JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Hong Kong Special Administrative Region: Annual Report 2018
Date: 2019-05-08
Institutions: European Commission, European External Action Service
Subjects: Hong Kong, bilateral relations, business activity, economic development, economic relations, fundamental rights, international relations, political situation, rule of law, trade policy

EN 

  EN 

   EUROPEAN COMMISSION HIGH REPRESENTATIVE OF THE UNION FOR FOREIGN AFFAIRS AND SECURITY POLICY Brussels, 8.5.2019  JOIN(2019) 8 final  JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Hong Kong Special Administrative Region: Annual Report 2018  
 
 
JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE 
COUNCIL 
HONG KONG SPECIAL ADMINISTRATIVE REGION: ANNUAL REPORT 2018 

Summary 

Since Hong Kong's handover 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 
21st  report,  covering  developments  in  2018.  The  EU  adheres  to  its  ‘one  China’  policy  and 
supports the ‘one country, two systems’ principle and its implementation. 

2018 was yet another challenging year for Hong Kong. Political developments prompted the 
Spokesperson of the High Representative Vice-President (HRVP) to issue statements on three 
separate occasions: regarding restrictions of the right to stand for election, the banning of a 
political  party,  and  a  politically  motivated  refusal  to  renew  the  work  visa  of  a  foreign 
journalist. 

Most  aspects  of  the  ‘one  country,  two  systems’  principle  continue  to  work  well.  However, 
concerns  about  the  erosion  of  this  principle,  which  is  the  cornerstone  of  Hong  Kong’s 
economic  success,  have  increased  over  the  past  year.  There  is  a  clear  negative  trend  with 
respect to the erosion of civil and political rights. This trend gives rise to legitimate concerns 
about  whether  Hong  Kong’s  high  degree  of  autonomy  and  its  attractiveness  as  an 
international  business  centre  will  continue  to  be  upheld  in  the  long  term.  The  business 
community  has  been  following  these  developments  and  in  2018  several  chambers  of 
commerce made public statements to express their concerns. 

Freedom  of  speech  and  freedom  of  information  are  generally  respected  in  Hong  Kong. 
However,  the  freedom  of  expression  is  facing  unprecedented  challenges,  particularly  with 
regard to sensitive political topics. 

The  unusually  high  number  of  questions  and  recommendations  addressed  to  Hong  Kong 
during  the  United  Nations’  universal  periodic  review  (UPR)  of  China  carried  out  in 
November  2018  also  reflects  the  international  community’s  concerns  regarding  the 
deterioration  of  civil  and  political  rights  in  Hong  Kong  in  recent  years.  Improving  the 
protection of other human rights, such as the rights of migrant workers, children, and LGBTI 
people, was also the subject of recommendations for further action under the UPR. 

Despite  several  politically-sensitive  cases,  the  rule  of  law  generally  prevailed  and  the 
judiciary  continued  to  demonstrate  its  independence  and  its  consistent  adherence  to  due 
process. 

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.  Hong  Kong  remained  a  competitive  international  business  and  financial 
centre, the world’s premier hub for business with mainland China, and an important hub for 
the Asia-Pacific area. Hong Kong is now home to over 2 200 EU companies, around half of 
which are using Hong Kong as their regional headquarters or regional offices. 

1 

 
 
 
Two major infrastructure projects connecting Hong Kong to the mainland were inaugurated 
in 2018: a high-speed rail link connecting Hong Kong to the mainland’s 25 000 km railway 
network,  and  the  Hong  Kong-Zhuhai-Macao  Bridge.  Both  the  rail  link  and  the  bridge  have 
increased  the  connectivity  of  the  cities  of  the  Greater  Bay  Area  and  will  contribute  to  a 
greater integration with the mainland, presenting both new opportunities and new challenges. 

Though the process seems to be indefinitely stalled, the EU encourages the Hong Kong SAR 
and  the  central  government  authorities  to  resume  the  electoral  reform  as  enshrined  in  the 
Basic Law, 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  to  reach  Hong  Kong’s  economic  objectives  and  tackle  its  socio-economic 
challenges. 

Political developments 

2018 was a politically eventful year. Hong Kong faced new challenges to fundamental rights 
and  freedoms,  such  as  the  right  to  stand  for  elections  and  freedom  of  expression  or 
association.  The  Spokesperson  issued  three  statements1  in  less  than  a  year,  which  was 
unprecedented. 

The space for political opposition in Hong Kong is narrowing. Several opposition candidates, 
including Agnes Chow and former lawmaker  Lau Siu-Lai, were barred from running in the 
Legislative Council (LegCo) by-election because of their political affiliation or views. These 
decisions were taken by the returning officer appointed by the Electoral Affairs Commission, 
and  were  subsequently  defended  by  the  government.  The  legal  community  in  Hong  Kong 
challenged  their  legality  and  constitutionality.  In  December,  current  LegCo  member  Eddie 
Chu was barred from running in a rural representative election due to his political stance. 

Rejected  candidates  can  file  an  election  petition  and  ask  for  a  judicial  review  but  this  may 
take years and thus does not provide an efficient legal remedy. The right to stand for election 
without unreasonable restrictions is guaranteed by the Hong Kong Bill of Rights and in the 
International Covenant on Civil and Political Rights (ICCPR) which Hong Kong has ratified. 
The EU calls on the Hong Kong SAR to uphold these rights. 

In the last couple of years, Hong Kong has seen the emergence of a localist movement calling 
for  self-determination  or  even  independence.  Although  pro-independence  voices  have  very 
limited support in society and no international backing, they raise questions about the border 
between  legitimate  freedom  of  expression  and  seditious  incitement.  These  are  yet  to  be 
legally clarified. In the last year, the Hong Kong SAR government, encouraged by the central 
government,  adopted  a  new  zero-tolerance  policy 
towards  any  mention  of  ‘self-
determination’  or  ‘independence’,  on  grounds  of  national  security  and  contravention  of  the 
Basic Law. 

1 1) 29 January 2018 statement on the decision to bar Agnes Chow from running for a Legislative Council by-
election   

2) 24 September 2018 statement on the decision to ban the Hong Kong National Party 

3) 8 October 2018 statement on the refusal to renew a visa for a foreign journalist in Hong Kong. 

2 

 
 
                                                           
On 24 September, the Secretary for Security prohibited the operation or continued operation 
of the Hong Kong National Party (HKNP). HKNP advocated for Hong Kong’s independence 
through peaceful means such as the distribution of leaflets, the holding of public discussions, 
and silent sit-ins. Its membership was very small. It is the first time that a political party has 
been  banned  in  Hong  Kong.  Hong  Kong’s  legal  community  questioned  the  decision  as 
lacking  legal  grounds,  disproportionate,  and  not  in  line  with  international  jurisprudence  on 
such matters. The decision will, in all likelihood, have a wider chilling effect on freedom of 
expression and association and on political activity. 

On  5  October,  the  government  refused  to  renew  the  work  visa  for  Victor  Mallet,  Financial 
Times Asia Editor and Vice-President of the Foreign Correspondent Club. Mallet had chaired 
a  talk  by  pro-independence  activist  Chan  Ho-tin  of  the  above-mentioned  HKNP  in  August 
when the party was not yet banned. In the absence of a credible alternative explanation, the 
decision appears politically motivated. Such pressure on journalists is unprecedented in Hong 
Kong  and  causes  serious  concerns  about  the  exercise  of  freedom  of  the  press.  There  are 
growing concerns that journalists are practising self-censorship. Hong Kong prides itself on 
being an open international city where freedom of expression is not put in doubt and freedom 
of  the  press  and  information  is  fully  respected.  Restriction  of  the  work  of  journalists, 
including that of foreign journalists, would gravely damage Hong Kong’s reputation and its 
credentials as a financial and business hub. 

Furthermore, on 8 November Victor Mallet was denied a tourist entry visa into Hong Kong. 
This was the second time in a year that Hong Kong refused entry to an EU citizen, apparently 
on political grounds (after Benedict Rogers in October 2017). 

The rule of law is still quite robust, judicial procedures and due process are fully respected. 
The independence of the  judiciary is  not  in  doubt.  There have been a number of politically 
sensitive cases in recent years, and some are still ongoing.2  In several instances in 2018, the 
Court  of  Final  Appeal  overruled  jail  sentences  related  to  participation  in  protest  actions.  In 
December, the Court lifted restrictions imposed on a popular demonstration area outside the 
government’s  headquarters  (known  as  Civic  Square),  reminding  the  government  of  the 
importance of freedom of assembly. 

However, active prosecution efforts by the government and its toughened stance on protest- 
related offences, such as illegal assembly, are already having chilling effects on civil society, 
political activism and ultimately on the democratic process. 

Some politicians questioned the role of foreign  judges in  Hong Kong’s  courts, arguing that 
they  may  endanger  national  security.  However,  the  Chief  Executive  came  out  strongly  to 
defend the practice as beneficial for Hong Kong’s rule of law. 

By-elections to replace five of the six disqualified lawmakers took place on 11 March and 25 
November.  The  elections  proceeded  without  major  incident.  The  pan-democrats  won  back 
only two seats. The pro-establishment lawmakers retain their control over the legislature. 

The  controversial  high-speed  railway  co-location  arrangement  was  approved  by  LegCo 
and  entered  into  force  in  2018.  The  high-speed  railway  link  to  China  started  running  in 

2 For example, the trial of the nine Occupy Central leaders charged with incitement to public nuisance and 
similar charges finished in December; the judgment is expected in April 2019. 

3 

 
 
                                                           
September 2018. The railway will improve connectivity between Hong Kong and China but 
the  co-location  arrangement  itself  is  controversial.  The  mainland  has  been  given  almost 
exclusive jurisdiction in a designated area of SAR territory, called the Mainland Port  Area. 
Several  judicial  reviews  challenged  the  legality  of  this  co-location  arrangement  and  its 
compatibility with  the ‘one country, two systems’ principle and the provisions of the Basic 
Law. On 12 December, the Court of First Instance ruled that the arrangement is constitutional 
and can remain in operation; the ruling is likely to be appealed. 

The  Consulates  General  of  EU  Member  States  in  Hong  Kong  were  formally  notified  about 
the new arrangements regarding consular assistance and protection in the Mainland Port Area 
only on 3 April 20193. 

In  2017,  Gui  Minhai,  a  Swedish  citizen  and  the  last  of  the  ‘missing’  booksellers,  (whose 
cases  have  not  yet  been  satisfactorily  clarified),  was  released  by  mainland  authorities 
following his disappearance in 2015. However, he was detained again in January 2018. On 24 
January  2018,  the  HRVP’s  Spokesperson  issued  a  statement4  demanding  his  immediate 
release. Gui Minhai remains in detention. Senior EU representatives raised his case with the 
Chinese authorities on a number of occasions. 

Equal opportunities, rights and freedoms 

Hong  Kong  enjoys  a  high  degree  of  freedom.  Freedom  of  expression,  media  freedom  and 
freedom  of  information  under  the  ‘one  country,  two  systems’  principle  are  essential 
components of Hong Kong’s strength and success as a global business centre. 

Even though the media still enjoy a high degree of freedom, issues have been accumulating 
for  several  years.  International  press  freedom  watchdog  Reporters  Without  Borders  ranked 
Hong Kong 70th out of 180 in 2018, and highlighted the growing interference of the Chinese 
authorities  in  the  media.  In  its  2018  Annual  Report,  the  Hong  Kong  Journalist  Association 
said  that  the  majority  of  journalists  considered  that  press  freedom  was  worse  than  in  2017. 
The most damaging issue for press freedom was the decision of the Hong Kong government 
not to renew the working visa of the Financial Times Asia editor (see above). 

There are indications of increasing self-censorship, for example the decision by an arts centre 
to cancel the participation of exiled Chinese writer Ma Jian in a literary festival because of 
his  political  views.  Although  the  centre  later  reversed  its  decision,  the  incident  is 
symptomatic of the new restraint and self-censorship that can been detrimental to the freedom 
of expression. 
Some  political  subjects,  in  particular  self-determination  and  independence,  seem  to  have 
become taboo without a proper legal framework to clarify the restrictions. This also extends 
to academic discussions. By and large, Hong Kong continued to enjoy academic freedom but 
there are clear signs of increasing political encroachment within university campuses. 

Hong  Kong  received  unprecedented  attention  during  the  UN’s  universal  periodic  review 
(UPR)  of  China,  carried  out  in  November  2018.  12  countries  used  the  UPR  hearing  to 

3 On 31 January 2019 the Ministry of Foreign Affairs of the People’s Republic of China sent a note verbale to 
the embassies of Member States in Beijing informing them of the new arrangements.  

4 https://eeas.europa.eu/headquarters/headquarters-
homepage_en/38678/Statement%20on%20the%20detention%20of%20Gui%20Minhai. 

4 

 
 
                                                           
highlight  their  concerns  about  human  rights  in  Hong  Kong.  Questions/recommendations 
related  to:  (i)  implementing  the  ‘one  country,  two  systems’  principle;  (ii)  the  case  of  Gui 
Minhai; (iii) challenges to the freedom of expression, the press and association; (iv) the rights 
of LGBTI people, migrant workers and children. Five EU Member States raised questions or 
recommendations about Hong Kong. A number of Hong Kong NGOs formed a coalition in 
preparation for the UPR to raise issues in a more efficient way. 

For LGBTI rights, Hong Kong does not have a comprehensive anti-discrimination law that 
would cover discrimination on the grounds of sexual orientation or gender identity. However, 
three landmark cases in favour of LGBTI equality in 2018 may well lay the ground for such 
legislation. On 4 July, the Court of Final Appeal ruled that immigration authorities must grant 
spousal visas to same-sex partners. Two other cases are still pending. 

Trafficking in human beings remains a concern. In recent years, Hong Kong’s government 
has stepped up efforts to address the issue, namely through the recent adoption of an action 
plan. 

In  March  2018, a  high-level  inter-bureau/departmental  steering  committee  chaired  by  the 
Chief Secretary for Administration endorsed an action plan to tackle trafficking in people and 
improve  the  protection  of  foreign  domestic  workers  in  Hong  Kong.   The  plan  outlines  a 
package of measures which cover victim identification, protection and support, investigation, 
enforcement,  prosecution  and  prevention  as  well  as  partnership  with  different  stakeholders. 
The action plan is a welcome step but cannot replace a comprehensive legal framework. 

The  EU  is  committed  to  continuing  its  cooperation  with  Hong  Kong  to  fight  trafficking  in 
human  beings.  In  2018,  the  EU  Office,  in  cooperation  with  the  Office  of  the  Secretary  for 
Security of Hong Kong, organised a third workshop on preventing and combating trafficking 
in human beings and protecting its victims. 
Foreign domestic workers, who number around 370 000 in Hong Kong, continued to suffer 
from  a  lack  of  adequate  labour-  and  social  protection.  Two  existing  laws  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.  The  government  has  taken  steps  to  crack  down  on  debt  bondage  and 
malpractices by employment agencies. The above-mentioned action plan to tackle trafficking 
in  human  beings  and  improve  the  protection  of  foreign  domestic  workers  should  provide  a 
framework for addressing the issue of the rights of foreign domestic workers. For example, in 
December  2018  the  Labour  Department  set  up  a  dedicated  hotline  to  provide  support  for 
foreign  domestic  workers  regarding  their  employment  rights  and  obligations,  requests  for 
assistance or complaints. The hotline operates 24 hours a day and interpretation services are 
available. 

Poverty  and  social  inequality:  despite  Hong  Kong’s  prosperity  and  significant  budget 
surplus, around 1.37 million people, one in five residents, are now officially classified as poor 
by the government’s Poverty Commission. Poverty has been steadily increasing over the last 
10  years,  as  has  the  number  of  the  ‘ultra-rich’.  As  a  result,  Hong  Kong  is  one  of  the  most 
unequal cities in the world (as measured by its Gini coefficients). The gap is widening, with 
the richest 10 % of households earning 44 times more than the poorest 10 %. 

The  anti-corruption  system  remained  vigorous  and  resilient.  Hong  Kong  boasts  very  high 
standards  of  transparency  and  anti-corruption  measures.  The  authorities  and  political  and 

5 

 
 
 
business  leaders  recognise  that  transparency  is  vital  to  maintaining  Hong  Kong’s  strong 
position as an international business centre. 

Relations between Hong Kong and mainland China 
Through initiatives such as the Greater Bay Area, Belt and Road, the high speed railway, the 
new  bridge  and  many  other  economic  and  social  initiatives,  Hong  Kong  is  ever  more 
integrated  into  the  national  development  of  the  People’s  Republic  of  China.  It  seems  that, 
after  the  19th  Congress  of  the  Chinese  Communist  Party  (2017),  a  new  understanding 
emerged of the ‘one country, two systems’ principle, Hong Kong’s high degree of autonomy 
and  the  principle  of  ‘Hong  Kong  administered  by  Hong  Kong  people’.  The  notions  of 
‘comprehensive jurisdiction’, and ‘shared governance’, together with  a greater focus on red 
lines  with  regard  to  national  security  and  territorial  integrity,  make  certain  parts  of  Hong 
Kong society worry about the future. 

China’s policy paper on the European Union published on 18 December 2018 states that ‘the 
central  government  of  China  supports  and  encourages  the  governments  of  the  Hong  Kong 
Special Administrative Region and the Macao Special Administrative Region in developing 
mutually  beneficial  and  friendly  cooperation  in  such  areas  as  economy,  trade,  culture  and 
tourism with the EU and its member states in accordance with the principle of ‘one country, 
two systems’ and provisions of the two Basic Laws. Given that Hong Kong and Macao are 
China’s  special  administrative  regions,  their  affairs  are  part  of  China’s  internal  affairs  and 
should not be interfered in by the EU side.’ 

There  are  recurrent  tensions  between  Hong  Kong  citizens  and  mainland  visitors,  with 
resulting protests, for example following the influx of mainland tourists after the opening of 
the  Hong  Kong-Zhuhai-Macao  Bridge.  In  September,  more  than  400  uniformed  Chinese 
People’s  Liberation  Army  soldiers  were  sent  to  Hong  Kong  Country  Park  to  help  remove 
trees felled during the typhoon. Pan-democratic lawmakers and parts of Hong Kong’s society 
expressed concern about this action as yet another sign of the erosion of the ‘one country, two 
systems’ principle. 

Economic developments 

At  the  macro-economic  level,  Hong  Kong’s  economic  momentum  is  slowing  down.  Its 
economic foundations remain solid. The labour market remained at full employment, with an 
unemployment  rate  of  2.8  %  in  the  last  quarter  of  2018  the  lowest  level  in  more  than  20 
years. Inflation pressure remained moderate. Underlying consumer price inflation was 2.4 % 
in 2018. 

Yet the economic momentum significantly slowed during the year. The economy grew by 3% 
in 2018 (compared to 3.8% in 2017) and recorded a gradual slowdown from 4.6% in the first 
quarter of the year to only 1.2% in the fourth. This shift mainly reflects an ongoing slowdown 
in  mainland  China  coupled  with  the  effects  of  the  escalating  US-China  trade  war.  Both 
factors  weigh  on  the  external  sector  and  negatively  impact  business  and  consumer 
confidence. Retail sales momentum slowed markedly, external trade in goods turned negative 
toward  the  end  of  the  year  and  the  housing  market  cooled  in  the  second  half.  The  stock 
market posted losses during most of 2018, but has started recovering in early 2019.  

Government  initiatives  for  economic  development:  In  her  2018  Policy  Address,  Chief 
Executive  Carrie  Lam  reiterated  the  government’s  commitment  to  a  diversified  economy, 

6 

 
 
 
 
announcing  further  significant  funding  for  research,  while  at  the  same  time  expediting  re-
industrialisation  (subsidising  smart  manufacturing  facilities),  promoting  technology  transfer 
and  launching  pro-innovation  government  procurement  policies.  The  government  is 
determined to improve Hong Kong’s status as an international commerce and trading centre 
by signing more bilateral and multilateral agreements. It believes that participation in China's 
Belt and Road Initiative and the Greater Bay Area development offers opportunities to give 
new impetus to the economy. 

Property  market  and  housing:  Fuelled  by  low  interest  rates,  excess  liquidity,  strong 
demand from investors and limited supply, the property market reached record highs in 2018. 
In  particular,  for  the  first  9  months  of  the  year  private  residential  property  prices  rose  by 
roughly 14 % compared  with  2017, making Hong Kong one of the  world’s most expensive 
housing markets. The property market cooled off at the end of the year, offsetting all of the 
2018  increase.  Nevertheless,  Hong  Kong  remains  the  world’s  least  affordable  urban  centre 
for home buyers. Flats in new buildings have been getting smaller on average to make them 
more  affordable  for  new  home  buyers.  As  residential  prices  and  rents  in  the  private  sector 
continued to soar, demand for public housing increased more than ever. The average waiting 
time for public rental housing has lengthened to 5.3 years. 

In 2018, the Hong Kong authorities introduced a set of initiatives to improve the situation and 
to  increase  housing  supply.  These  include  estate  redevelopment,  the  reallocation  of  private 
housing  sites  for  public housing,  and  the  introduction  of  a  special  rate  on  vacant  first-hand 
private residential units.   

International  businesses  cite  high  property  prices  as  the  main  reason  behind  Hong  Kong’s 
loss of competitive edge and attractiveness. 

Environment  protection  policy:  Environmental  protection  remains  a  substantial  challenge 
for  Hong  Kong.  It  started  receiving  political  attention  only  recently.  In  this  year’s  Policy 
Address, air pollution was mentioned only in relation to traffic, and the announced measures 
focus  exclusively  on  reducing  roadside  concentrations  of  key  air  pollutants.  To  improve 
waste management, a significant and urgent challenge, a scheme charging for solid waste has 
been  proposed.  The  government  also  announced  some  measures  to  reduce  plastic  waste, 
albeit  only  in  government  premises.  To  support  the  development  of  renewable  energy,  the 
government  implemented  a  feed-in  tariff  scheme,  announced  the  launch  of  large-scale 
renewable  energy  projects  and  is  planning  to  relax  restrictions  on  the  installation  of  solar 
photovoltaic systems 

Research, development & innovation: In her 2018 Policy Address, Chief Executive Carrie 
Lam  pledged  to  develop  Hong  Kong  as  an  international  innovation  and  technology  hub, 
setting out  an array of measures to  spur development  in  the innovation and technology and 
creative  industries.   The  government  also  set  a  goal  to  double  R&D  expenditure  as  a 
percentage of GDP from 0.73 % to 1.5 %. The 2018 Policy Address renewed commitment to 
these goals and announced additional funding for research and development, as well as for re-
industrialisation  and  technology  transfer.  The  approach  to  innovation,  however,  seems  to 
focus  exclusively  on  technological  advances  and  would  benefit  from  a  more  holistic  and 
integrated approach. 

Economic relations with mainland China 

Hong  Kong  is  an  important  entrepôt  for  the  mainland:  in  2018,  57  %  of  Hong  Kong’s  re-
exports originated in mainland China, and 55 % were destined for the Chinese mainland. 

7 

 
 
Hong Kong is the largest source of overseas direct investment in China, as well as the leading 
destination for China’s outflow of foreign direct investment (FDI). By the end of 2018, 46.3 
% of all the overseas-funded projects approved in mainland China were tied to Hong Kong 
interests. In turn, by the end of 2017, the stock of China's FDI going to Hong Kong totalled 
US$ 981  billion,  or  54.2  %  of  total  FDI  outflow.  A  non-negligible  proportion  of  this 
investment is investment in technology: Hong Kong was the 7th largest source of technology 
imports for China in terms of contract value (US$ 879 million), accounting for 2.9 % of the 
total (2016 data). 

Hong Kong is a key offshore-capital-raising centre for Chinese companies. As of December 
2018, 1137 mainland companies were listed in Hong Kong, with total market capitalisation of 
around US$ 2.6 trillion, or 68 % of the market total. 

Hong  Kong  further  developed  its  relation  with  the  mainland  under  the  China-Hong  Kong 
Comprehensive  Partnership  Agreement  (CEPA).  On  14  December  2018,  Hong  Kong  and 
China  signed  an  Agreement  on  Trade  of  Goods  under  CEPA.  Starting  from  1  January 
2019, goods of Hong Kong origin imported into the mainland will benefit from zero tariffs. 
The new agreement also introduces further commitments to facilitate trade with the mainland 
and a new chapter specifically on trade facilitation measures in the Guangdong-Hong Kong-
Macao  Greater  Bay  Area.  Two  new  measures  for  trade  in  services  were  also  announced 
under CEPA, and will be implemented as of 1 March 2019. 

The  Guangdong-Hong  Kong-Macao  Greater  Bay  Area  (GBA)  continued  to  be  raised 
prominently.  The  long  awaited  GBA  Blueprint  was  finally  released  in  February  2019  and 
identified  Hong  Kong  as  one  of  the  four  core  cities  in  the  region  (together  with  Shenzhen, 
Guangzhou  and  Macao).  Hong  Kong  is  to  play  a  key  role  in  the  development  of  the  GBA 
through  consolidation  of  its  position  as  an  international  financial,  transportation  and  trade 
service centre; the establishment of the city as the centre for international legal and dispute 
resolution services; the strengthening of its status as a global offshore Renminbi hub; and the 
development  of  innovation  and  technology.  Some  impressive  infrastructure  projects 
connecting GBA cities were completed. 2018 saw the inauguration of the high-speed rail link 
with mainland China and the 55 km-long Hong Kong-Zhuhai-Macao Bridge, the longest sea-
crossing bridge in the world. 

Trade policy 

In November 2018, Hong Kong underwent its Trade Policy Review at the WTO. There was 
unanimous recognition that Hong Kong remains one of the most open, outward-looking and 
liberal  economies  in  the  world,  with  some  of  the  highest  rankings  in  world  indicators  for 
economic  freedom,  competitiveness  and  ease  of  doing  business.  Hong  Kong’s  business-
friendly  investment  climate,  its  location,  experienced  service  providers,  rule  of  law,  light 
regulatory  environment  and  unique  position  under  the  ‘one  country,  two  systems’  principle 
were seen as the source of its success and the key to its competitiveness in the future.   

Hong  Kong  has  been  pursuing  further  free  trade  and  investment  agreements,  concluding  a 
record five free trade agreements in the last 18 months. In 2018, Hong Kong signed a free 
trade  agreement  with  Georgia  in  June,  and  concluded  negotiations  with  the  Maldives  and 
Australia  in  November.  Hong  Kong  has  six  investment  promotion  and  protection 
agreements for which negotiation is completed and signature is pending (Australia, Bahrain, 
Maldives, Mexico, Myanmar, and the UAE).  In  addition,  negotiations with  Russia and  Iran 
are underway.  

8 

 
 
EU-Hong Kong bilateral relations and cooperation in 2018 

According to the latest survey carried out by the Hong Kong SAR government (2018), over 
2 200 EU companies have set up their businesses in Hong Kong and around half of them are 
using  Hong  Kong  as  their  regional  headquarters  or  regional  offices.  The  EU’s  business 
presence  covers  a  large  variety  of  sectors,  mainly  financial  and  business  services,  trading, 
logistics, construction and retailing. EU companies are key players in a range of sectors of the 
Hong Kong economy, including banking, insurance and securities. 

Hong Kong was the EU's 20th largest  trading partner in goods in  2018 and ranked  as the 
EU's  8th  trading  partner  in  Asia.  EU  exports  of  goods  to  Hong  Kong  amounted  to 
EUR 36.6 billion  while  imports  from  Hong  Kong  amounted  to  EUR 9.9 billion  (a  10.7  % 
decrease  year-on-year),  resulting  in  a  sizeable  surplus  of  EUR 25.8 billion,  for  the  EU,  its 
fourth-highest bilateral trade surplus. The main EU exports of goods to Hong Kong comprise 
machinery and equipment, jewellery, clothing, luxury goods, food, wine, and cars.  

In 2018, the EU maintained its position as Hong Kong’s second-largest trading partner after 
mainland  China.  The  EU  was  Hong  Kong’s  second-largest  export  destination  and  fourth- 
largest import supplier during the year.  

Hong  Kong  is  an  important  entrepôt  for  trade  between  China  and  the  EU:  in  2017,  nearly 
EUR 10  billion  of  the  mainland’s  imports  from  the  EU  were  routed  through  Hong  Kong, 
while re-exports of mainland-origin goods to the EU totalled EUR 33 billion. 

Hong Kong is the EU's fifth-most important trading partner in services in Asia, after China, 
Japan,  Singapore  and  India.  In  2017  (the  most  recent  year  for  which  data  are  available), 
bilateral trade in services amounted to EUR 26.6 billion. EU imports of services from Hong 
Kong  reached  EUR 13.2  billion,  while  exports  to  Hong  Kong  reached  EUR 13.4  billion, 
resulting in an EU surplus of EUR 233 million. 

Two-way investment flows between the EU and Hong Kong have significantly increased:   

According to Eurostat, in 2017, Hong Kong was the third-most popular FDI destination for 
the EU (with EUR 17.9 billion). Hong Kong statistics show that, excluding offshore centres, 
the EU is the second-largest foreign investor in Hong Kong (after mainland China), totalling 
EUR 149  billion  and  contributing  10 %  of  total  FDI  stock  by  the  end  of  2016  (latest 
available).  The  presence  of  high-quality  service  providers  and  Hong  Kong's  predictable 
regulatory environment and rule of law are among the main reasons for this. 

In  turn,  Hong  Kong  became  in  2017  the  largest  source  of  FDI  into  the  EU5  (with 
EUR 51.6 billion).  Hong  Kong’s  prominent  position  in  investment  relations  with  the  EU  is 
partly  due  to  the  fact  that  a  sizeable  proportion  of  what  is  recorded  statistically  as  ‘Hong 
Kong FDI’ in fact originates from the mainland. Indeed, according to the Hong Kong Trade 
Development  Council  more  than  60 %  of  outbound  Chinese  investment  is  directed  to  or 
channelled  through  Hong  Kong.  Likewise,  a  significant  percentage  of  EU  FDI  into  China 
transits via Hong Kong. 

The 12th EU-Hong Kong annual Structured Dialogue meeting took  place in  Brussels on 
7 December 2018. The EU and Hong Kong agreed to strengthen their cooperation within the 

5 Excluding offshore centres.  

9 

 
 
                                                           
WTO,  pledging  to  work  together  and  support  ongoing  efforts  to  reform  the  organisation. 
There were also constructive discussions on removing obstacles to bilateral trade. Both sides 
took stock of progress under the ongoing EU-Hong Kong Action Plan on Cooperation in the 
Customs Enforcement of Intellectual Property Rights and looked forward to potential further 
collaboration under the initiative. A technical exchange on financial services took place in the 
margins of the Structured Dialogue. This year, for the first time, a dedicated exchange on the 
circular  economy  also  took  place.  Looking  ahead,  the  EU  and  Hong  Kong  identified  the 
circular economy (including plastic waste)  as  an important  area for future cooperation.  The 
EU  welcomes  the  new  initiatives  of  the  Hong  Kong  government  in  this  domain  and 
encourages  Hong  Kong  to  consider  a  more  ambitious  and  comprehensive  approach  to 
environmental matters. Cooperation on the circular economy could be a positive contribution 
in this area. 

During  2018,  the  EU  and  Hong  Kong  continued  to  work  together  in  the  field  of  customs, 
under an action plan to improve IPR protection financed through the IP Key framework. This 
year,  for  the  first  time,  an  exchange  of  visits  by  customs  officials  took  place.  In  terms  of 
seizure  value,  in  the  2017  EU  Report  on  the  customs  enforcement  of  IPR  (issued  in  2018) 
Hong  Kong  is  still  the  number  one  provenance  of  IPR  infringing  goods.  Both  sides  are 
reflecting on how to further improve cooperation in this field. 

In  October  2018,  the  Hong  Kong  authorities  published  a  new  call  for  funds  to  support 
Horizon  2020  participants  from  the  Special  Administrative  Region  (SAR).  Researchers, 
companies, research institutions  and universities from  the SAR  can team  up with  European 
partners  to  participate  in  projects  under  Horizon  2020  and  make  best  use  of  the  EU’s 
opportunities  in  research  and  innovation.  A  total  budget  of  HK$ 9  million  (circa 
EUR 1 million)  is  reserved  for  the  2018/2019  exercise.  Both  basic  and  applied  research 
projects of high academic merit will be considered. 

During  2018,  the  EU  monitored  the  implementation  of  commitments  undertaken  by  Hong 
Kong  in  2017,  on  the  basis  of  which  the  Council  of  the  European  Union  agreed  not  to 
consider Hong Kong as a non-cooperative jurisdiction for tax purposes. In particular, the 
EU welcomed the extension by the People's Republic of China of the Convention on Mutual 
Administrative  Assistance  in  Tax  Matters  to  Hong  Kong  SAR  and  the  activation  of  the 
necessary agreements on exchange of information by Hong Kong SAR. The EU endorsed the 
OECD's  assessment  concerning  three  regimes  (Corporate  Treasury  Centres,  Offshore 
Reinsurance  and  Offshore  Captive  Insurance)  following  amendments  to  these  regimes  by 
Hong  Kong  SAR  to  comply  with  OECD  requirements.  In  February  2019,  Hong  Kong 
amended the two remaining regimes for Offshore Funds and Offshore Private Equity Funds 
in  order  to  address  concerns  of  the  Council  of  the  European  Union  over  their  ring-fencing 
features. On this basis, the Council of the European Union agreed in March 2019 that Hong 
Kong had completed its commitments on tax good governance. 

The EU and Hong Kong continued working together to increase people-to-people contacts, 
notably  in  the  areas  of  academic  cooperation,  student  mobility,  culture  and  creative 
industries. 

The  European  Union  Office  to  Hong  Kong  and  Macao,  EU  diplomatic  missions  and 
cultural  institutes  worked  together  to  raise  the  EU’s  profile  and  engaged  with  local 
partners  on  many  people-to-people  activities.  Examples  include  the  EU  Film  Festival,  the 
EU’s  participation  in  the  Hong  Kong  Book  Fair  for  the  second  time,  the  EU  Day  of 
Languages,  an  EU-themed  short  film  competition  with  local  schools,  a  month-long  human 

10 

 
 
rights campaign to celebrate the 70th anniversary of the Universal Declaration of the Human 
Rights and several human rights-focused seminars. The EU hopes to build on this momentum 
to  continue  its  work  with  Hong  Kong’s  government,  civil  society  and  business  to  promote 
exchanges on rights and freedoms. 

The  first  official  visit  of  Chief  Executive  Carrie  Lam  to  Brussels  took  place  in  June  2018. 
The Chief Executive had productive discussions with President of the European Commission 
Jean-Claude  Juncker,  High  Representative  Vice-President  Federica  Mogherini,  and 
Commissioner Cecilia Malmström. 

There were several high-level visits from the EU institutions and Members of the European 
Parliament  to  Hong  Kong  in  2018.  Visits  by  the  Chair  of  the  European  Securities  and 
Markets Authority Mr Steven Maijoor representing the EU at the Asia Financial Forum and 
by  the  Tourism  and  Transport  Committee  of  the  European  Parliament  in  October  are 
particularly noteworthy. On 11 July, the European Parliament adopted a report on the state of 
EU-China relations which contains a part on Hong Kong. The European Parliament reiterates 
its full support to the principle of ‘one country, two systems’ and shares the assessment of the 
EU’s 2017 annual report about its gradual erosion. 

11