JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL HONG KONG SPECIAL ADMINISTRATIVE REGION: ANNUAL REPORT FOR 2019
Date: 2020-07-22
Institutions: European Commission, European External Action Service
Subjects: Hong Kong, activity report, bilateral relations, cooperation policy, economic development, fundamental rights, human rights, political situation, regional integration, trade policy

EN 

  EN 

   EUROPEAN COMMISSION HIGH REPRESENTATIVE OF THE UNION FOR FOREIGN AFFAIRS AND SECURITY POLICY Brussels, 22.7.2020  JOIN(2020) 13 final  JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL HONG KONG SPECIAL ADMINISTRATIVE REGION:  ANNUAL REPORT FOR 2019  
 
 
JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

HONG KONG SPECIAL ADMINISTRATIVE REGION:  

ANNUAL REPORT FOR 2019 

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). The EU stands by its 
‘one  China’  policy  and  supports  the  ‘one  country,  two  systems’  principle  and  its 
implementation. In line with the commitment given to the European Parliament in 1997, the 
Commission issues an annual report on developments in Hong Kong. This is the 22nd report, 
covering 2019. 

2019  was  an  exceptionally  challenging  year  for  Hong  Kong,  with  sustained  unrest  initially 
triggered by proposals  to  amend the law  governing extradition,  which had a first  reading in 
the  Legislative  Council  on  3 April  2019.  The  second  half  of  the  year  saw  large 
demonstrations,  protests  and  associated  violence,  sieges  of  universities,  vandalism,  and 
disruption  of  transport  networks,  the  airport  and  other  aspects  of  daily  life.  Protesters  
articulated  five  demands  on  the  Hong  Kong  Government.  Reasons  for  the  unrest  included 
both  political  and  socioeconomic  concerns.  The  Government's  response  included  the 
withdrawal of the extradition bill, the invocation of emergency powers for the first time since 
1967  to  establish  an  ‘anti-mask’  law,  and  some  limited  engagement  with  the  protest 
movement through community dialogue. Allegations of police abuse underpinned demands by 
protesters for a wide-ranging commission of inquiry. However, the Hong Kong Government 
refused  to  set  up  any  such  independent  commission.  The  Independent  Police  Complaints 
Council  (IPCC)  is  reviewing  several  cases  of  alleged  abuses  by  the  police  and  was  due  to 
release  a  preliminary  report  in  early  2020.  The  adequacy  of  its  powers,  however,  has  been 
questioned. 

The peaceful conduct of the District Council elections in November fostered hopes of a de-
escalation  of  violence.  The  historically  high  turnout  of  71.2%  was  a  testament  to  the 
importance attached by the people of Hong Kong to the exercise of their democratic rights. In 
the wake of the polls, largely peaceful mass protests and some violent incidents continued to 
the end of the year. 

The EU continues to encourage the Hong Kong SAR and the Central Government authorities 
to  resume  electoral  reform  as  enshrined  in  the  Basic  Law,  and  to  reach  agreement  on  an 
electoral system that is democratic, fair, open and transparent. Universal suffrage would give 
the  Hong  Kong  Government  greater  public  support  and  legitimacy,  which  would  help  in 
attaining  Hong  Kong’s  economic  objectives  and  tackling  its  socioeconomic  challenges.  A 
convincing  response  is  needed  to  the  grievances  expressed  through  the  ongoing  protests  in 
order to secure Hong Kong’s stability in the longer term. 

Concerns have intensified about the erosion of the ‘one country, two systems’ principle and 
Hong Kong's autonomy. In general, key freedoms continue to be upheld in Hong Kong, and 
the rule of law and independence of the judiciary remain as key safeguards. However, there 
have been some worrying trends with respect to freedom of speech, notably in the context of 
the ongoing protest.  The High Court ruling on 18 November on the unconstitutionality of the 
‘anti-mask’ law prompted remarks from Beijing suggesting that the Hong Kong courts cannot 

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rule  on  the  constitutionality  of  Hong  Kong's  legislation  and  its  compliance  with  the  Basic 
Law.  Any steps  to  curb  the  prerogatives  of  the  courts  in  this  respect  would  undermine  the 
autonomy vested in  Hong Kong, including the independence of its  judiciary and the rule of 
law. The anti-corruption system remained vigorous and resilient.  

On  the  economic  front,  2019  was  a  difficult  year  for  Hong  Kong,  with  a  1.2%  GDP 
contraction  and  its  first  budget  deficit  in  15  years.  This  was  largely  due  to  external  factors 
already present towards the end of 2018, i.e. the slowdown in the Chinese economy and the 
US-China trade dispute, although the unrest in the second half of 2019 had a critical  effect, 
especially  on  sectors  linked  to  tourism.  However,  Hong  Kong  has  large  fiscal  and  foreign 
currency reserves that enable it to face the challenging environment, ensure currency stability 
and  support  business.  Its  financial  and  banking  sectors  remain  resilient  and  highly 
competitive, enabling it to remain the world’s first hub for initial public offerings (IPOs) and 
to avoid panic-driven capital outflows. 

The European business community in Hong Kong has been affected to varying degrees by the 
economic  situation  and  the  unrest.  European  companies  are  mostly  in  ‘wait  and  see’  mode, 
although  they  are  deeply  concerned  by  the  political  impasse,  the  violence  and  the 
unprecedented pressure on business. The European business community prizes Hong Kong’s 
robust legal system, judicial independence, fundamental rights and freedoms, and a business 
environment  free  of  political  interference  as  key  elements  in  the  region’s  competitiveness. 
Any erosion of these assets would negatively affect Hong Kong's attractiveness in this regard 
and its edge over other business centres. 

The  EU  issued  several  statements  and  declarations  during  the  year.    The  EU  spokesperson 
made  three  statements,  on  12  June,  1  July  and  13  August.  The  High  Representative  made 
three  Declarations  on  behalf  of  the  European  Union,  on  17  August,  2  October  and  18 
November. These Declarations underscored issues including the need to: 

reject violence,  

 
  engage  in  inclusive  dialogue,  noting  the  European  Union’s  willingness  to  support 
those who are willing to work towards de-escalation and establishing such a dialogue, 

  ensure respect for key freedoms,  
 

institute a comprehensive inquiry into violence, use of force and the root causes of the 
protests.  

The European Parliament held a debate on 18 July on Hong Kong and adopted a resolution on 
the situation.  

Political developments  

2019  was  dominated  by  the  debate  over  the Fugitive  Offenders  and  Mutual  Legal 
Assistance in Criminal Matters Legislation Bill (‘Extradition Bill’) and the mass protests 
triggered  by  the  proposed  measure.  The  Hong  Kong  Bureau  of  Security  put  forward  the 
proposal  in  February  2019  with  a  view  to  facilitating  the  extradition  of  offenders  to  China, 
Taiwan  and  elsewhere.  The  lack  of  a  basis  for  extraditing  a  Hong  Kong  citizen  facing  a 
murder charge to Taiwan was cited as one justification for the reform.  

The Extradition Bill was fiercely criticised by the legal profession, business, and civil society. 
The  main  grounds  for  criticism  were  that  the  initial  draft  encompassed  a  wide  range  of 
offences, that it failed to provide for sufficient scrutiny of proposed extradition cases, and that 
the  mainland  legal  system  did  not  provide  adequate  protection  for  human  rights  and  due 
process.  In  response,  the  Hong  Kong  Government  revised  the  proposal, reducing  the  list  of 

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extraditable  offences  from  46  to  37,  and  specifying  that  extraditable  offences  must  be 
punishable by more than three years in prison. Public opposition to the proposal intensified, 
with large rallies and intense debates in the Legislative Council (LegCo).  

As  confrontation  on  the  issue  escalated,  the  administration  reduced  scrutiny  of  the  draft 
legislation in the LegCo Committee. The inclusion of additional safeguards in the Bill did not 
diminish  public  opposition.  The  Civil  Human  Rights  Front  claimed  that  one  million  people 
joined an anti-bill march on 9 June. Chief Executive Carrie Lam announced the suspension, 
but not abandonment, of the Extradition Bill on 15 June. A further march on 16 June attracted 
a reported two million participants - the largest such gathering in Hong Kong’s history. Both 
marches were peaceful. Subsequently, the Legislative Council building and other government 
buildings  became  a  focus  for  protesters.  Some  protesters  ransacked  the  Legislative  Council 
building on 1 July, causing substantial damage, after which the building was closed for three 
months.  There  was  a  public  outcry  following  violent  attacks  on  passengers  by  a  group  of 
masked  men  at  a  mass  transit  railway  (MTR)  station  in  Yuen  Long.  The  attack  took  place 
after  a  march  against  the  extradition  bill  and  followed  warnings  that  protesters  would  face 
retribution if they went to Yuen Long. The police were strongly criticised for not intervening 
to quell the violence in a timely fashion. This incident is currently under the scrutiny of the 
IPCC. 

The Bill was only fully and formally withdrawn on 23 October. The partial concession in June 
failed to quell protests, with demonstrators now articulating five demands: 

1.  the formal withdrawal of the Bill; 
2.  the establishment  of  an  independent  Commission  of  Inquiry  to  examine  matters 

including alleged police abuses during the unrest; 

3.  an end to the use of the word ‘riot’ by the authorities, as a characterisation of protests, 

with that offence carrying a heavy prison sentence of up to 10 years; 

4.  an amnesty for those arrested; and 
5.  the  introduction  of  universal  suffrage  for  the  election  of  the  Chief  Executive  and 

Legislative Council polls, in line with provisions in the Basic Law.  

The tactics of the ‘leaderless’, but well organised, protest movement have evolved in the 
course of the protests. In addition to regular authorised and unauthorised rallies and marches, 
there  have  been  recurrent  blockages  of  Hong  Kong’s  transport  system.  Mass  sit-ins  and 
protests  at  the  international  airport  between  July  and  September  severely  disrupted  services 
and  led  to  the  imposition  of  restrictions  on  entry  to  terminals.  The  mass  transit  system  has 
been a particular target  of disruption and vandalism  in  the light  of the protesters’ assertions 
that the corporation responsible for operating the system has colluded with the government to 
impede protests,  by means including the closure  of stations at  protest sites. Business chains 
with owners or management seen as sympathetic to Beijing also became targets of vandalism.  

Regular  and  serious  violence  has  scarred  some  of  the  protests,  with  the  throwing  of  petrol 
bombs and hurling of other objects. There are concerns about the radicalisation of some in the 
protest  movement.  The  police  have  frequently  resorted  to  discharging  tear  gas  and  firing 
rubber  bullets  and  bean  bag  rounds.  Live  bullets  have  also  been  fired.  Several  improvised 
explosive  devices  were  discovered  in  the  course  of  the  year.  In  November,  a  protester 
sustained  serious  injuries  after  being  shot  in  the  stomach  by  police,  a  protester  died  after 
falling  from  a  carpark  and  a  man  was  severely  wounded  after  being  set  alight  following  an 
argument with protesters. 

There  have  been  numerous  allegations  of  excesses  and  abuse  by  the  law  enforcement 
authorities.  Some  incidents  of  such  abuse  have  been  captured  on  camera.  Allegations  are 
being examined by the Independent Police Complaints Council (IPCC), tasked with drawing 

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up a public report on the force’s handling of protests by the beginning of 2020. Many in the 
protest movement lack confidence in the IPCC, whose credibility was affected when the five-
strong body of international experts appointed by the Government in September 2019 to assist 
in  its  work  stood  aside.  The  experts  asserted  publicly  that  the  IPCC  lacked  adequate 
investigative powers and capabilities.  The publication of the  IPCC's interim report has been 
delayed  pending  the  outcome  of  a  judicial  review  to  ascertain  whether  the  IPCC  has  the 
requisite powers to conduct the investigations linked to the civil unrest. 

In  November,  demonstrators  occupied  university  campuses.  The  Chinese  University  and 
the Polytechnic University witnessed violent stand-offs with police and sieges lasting several 
days. Many injuries were sustained and numerous arrests were made. Several prominent civil 
society figures, including some traditionally close to Beijing, made efforts to mediate between 
police  and  protesters,  securing  safe  passage  for  some  demonstrators.  Strong  concerns  were 
raised about the arrest and ill-treatment of medical workers providing emergency medical care 
at the Polytechnic University; it was noted that this deterred injured protesters from seeking 
medical  attention  and  that  it  violated  humanitarian  norms.  As  a  result  of  the  damage  to 
facilities  and  the  febrile  atmosphere,  university  semesters  have  been  cut  short,  with  a 
consequent reliance on distance learning. The District Council elections in November ushered 
in  a  calmer  period  in  December,  with  a  return  to  largely  violence-free  mass  rallies  and 
marches. The police demonstrated a greater readiness to authorise gatherings, with the Civic 
Human Rights  Front (CHRF) permitted to  organise a march for the first  time since August. 
Broad  support  continues  for  the  protest  movement:  turn-out  for  authorised  marches  has 
remained substantial, with the CHRF estimating that 800,000 people took part in a march on 
8 December to mark UN Human Rights Day. 

The Hong Kong Government's response to the sustained unrest has included recourse to 
far-reaching  emergency  powers  established  during  the  colonial  era.  In  October,  the  Chief 
Executive  in  Council  invoked  the  Emergency  Regulations  Ordinance  (ERO)  of  1922  to 
establish  a  regulation  outlawing  the  wearing  of  face  masks  at  public  gatherings  with  effect 
from  5 October  (‘Prohibition  on Face Covering  Regulation’). This  was the first  use of such 
powers  since  1967.  Whilst  the  move  attracted  support  from  many  in  the  pro-establishment 
political wing, it also drew sharp criticism for the restriction of personal freedom it entails, its 
unenforceability, and the absence of scrutiny afforded to lawmakers.  

A legal challenge resulted in the High Court determining on 18 November that the regulation 
was  incompatible  with  the  Basic  Law  and  that  the  restrictions  of  rights  entailed  by  the  law 
were deemed to be disproportionate to legitimate government aims. A ruling by the Court of 
Final Appeal on the issue is awaited. 

On 26 September Carrie Lam faced tough questions from 150 members of the public at the 
only  public  community  dialogue  occasion  to  date.  A  Dialogue  Office  to  steer  dialogue 
endeavours  has  been  established  within 
the  administration's Policy  Innovation  and 
Coordination  Office.  International  partners,  including  the  EU,  have  encouraged  efforts  to 
intensify dialogue in order to de-escalate the situation. Civil society has also sought to foster 
dialogue.  

On  21 November,  the  US  Congress  enacted  the  US  Hong  Kong  Human  Rights  and 
Democracy Act and the Protect Hong Kong Act. The Government of the People’s Republic 
of  China  and  the  Hong  Kong  administration  sharply  criticised  the  move.  However,  it  was 
received  positively  by  many  in  the  protest  movement.  The  Act  provides  for  a  regular 
assessment  of  the  degree  to  which  Hong  Kong's  autonomy  is  being  upheld,  linked  to  the 
special trading status accorded to Hong Kong by the US, and establishes a basis for possible 

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sanctions  against  individuals  who  violate  human  rights  in  Hong  Kong.  The  Protect  Act 
forbids the export of certain law enforcement goods to Hong Kong.  

The  District  Council  elections  went  ahead  on  24  November,  despite  fears  by  some  in  the 
protest movement that the polls might be suspended in the context of the unrest. Violence did 
mar  the  campaign  period,  with  some  physical  attacks  on  candidates  and  vandalism  of  party 
premises. The elections themselves, however, were held in a peaceful atmosphere, and there 
was an unprecedentedly high turn-out of 71.2%. Pan-democratic representatives secured 395 
of the 452 seats and control of 17 out of 18 councils. The District Councils have only limited 
advisory  and  policy  powers,  and  they  oversee  substantial  budgets.  However,  district 
councillors determine 117 of the 1200 seats on the election committee that selects the Chief 
Executive,  and  the  pan-democratic  faction  on  the  election  committee  is  now  strengthened 
ahead of the next scheduled appointment of a Chief Executive in 2022. 

The ongoing unrest  and the Government's response to it have taken a toll on public support 
for the administration. The results of a public opinion survey released in October revealed that 
the Chief Executive's approval  rating had dropped to  a record low of 20.2%. Other surveys 
towards the end of the year highlighted the detrimental impact of the protests on public trust 
in the authorities. 

The EU issued several statements and declarations in response to developments in Hong 
Kong  during  the  year.  The  High  Representative  of  the  Union  for  Foreign  Affairs  and 
Security Policy (HR/VP) issued Declarations on behalf of the EU on 18 November, 2 October 
and 17 August. There was also a joint statement with the Foreign Minister of Canada on 17 
August. The High Representative's spokesperson issued statements on 13 August, 1 July and 
12 June. The European Parliament  held  an emergency debate on 18 July on the situation in 
Hong Kong and adopted a resolution on the situation. Reference was made to the situation in 
Hong  Kong  in  EU  statements  to  the  UN  General  Assembly  Third  Committee  and  the  UN 
Human Rights Council. 

Rights, freedoms and equal opportunities   

The espousal of self-determination or independence continued to lead to exclusion from 
electoral  processes.  Joshua  Wong,  the  Secretary-General  of  the  Demosistō  party,  was 
excluded from standing as a candidate in the District Council elections on 24 November. He 
was  the  only  candidate  amongst  1,098  prospective  councillors  to  be  disqualified.  In  three 
letters to the authorities, and in response to questions from the returning officer, Joshua Wong 
distanced himself from  earlier support for independence. The returning officer contended in 
the  explanation  for  the  disqualification  that  neither  Wong  nor  Demosistō  had  genuinely 
changed their stance on independence. 

In September 2019, the High Court considered the exclusion of Agnes Chow from running in 
a Legislative Council by-election in 2018 on the basis of her affiliation with Demosistō and its 
advocacy of self-determination. The High Court found in favour of Ms Chow’s petition on the 
procedural grounds that she had not been given a fair opportunity to respond to the claim that 
she would not  uphold the Basic  Law. The judge found that there had been a  ‘breach of the 
principle  of  natural  justice  or  procedural  fairness’.  However,  he  added  in  his  ruling  that 
advocacy of self-determination or independence would not be compatible with the Basic Law. 

Hong  Kong's  media,  including  online  media,  remain  diverse  and  continue  to  enjoy  a  high 
level of freedom. However, there are concerns about political influence over some sections of 
the  media  and  about  self-censorship.  Concerns  have  also  been  raised  about  the  alleged 
targeting of journalists, including the use of violence by police during protests, and about the 

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impeding of journalists' work in the context of the unrest. The Foreign Correspondents Club 
and the Hong Kong Journalists Association are among those that have issued statements1 in 
this  regard.    Hong  Kong  was  ranked  73rd  in  the  World  Press  Freedom  Index  compiled  by 
Reporters Without Borders (RSF).  

Freedom of assembly was largely respected during a difficult year for public order, with the 
authorities granting permission for many public rallies and marches. As violence intensified, 
denial  of  permission  for  such  gatherings  on  security  grounds  became  a  more  frequent 
phenomenon. One consequence was a greater tendency towards unauthorised gatherings, with 
police. 
an 

confrontation 

protesters 

attendant 

between 

risk 

and 

of 

Rights  of  LGBTI  people.  The  new  Chair  of  the  Equal  Opportunities  Commission  (EOC), 
Ricky  Chu  Man-kin,  has  signalled  that  efforts  will  be  made  to  advance  anti-discrimination 
measures in order to protect the rights of LGBTI individuals. At present, equality legislation 
encompasses only sex, disability, race, and family status. Cases brought by LGBTI activists in 
the  courts  have  had  some  success  in  effecting  legal  reform.  The  EU  Office  joined  other 
missions in attending the annual LGBTI parade. 

Hong  Kong  continued  to  invest  in  efforts  to  tackle  trafficking  in  human  beings,  and  has 
drawn  up  an  action  plan  to  this  end.  Additional  resources  are  being  provided  for  measures 
including  screening  for  possible  victims.  The  reliance  on  a  web  of  legislation  to  tackle 
trafficking,  rather  than  a  single  enactment,  has  been  cited  as  a  weakness  in  Hong  Kong's 
response.  The  EU  and  Hong  Kong  continued  to  cooperate  closely  on  the  issue.  Trafficking 
was  discussed  at  the  annual  EU-Hong  Kong  Structured  Dialogue  in  November.  The  fourth 
annual  EU-Hong  Kong  workshop  on  the  prevention  of  trafficking,  funded  under  the  EU's 
TAIEX programme, took place on 12 – 13 December. It addressed issues of shared concern, 
such as cooperation with civil society and the private sector, and the trafficking of children. 

Shortcomings  remain  in  ensuring  effective  legal  protection  for  foreign  domestic  workers. 
The statutory minimum wage does not apply to such workers, they are required to live with 
their employers, and they have to find work within two weeks of losing employment, or face 
deportation.  The  Government  has  taken  some  steps  to  address  concerns,  including  the 
establishment  of  a  dedicated  hotline  for  foreign  domestic  workers  seeking  advice  and 
assistance. Enhanced screening of such workers to check for cases of trafficking and forced 
labour has also been introduced. The EU Office hosted a film and a panel discussion on the 
rights of foreign domestic workers at the Chinese University on 15 September. 

Poverty  and  inequality  remain  real  concerns,  with  around  20%  of  the  population  living 
below the poverty line. Few can afford to purchase a home in the world's most expensive real 
estate  market  and  almost  45%  of  the  population  live  in  rented  public  housing.  The  Chief 
Executive  announced  several  measures  to  address  socioeconomic  grievances  in  her  Policy 
Address on 16 October. 

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 
business  figures  recognise  that  transparency  is  vital  in  maintaining  Hong  Kong's  strong 
position as an international business centre. 

1 Both have issued specific statements on violence, all of which are available here: https://www.fcchk.org/fcc-
statements/?wpv_aux_current_post_id=1532&wpv_view_count=861-TCPID1532&wpv_paged=2 

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Economic developments 

Hong Kong’s economy deteriorated significantly in 2019 with a 1.2% contraction in GDP. 
In  the  first  half  of  the  year  the  economy  continued  a  slowdown  which  had  started  in  2018, 
resulting in GDP growth of only 0.6%  year-on-year (y-o-y). Hong Kong’s reliance on trade 
and  international  finance  and  its  role  as  a  trading,  business  and  financial  bridge  between 
China and the rest of the world makes it particularly vulnerable to external headwinds and to 
developments  in  the  mainland.  With  the  start  of  the  unrest  in  June,  Hong  Kong’s  economy 
then fell into recession and GDP dropped by -2.8% in the second half of the year. 

By the end of 2019, Hong Kong recorded its  first budget deficit in 15 years, due to lower 
land  sales  and  tax  revenues  and  an  increase  in  spending.  In  September,  Fitch  Ratings 
downgraded  Hong  Kong’s  credit  rating  to  AA  (from  AA+),  with  a  negative  outlook,  and 
Moody's also changed Hong Kong’s outlook to negative. However, even after the downgrade, 
the  territory’s  ratings  remained  solidly  in  the  investment  grade  and  Hong  Kong  has  large 
fiscal reserves accounting for about 40% of its GDP.    

Hong Kong’s external trade was hurt by the challenging external environment. Exports and 
imports of goods fell by 4.1% and 6.5% respectively during the year. This, in turn, had ripple 
effects  on  trade-related  services  sectors,  which  account  for  some  20%  of  Hong  Kong’s 
employment and GDP. In addition,  retail sales collapsed dramatically in the second half of 
the year due to the unrest and were 11.1% lower for the year as a whole. External trade, retail 
sales,  and  GDP  growth  had  already  started  to  weaken  in  2018,  indicating  that  the  economy 
was losing momentum well before the start of the unrest in June. 

One  of  the  most  visible  consequences  of  the  unrest  has  been  the  fall  in  the  number  of 
tourists. After June, tourist arrivals fell by 39% y-o-y. Traditionally, some 80% of tourists are 
from mainland China and they are estimated to account for roughly 40% of total retail sales in 
the city, notably in the luxury sector. Beside retail sales, the drop in tourist arrivals was also 
felt hard in the hospitality, food and beverage, and transport sectors.  

Despite  the  downturn,  unemployment  increased  only  marginally  –  from  2.8%  in  the  last 
quarter  of  2018  to  3.3%  in  the  last  quarter  of  2019.  However,  the  labour  market  could  be 
under more pressure if the economy does not rebound. Inflation remained under control, with 
underlying consumer price inflation at 3% for the year. 

Property prices fell by 4.5% between May and December, but, thanks to a strong start to the 
year, prices were up 5.4% for 2019 as a whole. Hong Kong remains one of the world’s least 
affordable urban centres for home buyers. The average waiting time for public rental housing 
has lengthened to 5.4 years.  

Though the financial sector has been more resilient than the rest of the economy, given its 
large exposure to China and the region and the relatively low importance of local operations, 
it was not entirely spared the impact of the downturn. The number of initial public offerings 
(IPOs) fell in the third quarter but rebounded starting from September  – including Alibaba's 
broadly  publicised  secondary  listing.  For  the  year,  Hong  Kong  even  kept  its  crown  as  the 
leading IPO hub worldwide. However, daily turnover on the market was down 18.9% y-o-y 
and  the  Hang  Seng  index  lagged  behind  other  major  indexes.  Stock  market  trends  were 
strongly  influenced  by  developments  in  mainland  China  and  ongoing  US-China  trade 
tensions.    The  banking  sector,  however,  remained  solid,  with  banks'  capitalisation  and 
liquidity  levels  above  international  standards.  Hong  Kong  also  has  large  foreign  currency 
reserves  in  support  of  the  Hong  Kong  dollar  currency  board,  and  it  largely  avoided  panic 
capital outflows.  

7 

 
 
 
 
Hong Kong continued to profile itself as a hub for green finance in the region, based on its 
asset  management  industry  and  the  Government’s  supportive  green  finance  policy.  It  raised 
US$1 billion in May 2019 through the inaugural US$-denominated green sovereign bond. In 
2019,  the  Hong  Kong  authorities  also  focused  on  developing  market  infrastructure  (i.e.  on 
building green finance capacity in financial institutions).  

An  audit  reform  was  implemented  in  2019,  reshuffling  the  Financial  Reporting  Council 
(FRC) as an independent oversight body regulating auditors and advancing the transition from 
self-regulation  to  independent  oversight,  in  line  with  international  standards.  In  November 
2019,  SFC  adopted  a  new  regulatory  approach  to  virtual  assets  trading  platforms, 
regulating them on a voluntary basis. Only operators that meet high regulatory standards may 
be  licensed.  The  Faster  Payment  System  (FPS)  has  been  developed  further,  with 
interconnected  e-wallets  of  various  banks,  including  for  RMB  payments.  While  e-wallet 
services are also offered in mainland China, no interconnection is possible yet. 

As  regards  the  Hong  Kong  Government's  support  for  the  economy,  the  Hong  Kong 
Monetary  Authority  (HKMA)  was  able  to  follow  the  US  Federal  Reserve  and  lowered  its 
interest  rates  several  times  during  the  year.  The  countercyclical  capital  buffer  was  also 
lowered  in  October,  from  2.5%  to  2%,  to  support  bank  lending.  On  the  fiscal  front,  the 
Government rolled out packages of relief measures worth HKD 30 billion (€ 3.5 billion). This 
was done largely to relieve the financial burden on households, to support SMEs, and to shore 
up  the  transport  and  tourism  sectors.  Observers  criticised  the  packages  for  being  too  small, 
accounting for only 1% of GDP. It is worth noting here that in November, the IMF advised 
increased  public  spending,  to  support  the  economy  and  to  address  structural  challenges 
(housing shortage, income inequality, etc.) 

In  October,  the  Chief  Executive  issued  her  2019  Policy  Address,  focusing  on  housing  and 
welfare. On welfare, it partly recycles previously announced relief packages, while adding a 
patchwork  of  new  measures.  On  housing,  the  most  striking  proposal  was  to  use  the  Lands 
Resumption  Ordinance  to  take  back  from  developers  land  zoned  for  high-density  housing 
development,  but  for  which  there  were  no  development  plans  yet,  and  to  use  that  land  for 
public housing.   

Throughout 2019, European businesses largely maintained a ‘wait and see’ approach. Those 
companies  using  Hong  Kong  as  a  regional  hub  for  the  wider  Asia-Pacific  region  were 
essentially affected by the US-China trade war and weak global trade. For companies focused 
on local sales, the unrest was a major concern, especially in the retail sector (notably luxury 
goods),  hospitality,  and  the  food  and  beverage  sector.  Significant  reductions  in  sales  were 
recorded  in  these  sectors,  the  main  reason  for  this  being  the  sharp  decline  in  visitors  and 
consumer spending. Some businesses decided to downsize operations. If the situation does not 
improve, companies could be forced to consider further measures.  

The  now  abandoned  extradition  bill  and  its  adoption  process  were  of  great  concern  to  the 
European  business  community.  As  the  unrest  unfolded,  European  companies  unequivocally 
condemned violence, while expressing their serious concern at the political impasse and how 
it affected the business climate in Hong Kong.  

Growing  political  pressure  and  interference  in  the  conduct  of  normal  business  were  new 
elements  in  Hong  Kong  in  2019,  observed  with  concern  by  the  business  community  in 
general.  Hong  Kong's  operational  efficiency,  its  role  as  the  Chinese  mainland’s  primary 
offshore financial centre, its high level of autonomy, its independent judiciary and the wider 
respect of the rule of law are perceived as key competitive advantages. Erosion of any of these 
would make Hong Kong less attractive as an international business hub. 

8 

 
 
 
Trade and other policies 

In March, Hong Kong signed a  free trade agreement (FTA) with Australia. The FTA with 
ASEAN  (signed  in  2017)  entered  into  force  for  Laos,  Myanmar,  Singapore,  Thailand, 
Vietnam and Malaysia in 2019. Hong Kong also publicly announced its intention to join the 
Regional  Comprehensive  Economic  Partnership  (RCEP)  and  to  negotiate  further  FTAs, 
notably with Thailand, and with the UK after its departure from the EU. No new investment 
promotion  and  protection  agreements  were  concluded  in  2019,  although  negotiations  with 
Russia, Iran and Turkey are ongoing.  

Encouraging  research  and  innovation  remains  a  priority  for  the  Hong  Kong  Government: 
the Chief Executive’s Policy Address announced the revamp of several support schemes for 
innovation  and  technology.  To  support  innovation,  Hong  Kong  also  introduced  an  original 
grant  patent  system.  Innovation  is  also  encouraged  in  the  field  of  finance,  with  the  aim  of 
making Hong Kong a leader in  technology for the provision of financial services  (so called 
“fintech”)  and  green  finance:  2019  saw  the  granting  of  the  city's  first  eight  virtual  banking 
licences and the issue of a first batch of government green bonds worth US$ 1 billion2.  

Environmental  protection  and  decarbonisation  remained  substantial  challenges  for  Hong 
Kong in 2019. In the field of waste, the Government took action to reduce the use of plastic 
straws  and  polyfoam  food  containers  in  premises  serving  mainly  government  employees. 
However,  a  long-discussed  waste  charging  scheme  introduced  in  the  Legislative  Council  in 
November 2018 is still awaited. The only noteworthy plan to cope with the increasing amount 
of waste generated in the city is the building of a large waste-to-energy incinerator. Policies 
and instruments to reduce, recover and recycle waste remain largely absent. A significant step 
forward with respect to air pollution was the entry into force in January 2019 of a regulation 
under which vessels in Hong Kong waters must use only fuel with a limited sulphur content 
(not above 0.5%). Hong Kong also published a public consultation on decarbonisation, with a 
view to developing a long-term decarbonisation strategy for the territory. 

Relations between Hong Kong and mainland China 

The  ongoing  protests  have  had  a  marked  impact  on  relations  between  Hong  Kong  and 
mainland China. The Government of the People’s Republic of China has publicly supported 
the  use  of  force  against  protesters  by  the  authorities.  Moreover,  it  has  asserted,  with  very 
limited  evidence,  that  the  protests  are  a  vehicle  for  those  seeking  independence  for  Hong 
Kong  and that foreign powers are responsible for fomenting unrest.  The  mainland has cited 
socioeconomic  grievances  as  the  principal  driver  of  public  dissatisfaction.  President  Xi 
Jinping termed the violence a ‘blatant challenge’ to the ‘one country, two systems’ precept. 

Fears  that  Hong  Kong's  ‘high  degree  of  autonomy’  under  the  ‘one  country,  two  systems’ 
principle is being eroded have continued to accumulate.  

The  media  have  reported  an  increase  in  the  number  of  People's  Liberation  Army  (PLA) 
soldiers stationed in Hong Kong. A detachment of PLA soldiers emerged from their barracks 
in Kowloon in November and proceeded to clear barricades and debris that had been strewn 
on  thoroughfares  during  unrest. Under  the  terms  of  the  Basic  Law,  the  Hong  Kong 

2 Hong Kong  has set  up a green bond programme for up to HK$100 billion (€11.5 billion).  In May, the Hong 
Kong  Monetary  Authority  (HKMA)  also  unveiled  a  set  of  measures  to  support  and  promote  Hong  Kong’s 
development of green finance. 

9 

 
 
 
 
 
                                                           
Government may request the PLA to assist with disaster relief or the maintenance of public 
order. However, no such request was made in this case.  

Following the High Court ruling on the unconstitutionality of the face mask ban, a spokesman 
for the Legislative Affairs Commission of the People’s Republic of China stated that only the 
Standing Committee of the National People's Congress can decide whether Hong Kong's laws 
comply with the Basic Law. In a statement, the Bar Association of Hong Kong noted that this 
position  was  ‘legally  incorrect’,  that  the  courts  in  Hong  Kong  had  previously  struck  down 
unconstitutional  laws,  and  that  any  suggestion  that  Hong  Kong  courts  cannot  conduct 
constitutional  review  circumscribes  the  exercise  of  judicial  power  which  these  courts  have 
always enjoyed, and is contrary to the Basic Law. 

The political unrest has led to increasing pressure, from both sides of the political spectrum, 
on the Hong Kong business community.  Employees of some companies in Hong Kong have 
been penalised, through measures including dismissal, for participating in demonstrations and 
protests,  and  for  pro-protest  comments  on  social  media.  The  companies  themselves  have 
come  under  pressure,  resulting  in  well-publicised  cases  of  business  leaders  resigning  and 
public  apologies  being  issued  over  the  political  views  and  actions  of  their  staff.  Businesses 
perceived as pro-China  have been  extensively targeted by those sympathetic to  the protests. 
This  has  taken  the  form  of  boycott  in  some  cases,  but  also  violent  actions,  in  particular 
vandalism of their premises.  

In  2019,  Hong  Kong  remained  a  major  trading  hub  for  mainland  China,  while  the 
mainland remained by far Hong Kong's largest trading partner: 55% of Hong Kong's exports 
went to mainland China, while 47% of Hong Kong’s imports originated from the mainland. In 
turn,  Hong  Kong  was  China's  fifth  -largest  trading  partner  in  2018  (after  the  US,  the  EU, 
Japan and Korea). Mainland China (particularly Guangdong Province), remains an important 
outward-processing base for Hong Kong.  

Hong Kong has also remained China's key offshore financial centre and investment hub. 
It is  the mainland's  largest  source of inward foreign direct  investment  (FDI), accounting for 
54% of the total (at the end of 2018) and the first destination for outward FDI, accounting for 
65% of the total. In turn, the mainland was Hong Kong's second-largest source of inward FDI 
(accounting  for  25.5%  of  Hong  Kong's  total  stock  at  the  end  of  2017)3.  There  are  1,241 
mainland enterprises listed in Hong Kong, accounting for 51% of the 2,449 companies listed 
in  Hong  Kong,  but  73%  of  the  total  market  capitalisation  (end  of  2019).  There  are  1,146 
mainland enterprises listed in Hong Kong, accounting for 50% of the 2,315 companies listed 
there,  but  68%  of  the  total  market  capitalisation  (end  of  2018).  Hong  Kong  and  mainland 
China's capital markets are connected via the Stock Connect scheme linking the Hong Kong 
Stock  Exchange  with  its  counterparts  in  Shanghai  and  Shenzhen,  and  the  Bond  Connect 
mutual market access scheme for bond markets.  

During the year, Hong Kong and mainland China have continued to develop their relationship 
under  the  China-Hong  Kong  Comprehensive  Partnership  Agreement  (CEPA).  In 
November, the two signed an amendment under the CEPA on trade in services, introducing 
further liberalisation measures in sectors such as financial and legal services, construction and 
engineering, testing and certification, entertainment, and tourism services. The amendment is 
due to be implemented in June 2020.  

The long-awaited Guangdong-Hong Kong-Macao Greater Bay Area (GBA) blueprint was 
released  in  February  2019.  Hong  Kong  was  identified  as  one  of  the  four  core  cities  in  the 

3 https://www.tid.gov.hk/english/aboutus/publications/factsheet/china.html 

10 

 
 
 
                                                           
region (together with Shenzhen, Guangzhou and Macao). Hong Kong was assigned a key role 
in  developing  the  GBA,  particularly  for  professional  services  (including  financial  services), 
and as a global offshore Renminbi hub. Since the release of the blueprint, measures have been 
announced  including  strengthening  cooperation  on  intellectual  property  rights  and  customs, 
and  making  it  easier  for  Hong  Kong  people  to  live,  work  and  conduct  scientific  research 
within the GBA. However, because of the unrest, there are growing concerns in Hong Kong 
that its role in the GBA could be reduced in favour of other participating cities.  

EU-Hong Kong bilateral relations and cooperation in 2019 

The  13th  EU-Hong  Kong  Structured  Dialogue  meeting  took  place  in  Hong  Kong  on 
28 November  2019.  The  dialogue  provided  an  opportunity  to  discuss  cooperation  in  an 
extensive  range  of  fields,  including  bilateral  trade,  WTO  reform,  financial  services, 
investment,  procurement,  customs,  innovation  and  technology,  and  trafficking  in  human 
beings.  

According to the 2019 survey carried out by the Hong Kong Special Administrative Region 
(SAR) Government, over 2,300 EU companies have set up their businesses in Hong Kong and 
more  than  half  have  their  regional  headquarters  or  regional  offices  there.  EU  business  are 
present in a wide range of sectors, mainly financial and business services, trading, logistics, 
retailing, food and beverages, and construction.  

In  2019,  Hong  Kong  was  the  EU's  18th-largest  trading  partner  in  goods  and  ranked  as  the 
EU's  ninth  trading  partner  in  Asia,  with  a  total  trade  of  €48.0  billion  (+3.4%  y-o-y).  EU 
exports of goods  to  Hong Kong  amounted to  €36.7 billion, while imports from  Hong Kong 
totalled  €11.3 billion,  resulting  in  a  sizeable  surplus  of  €25.4  billion  for  the  EU  (its  fourth-
highest bilateral trade surplus). The EU also 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 third-largest import supplier during the year.  

Hong  Kong  remained  a  major  entrepôt  for  trade  between  mainland  China  and  the  EU.  In 
2018, more than €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  through  Hong  Kong  exceeded 
€35 billion. 

Hong Kong remained the EU’s fifth-largest trading partner in services in Asia, after China, 
Singapore,  Japan,  and  India.  In  2018  (the  most  recent  year  for  which  data  are  available), 
bilateral  trade  in  services  amounted  to  €29.3 billion  (+8.7%  y-o-y).  EU  imports  of  services 
from  Hong  Kong  reached  €14.8  billion,  while  exports  to  Hong  Kong  reached  €14.5 billion, 
resulting in a small deficit of €325 million for the EU.     

Two-way investment between the EU and Hong Kong continued to be extremely significant. 
Hong  Kong  statistics  show  that,  excluding  offshore  centres,  the  EU  is  the  second-largest 
foreign investor in Hong Kong, with over 2300 companies and stock totalling €136.2 billion 
and contributing 8.2% of total FDI stock by the end of 2018 (latest available figures). In turn, 
by the end of 2018 the total stock of FDI from Hong Kong into the EU totalled €168 billion, 
making Hong Kong a noteworthy source of FDI into the EU.  

Hong Kong’s owes its prominent position in investment relations with the EU in part 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. 

11 

 
 
 
 
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. 

During the year, the EU and Hong Kong continued to work together in the field of customs, 
under an action plan to improve protection of intellectual property rights (IPR) financed under 
the  ‘IP  Key’  framework.  The  action  plan  was  extended  in  2019  to  sea  ports  in  the  EU,  for 
joint cooperation and joint control of transhipment cargo. A meeting of the EU-Hong Kong IP 
Working  Group  was  held  in  Hong  Kong  in  March,  and  the  11th  meeting  of  the  EU-Hong 
Kong Joint Customs Cooperation Committee was held in Brussels in July. Despite excellent 
cooperation, Hong Kong remained the second place of provenance by value of IPR-infringing 
goods imported into the EU, even if these goods are not produced in the territory. Both sides 
are reflecting on how to further tackle the issue and improve cooperation in this field. 

The Hong Kong authorities published two new application calls for funds to support Horizon 
2020  participants  from  the  SAR.  During  the  Structured  Dialogue,  the  EU  and  Hong  Kong 
agreed  to  explore  the  possibility  of  broadening  Hong  Kong's  co-funding  mechanism  for 
Horizon 2020 and beyond to include the private sector.  

As  regards  cooperation  on  tax  matters,  in  February  2019  Hong  Kong  amended  the  two 
remaining  regimes  for  offshore  funds  and  offshore  private  equity  funds  to  address  EU 
concerns  over  their  ring-fencing  features.  On  this  basis,  the  Council  agreed  in  March  2019 
that Hong Kong had honoured its commitments on good governance in the taxation field.  

In  the  field  of  anti-money  laundering  and  countering  the  financing  of  terrorism,  the 
Financial  Action  Task  Force  (FATF)  issued  the  mutual  evaluation  report  of  Hong  Kong  in 
September 20194. Hong Kong is a jurisdiction with significant company formation activities. 
It  recently  upgraded  its  regime  to  ensure  that  companies  collect  and  maintain  beneficial 
ownership information at their premises, but the effectiveness of such new measures has yet 
to be fully demonstrated. Hong Kong should also take further action to ensure that beneficial 
ownership information in relation to legal arrangements is more readily available, and that it 
is accurate. 

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

The  EU  Office  in  Hong  Kong  implemented  a  wide  range  of  cultural,  economic  and  public 
diplomacy activities, often in partnership with EU Member States and their cultural institutes. 
Highlights  of  the  year  included  the  EU  Film  Festival,  the  EU  Day  of  Languages,  the  Hong 
Kong Book Fair, participation in Hong Kong's annual LGBTI Pride gathering, a workshop on 
single-use plastics, partnership with the IOM on the Global Migration Film Festival, the EU-
Hong  Kong  trafficking  prevention  workshop  and  a  film  screening  and  panel  discussion  to 
explore  the  rights  of  foreign  domestic  workers.  The  EU  Office  met  frequently  with 
government officials, law-makers, academia and civil society.  

4 http://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-Hong-Kong-China-2019.pdf 

12