  and  Technology 
Bureau, which was established in November 2015, is to steer the innovation drive. 

A number of regulatory measures were taken in 2015 to ensure a competitive environment for 
business  and  to  align  Hong  Kong’s  regulatory  standards  with  international  practices.  On  10 
July, the Legislative Council passed a bill to set up the Independent Insurance Authority, an 
independent  regulatory  body  for  the  insurance  industry,  replacing  the  Office  of  the 
Commissioner of Insurance. The new body has expanded powers for consumer protection and 
for  direct  oversight  of  insurance  intermediaries.  This  matches  international  practices 
according to which financial regulators should be financially and operationally independent of 
the government, and marks a major step forward. 

On the basis of the OECD standard, promulgated in July 2014, the Hong Kong Government 
has drawn up proposals to apply the Automatic Exchange of Financial Account Information 
requirements  to  Hong  Kong  through  legislation.  Hong  Kong’s  target  is  to  introduce  an 
amendment  bill  in  the  Legislative  Council  in  early  2016,  with  a  view  to  commencing 
information  exchanges  by  the  end  of  2018.  Hong  Kong  has  not  however  yet  confirmed  its 
preparedness  to  be  committed  to  the  comprehensive  OECD/Council  of  Europe  Multilateral 
Convention on Mutual Administrative Assistance in Tax Matters and, as a consequence, has 
not  adhered  to  the  related  Common  Reporting  Standard  Multilateral  Competent  Authority 
Agreement  (CRS  –  MCAA),  to  which  all  the  EU  Member  States  are  parties.  The  CRS-
MCAA,  subject  to  a  rather  straightforward  procedure  of  bilateral  activation,  provides  a 
suitable  legal  basis  for  the  actual  and  effective  implementation  of  cooperation  under  the 
OECD standard for the Automatic Exchange of Financial Account Information between all its 
partners, avoiding lengthy bilateral negotiations. 

The  government  completed  all  the  implementing  legislation  for  Hong  Kong’s  Competition 
Ordinance, enacted in 2012; the Ordinance thus came into full effect on 14 December 2015. 
Earlier steps included the establishment of the Competition Commission and the Competition 
Tribunal  in  2013.  The  Hong  Kong  Competition  Ordinance  draws  inspiration  from  EU 
competition  law.  However,  control  of  mergers  and  acquisitions  does  not  form  part  of  the 
present legal framework. 

Hong  Kong  is  seeking  to  modernise  its  copyright  law,  which  lags  behind  international 
standards and  contains loopholes that impede the  fight against  internet piracy. Updating the 
current law is all the more important if Hong Kong wants to become an intellectual property 
hub. The Copyright (Amendment) Bill was put to the Legislative Council in June 2014 with a 
view to completing the legislative process by the end of 2015. However, public protests over 
the  alleged  impact  on  freedom  of  speech  and  freedom  of  information,  combined  with 
filibustering  in  the  Legislative  Council,  prevented  the  bill  from  being  adopted.  Mega-sized 
infrastructure  projects  are  being  pursued  by  Hong  Kong  to  cope  with  future  demand.  The 
completion of several of them, including the Hong Kong-Guangzhou express rail link and the 
Hong Kong-Zhuhai-Macao Bridge, will be delayed and over budget, which has caused heated 

11 

 
 
 
political debates in the Legislative Council. The construction of a third runway at Hong Kong 
International  Airport  has  also  sparked  public  concerns  about  airspace  management  and  the 
environmental  impact.  The  third  runway  will  be  financed  by  the  Airport  Authority  and  will 
entail the imposition of a passenger departure fee. 

The  Hong  Kong  Government  has  updated  the  poverty  line.  The  number  of  poor  stands  at 
1 324 800, and the poverty rate at 19.6 %. Poverty alleviation will increasingly be a challenge 
in  the  face  of  a  rapidly  ageing  population.  At  the  end  of  the  year,  the  Financial  Secretary 
announced that the Future Fund (with an initial endowment of HK$ 219.7 billion) would be 
established  on  1  January  2016,  with  a  view  to  supporting  increased  spending  needs  in  the 
future.  It  will  be  a  long-term  savings  scheme  and  withdrawals  before  2025  would  not  be 
allowed except in emergencies. 

In  the  environmental  field,  the  Energy  Saving  Plan  2015  was  released.  It  sets  a  target  of 
reducing  energy  intensity  by  40 %  by  2025,  focusing  mainly  on  the  building  sector.  More 
ambitious  emission  targets  for  the  energy  sector  are  also  set  out  in  the  Fifth  Technical 
Memorandum  for  Allocation  of  Emission  Allowances.  Another  positive  environmental 
development is the Air Pollution Control (Ocean Going Vessels) (Fuel at Berth) Regulation, 
requiring  the  use  of  more  environmentally  friendly  marine  fuels  for  ocean-going  vessels. 
Applications  for  the  Hong  Kong  Government’s  HK$ 1billion  recycling  fund  were  opened, 
with the first grants set to be given to applicants in March 2016. The fund was announced in 
2014 and was approved by the Legislative Council in July 2015. It aims to increase quantity 
and quality of recyclables and reduce pressure on Hong Kong’s landfills. As regards climate 
change,  in  the  run-up  to  the  crucial  negotiations  in  Paris  (COP21),  the  Hong  Kong  Climate 
Change  Report  2015  was  issued  in  November.  The  report  stressed  that  climate  change  is  a 
major challenge but that it also offers a chance to improve Hong Kong’s liveability. 

EU-HONG KONG BILATERAL RELATIONS AND COOPERATION 2015 

Bilateral  relations  between  the  EU  and  Hong  Kong  continued  to  flourish  in  2015.  As  in 
previous  years,  the  EU  was  Hong  Kong’s  second  largest  trading  partner  after  mainland 
China,7 while Hong Kong was the EU’s 15th largest trading partner for trade in goods (ahead 
of  much  larger  third  partners  such  as  Indonesia,  Malaysia,  South  Africa,  Thailand  and 
Vietnam and among the top twenty trading partners in services. 

Bilateral trade in goods between the EU and Hong Kong increased and amounted to EUR 50 
billion  in  2015,  with  the  EU  enjoying  a  trade  surplus  of  EUR  21  billion.8  Bilateral  trade  in 
services  in  2014  (the  latest  available  data)  amounted  to  EUR  21.5  billion,  with  a  small  EU 
deficit of EUR 0.1 billion. The EU is still the largest source of foreign companies established 
in Hong Kong, with a total of 2 029 companies.9 EU businesses are key players in financial 

7 The ranking is based on trade statistics released by the Hong Kong Census and Statistics Department. 
8 Source: Eurostat: Comext database. 
9 Source: 2015 Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong Kong, 
Hong Kong Census and Statistics Department. 

12 

 
 
 
 
                                                            
and  business  services  and  active  in  a  wide  variety  of  sectors,  including  trading,  logistics, 
construction and retailing. 

Investment flows between the EU and Hong Kong are also very positive. The EU remains the 
third largest source of foreign direct investment in Hong Kong, after the British Virgin Islands 
and mainland China. Hong Kong is one of the top twenty investors in the EU.  In 2014 (the 
latest  available  data),  EU  FDI  outflows  to  Hong  Kong  amounted  to  EUR5.8  billion;  FDI 
inflows from Hong Kong to the EU reached EUR 2.1 billion. Hong Kong ranks 13 in the list 
of net FDI inflow in 2014 and  12 in the list of inward FDI stocks in EU-28 in 2014. Both 
outflows and inflows decreased considerably in 2014 compared to 2013. At the end of 2014, 
FDI stock held by the EU in Hong Kong was EUR 106 billion and FDI stock held by Hong 
Kong in the EU at the same time was EUR 71 billion. 

As  a  platform  for  mainland  China,  Hong  Kong  gives  EU  economic  operators  high-value 
opportunities.  With  a  sizeable  number  of  EU  companies  registered  as  ‘Hong  Kong  service 
suppliers’ under the Hong Kong-Mainland China Closer Economic Partnership Arrangement 
(CEPA),  the  EU  is  the  leading  source  of  foreign  companies  utilising  CEPA.  Given  the 
potential  of  CEPA,  the  EU  and  Hong  Kong  have  agreed  to  explore  ways  to  maximise  the 
opportunities for EU companies and investors. 

The  ninth  EU-Hong  Kong  structured  dialogue  took  place  in  Hong  Kong  on  26 November 
2015.  The  two  sides  discussed  a  wide  range  of  subjects  and  identified  areas  for  further 
cooperation,  in  particular  intellectual  property  trading  and  protection,  financial  services, 
environmental  protection  and  climate  action,  youth  exchange,  and  research  and  innovation. 
The two sides agreed to strengthen investment and trade relations and to explore the scope for 
launching  investment  negotiations.  They  exchanged  views  on  regulatory  matters,  including 
food  safety  and  public  procurement,  and  agreed  to  continue  working  towards  a  better 
understanding of each other’s concerns and priorities and better market access. 

2015  saw  many  high-level  visits  from  the  EU  institutions  to  Hong  Kong.  European 
Commissioner Lord Jonathan Hill (Financial Stability, Financial Services and Capital Markets 
Union) visited in November. He met with Financial Secretary John Tsang, many other Hong 
Kong  officials,  and  the  European  business  community.  The  heads  of  the  three  authorities 
forming  the  European  System  of  Financial  Supervision  (European  Banking  Authority, 
European  Securities  and  Markets  Authority  and  European  Insurance  and  Occupational 
Pensions  Authority)  all  visited  during  2015.  The  EU  Special  Representative  for  Human 
Rights, Mr Stavros Lambrinidis, also visited Hong Kong in November as did the Managing 
Director  of  the  European  Stability  Mechanism,  Mr  Klaus  Regling.  The  President  of  the 
European Research Council, Mr Jean-Pierre Bourguingon, was in Hong Kong in December. A 
number  of  the  European  Commission’s  Directors-General  and  other  high-level  officials 
visited during the course of the year. 

The Chief Secretary of the Hong Kong SAR Government, Ms Carrie Lam, visited Brussels in 
May  and  met  with  two  European  Commissioners.  The  Financial  Secretary,  Mr  John  Tsang, 
visited a number of EU countries in November. The Education Secretary, Mr Eddie Ng Hak-

13 

 
 
 
kim,  the  Secretary  for  Financial  Services  and  the  Treasury,  Professor  KC  Chan,  and  the 
Secretary for Commerce and Economic Development, Mr Gregory So, also visited Brussels in 
2015 and met with their EU counterparts. 

In the customs field, the EU and Hong Kong brought their good cooperation to a new level in 
2015.  In  April,  they  signed  an  action  plan  to  further  develop  customs  cooperation  to  tackle 
international  trade  in  IPR-infringing  goods  throughout  the  supply  chain,  among  others  by 
means  of  exchanges  of  statistical  and  detention  data.  A  six-month  pilot  project  under  the 
Action Plan was launched in October to test the exchanges and analysis of the data above, as 
well  as  the  established  working  mechanisms.  The  pilot  focuses  on  air  traffic,  with  the 
participation  of  five  EU  airports  (London  Heathrow,  Paris  Roissy  CDG,  Milano  Malpensa, 
Amsterdam Schiphol and Liège Bierset). Also in April, the parties agreed to continue working 
towards the establishment of mutual recognition authorised economic operators between the 
EU and Hong Kong. The EU and Hong Kong also continued their cooperation in the context 
of  the  Smart  and  Secure  Trade  Lane  pilot  project,  which  Hong  Kong  joined  in  2013  and 
which aims to facilitate and secure trade lanes between Europe and Asia.  

In research and innovation, 2015 was a momentous year for EU and Hong Kong relations. In 
November,  the  Research  Grants  Council  of  Hong  Kong  and  the  European  Commission 
reached  a  ground-breaking  agreement  to  set  up  a  collaboration  scheme  for  research  and 
innovation  which  will  allow  co-funding  of  Hong  Kong  researchers  in  the  EU  Framework 
Programme Horizon 2020. With an initial annual budget of HK$ 9 million for the benefit of 
Hong  Kong  researchers,  the  collaboration  scheme  will  strengthen  relations  between  the  EU 
and  Hong  Kong  research  communities  in  areas  of  mutual  interest  with  a  view  to  achieving 
world-class scientific and technical results leading to new and innovative technologies. 

On 17 June 2015, the Commission published for the first time a compilation of third country 
jurisdictions listed as non-compliant or non-cooperative by Member States for tax purposes, 
as part of the EU’s external agenda against corporate tax avoidance aiming to introduce more 
transparency  into  national  listing  processes  across  the  EU,  while  also  encouraging  third 
countries  to  engage  with  Member  States  on  good  governance  in  tax  matters.  The  full 
consolidated version of the list was published online, while a list of the most frequently listed 
jurisdictions was annexed to the Commission's Action Plan for a Fair and Efficient Corporate 
Tax  System  in  the  EU.  In  response  to  Hong  Kong’s  (and  other  jurisdictions’)  concerns,  the 
European Commission published in October an online update.10 This update reflected the fact 
that  many  of  the  countries/jurisdictions,  including  Hong  Kong,  had  actively  engaged  in  the 
OECD’s international transparency and information exchange agenda and had also committed 
themselves  to  applying  the  OECD’s  new  global  standard  for  automatic  exchange  of 
information.  The  online  update  showed  that  Hong  Kong  was  (at  the  time)  listed  by  eight 
Member  States,  as  opposed  to  ten  originally,  reflecting  changes  in  Member  States’ 

10 An official update of the EU list was carried out by the European Commission in January 2016 as part of its Anti-Tax 
Avoidance Package. 

14 

 
 
 
 
 
                                                            
assessments  of  third  countries’  tax  good  governance  standards,  corrections  to  national  lists 
and Estonia’s decision to withdraw its national list altogether.  

Hong  Kong  has  signed  13  comprehensive  agreements  for  the  avoidance  of  double  taxation 
(CDTAs)  and  two  Tax  Information  Exchange  Agreements  with  EU  Member  States. 
Negotiations are under way with three others. 

EU business interests in Hong Kong are represented by the European Chamber of Commerce 
(ECC).  The  ECC  is  a  ‘chamber  of  chambers’,  with  its  membership  comprising  the  fifteen 
European Chambers based in Hong Kong and one in Macao. The ECC operates around five 
sectoral  ‘business  councils’  (Automotive;  Brands  Protection;  Energy  and  Environment; 
Financial  Services;  Information,  Communication  and  Technology).  In  cooperation  with  the 
European Union Office to Hong Kong and Macao, the ECC carries out activities to facilitate 
dialogue  with  the  government  and  promote  EU  business  interests.  The  ECC  continued 
working  on  the  implementation  of  the  European  Union  Business  Information  Programme 
(EUBIP), which strengthens economic partnership and business cooperation with Hong Kong 
and  Macao  and  ensures  a  stronger,  coordinated  representation  of  EU  business  interests  in 
Hong Kong and Macao. 

The EU and Member State diplomatic missions in Hong Kong continued to work together to 
raise the EU’s profile in Hong Kong. To this end, the EU Office to Hong Kong organised a 
number of ‘dialogue’ meetings between the EU Heads of Mission and senior members of the 
Hong  Kong  Government,  the  Legislative  Council  and  judiciary,  and  other  leading  figures, 
including from the business world. 

In  2015,  the  EU  and  its  Member  States  were  particularly  active  in  ‘climate  diplomacy’ 
activities,  in  the  run-up  to  the  United  Nations  Framework  Convention  on  Climate  Change 
(UNFCCC COP21 Paris) in December. A number of events, seminars and conferences were 
organised  in  cooperation  with  the  Hong  Kong  authorities,  civil  society  and  business 
organisations. In parallel, several op-eds (opinion pieces) were published in the main media 
outlets and in newsletters to highlight the crucial importance of global climate action and the 
positive role Hong Kong can play as a megacity and finance hub. 

The  EU  diplomatic  missions  and  cultural  institutes  worked  together  with  local  partners  on 
many  people-to-people  activities.  The  EU  Film  Festival,  the  European  Higher  Education 
Pavillion  at  a  large  education  and  training  fair,  the  EU  Day  of  Languages  and  a  schools 
calendar  competition  were  flagship  events.  The  EU  hopes  to  build  on  this  momentum  to 
continue its work with the government, civil society and business in promoting exchanges on 
rights and freedoms. 

The  European  Union  Academic  Programme  Hong  Kong  (EUAP),  a  consortium  comprising 
the Hong Kong Baptist University, the University of Hong Kong, the Chinese University of 
Hong  Kong  and  Lingnan  University,  continued  to  strengthen  EU-Hong  Kong  relations 
through academic work and network-building with local, regional and European partners. In 
2015  the  EUAP  launched  a  series  of  events  on  European  ‘smart  cities’  case  studies  and 
organised conferences and seminars, including on EU-China relations. The EUAP also hosted 

15 

 
 
 
the Model European Union, a simulation in which students play the roles of heads of state or 
government of the EU Member States meeting in the European Council. 

--------------------------- 

16