JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Hong Kong Special Administrative Region: Annual Report for 2020
Date: 2021-03-12
Institutions: European Commission, European External Action Service
Subjects: Hong Kong, activity report, bilateral relations, coronavirus disease, economic development, epidemic, fundamental rights, political situation, regional integration, social development, trade policy

EN 

  EN 

   EUROPEAN COMMISSION HIGH REPRESENTATIVE OF THE UNION FOR FOREIGN AFFAIRS AND SECURITY POLICY Brussels, 12.3.2021  JOIN(2021) 6 final  JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Hong Kong Special Administrative Region: Annual Report for 2020  
 
 
JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL  

HONG KONG SPECIAL ADMINISTRATIVE REGION: 

ANNUAL REPORT FOR 2020 

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  has 
consistently supported the ‘one country, two systems’ principle and its implementation.  

In line with the commitment given to the European Parliament in 1997, the Commission and 
the  High  Representative  issue  an  annual  report  on  developments  in  Hong  Kong.    Over  the 
years,  this  has  included  a  particular  focus  on  implementation  of  the  ‘one  country,  two 
systems’ principle and on Hong Kong’s autonomy as foreseen in the Basic Law.  

This  is  the  23rd  report,  covering  2020.  This  year  has  been  dominated  firstly  by  important 
political  developments  and  secondly  by  the  impact  of  the  COVID-19  pandemic,  which  has 
also seriously affected Hong Kong’s economy. 

Overview of political and social developments 

Politically, the erosion of Hong Kong’s high degree of autonomy and of rights and freedoms 
that  were  meant  to  be  protected  until  at  least  2047  has  accelerated  markedly  in  2020.  This 
follows interventions by the mainland authorities that call into question  China’s willingness 
to uphold its international obligations and its commitment to the people of Hong Kong under 
the ‘one country, two systems’ principle and the Hong Kong Basic Law.  

The  imposition  on  30  June  of  a  National  Security  Law  (NSL)  through  a  decision  by  the 
National People’s Congress Standing Committee (NPCSC) raised grave concerns in terms of 
process and the content of the legislation. Numerous pro-democracy activists, lawmakers and 
journalists  were  arrested  during  the  year,  including  on  NSL-  and  public  order-  related 
charges.  

The  wide-ranging  nature  of  the  NSL  offences,  and  the  uncertainties  over  how  they  will  be 
applied,  have  provoked  serious  concerns  and  have  had  a  chilling  effect  on  the  exercise  of 
protected rights and freedoms in Hong Kong. While there has been little overt censorship in 
response  to  the  NSL,  and  no  pro-democracy  publications  have  faced  outright  closure,  the 
trend towards self-censorship in the media, academia and civil society has accelerated.  

The  mainland  authorities  have  strengthened  oversight  of  Hong  Kong  affairs  in  other  ways. 
Fears about the vulnerability of ‘one country, two systems’ were compounded in April when 
the Hong Kong Liaison Office (HKLO), representing the mainland authorities in Hong Kong, 
asserted  that  it  was  not  bound  by  the  obligation  of  non-interference  in  Hong  Kong  affairs 
enshrined in the Basic Law. 

The  rule  of  law  and  independence  of  the  judiciary  remain  essential  safeguards  for  the 
upholding of key rights and freedoms in Hong Kong. The courts were subject to unfounded 

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accusations of bias by political figures during the year, prompting a detailed statement by the 
Chief  Justice  recalling  the  Basic  Law  provisions  and  principles  that  govern  the  judicial 
system and defending the role, independence and integrity of the courts. 

There  continues to  be a  high level  of  confidence in  the competence and  integrity of judges 
and their readiness to uphold the rule of law, and it is too early to say how the Hong Kong 
courts will interpret the NSL and the extent to which rights and freedoms will be protected in 
the context of its application. Bail pending trial has been granted by the courts in the majority 
of NSL cases, though questions arose about the denial of bail to high-profile figures in other 
cases.  In  one  such  case,  an  NSL  judge  was  assigned  to  preside  over  a  non-NSL  case 
involving  security-related  matters  at  the  request  of  the  prosecution.  This  raises  questions 
about the scope and interpretation of the designation provisions contained in Article 44 of the 
NSL. 

The Legislative Council (LegCo) elections that were due to take place on 6 September were 
postponed for one year, with the government citing the COVID-19 outbreak as justification. 
The NPCSC issued a decision to extend the term of LegCo by at least one  year pending the 
elections  and  most  pan-democrats  decided  to  continue  serving  in  LegCo  for  the  extended 
year. 

The  NPCSC  decision  of  11  November  on  the  qualification  of  members  of  the  Legislative 
Council of the Hong Kong SAR imposed criteria for the dismissal of incumbent lawmakers 
and  disqualification  of  prospective  lawmakers.  This  provided  the  basis  for  the  Hong  Kong 
authorities  to  expel  four  pro-democracy  lawmakers  from  LegCo  later  the  same  day,  further 
undermining Hong Kong’s high degree of autonomy and the protection of fundamental rights 
and  freedoms.  The  NPCSC  decision  prompted  the  resignation  of  remaining  pro-democracy 
lawmakers  from  LegCo;  the  legislature  continued  to  function,  but  with  reduced  democratic 
checks and balances. 

The  EU  encourages  the  Hong  Kong  SAR  and  the  central  government  to  resume  electoral 
reform as enshrined in the Basic Law. It is important to put in place an electoral system that 
is democratic, fair, open and transparent, underpinned by universal suffrage in fulfilment of 
the  Basic  Law  commitment.  Universal  suffrage  would  give  the  Hong  Kong  government 
greater  legitimacy,  which  would  help  in  attaining  Hong  Kong’s  economic  objectives  and 
tackling its socioeconomic challenges. 

Overview of the EU response to the imposition of the National Security Law 

The High Representative made the following Declarations regarding Hong Kong on behalf 
of the EU: 

-  29 May - on the approval of draft national security laws by the National People’s 

Congress; 

-  1 July - regarding the imposition of the NSL; 
-  3 August - regarding the postponement of the Legislative Council elections; 
-  12  November  -  regarding  the  disqualification  of  Members  of  the  Hong  Kong 

Legislative Council. 

EU spokespersons’ statements on Hong Kong covered the following: 

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-  10 August - on arrests and raids pursuant to the NSL; 
-  24  September  -  regarding  the  arrest  of  Joshua  Wong  and  other  pro-democracy 

activists; 

-  2  November  -  regarding  the  arrests  of  eight  pro-democracy  lawmakers  and 

politicians; 

-  29 December – on the trial of 10 Hong Kongers in Shenzhen.  

The foreign ministers of the G7 issued a joint statement on Hong Kong on 17 June. 

In Council conclusions adopted in July1, the EU agreed a package of measures as an initial 
response  to  the  NSL.  This  covers  inter  alia  asylum  and  visa  policy;  export  controls; 
observation  of  trials;  support  for  civil  society;  scholarships  and  academic  exchanges; 
reviewing extradition agreements; and refraining from launching any new negotiations. 

At the Foreign Affairs Council on 7 December, it was agreed that the EU should continue 
to implement the measures agreed in July, and consider additional measures if appropriate, 
depending on the evolution of the situation. 

The  EU  raised  its  concerns  about  developments  in  Hong  Kong  directly  with  the  Chinese 
leadership at the EU-China Summit held on 22 June, and at Leaders’ meetings held on 14 
September and on 30 December. 

Overview of the COVID-19 situation and economic developments 

As regards COVID-19, Hong Kong’s excellent healthcare system and robust policy response, 
including strict quarantine measures and the responsible attitude of its residents - as reflected 
in the almost ubiquitous wearing of facemasks during the outbreak - contributed to effective 
management of the COVID-19 outbreak. 

2020 was a challenging year for the world economy and Hong Kong was no exception. The 
economy contracted significantly and most of the city’s key industries were hit hard, with the 
notable exception of the financial industry. The plunge in tourist numbers had a major impact 
on  the  luxury,  hospitality,  food  and  beverage  and  transport  industries,  while  the  trade  and 
logistics  sectors  were  affected  by  weak  international  trade.  Despite  several  rounds  of 
measures by the government to support the economy, the unemployment rate doubled during 
the year (to 6.6% in the last quarter of 2020). The fiscal position of the SAR also started to 
deteriorate, though Hong Kong continues to hold substantial reserves.  

European  companies  in  the  city  have  not  been  spared,  especially  those  reliant  on  tourism 
flows  and  international  trade.  Travel  restrictions  have  been  a  key  challenge,  as  many  EU 
businesses  are  in  Hong  Kong  to  pilot  their  regional  and  mainland  China  operations. 
Companies  are  also  concerned  about  political  developments  in  Hong  Kong,  including  the 
erosion of ‘one country, two systems’  and the potential impact  of the NSL on the business 
environment. 

I. Political and Social Developments 

1 https://www.consilium.europa.eu/en/press/press-releases/2020/07/28/hong-kong-council-expresses-grave-
concern-over-national-security-law/.  

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The social unrest and large-scale protests that began in 2019 in response to the government’s 
proposed Fugitive Offenders and Mutual  Legal  Assistance Bill  came to  a halt during 2020, 
though sporadic demonstrations continued to take place. The imposition of the NSL by way 
of  a  decision  of  the  NPCSC  on  30 June,  and  the  measures  put  in  place  by  the  Hong  Kong 
government  to  address  the  outbreak  of  COVID-19,  were  key  factors  in  deterring  public 
demonstrations. 

Approximately 10 000 individuals have been arrested to date for alleged offences related to 
the  unrest,  including  many  juveniles.  The  protracted  nature  of  decisions  relating  to 
prosecution in numerous cases means that many of those arrested are uncertain as to how the 
allegations against them will be handled, raising questions of fairness. Prosecutions have so 
far been taken forward in around 20% of cases. 

The  NSL  has  provoked  concern  in  several  respects.  The  manner  of  its  adoption  was  not  in 
conformity  with  Article  23  of  the  Basic  Law,  which  provides  for  the  enactment  of  such 
measures  by  the  Hong  Kong  SAR  ‘on  its  own’.  There  was  minimal  opportunity  for  Hong 
Kong stakeholders to provide input on the draft law prior to its imposition - with the full text 
only  being  made  available  after  promulgation  of  the  law  -  and  no  democratic  scrutiny  by 
LegCo.  In  the  week  before  the  imposition  of  the  NSL,  the  Chief  Executive  stated  publicly 
that she had not seen the complete details of the proposed legislation.  

The  disqualification  of  several  pan-democratic  lawmakers  from  standing  for  re-election  to 
LegCo was  partly based on their  opposition to the NSL. This  further restricts  the scope for 
elected representatives to scrutinise the implementation of the NSL measures. 

The NSL creates four offences: secession, subversion, terrorist activities, and collusion with 
foreign  forces  or  external  elements.  The  wide-ranging  nature  of  the  offences,  and  the 
uncertainties over how they will be applied, have provoked major concern and inhibited the 
exercise of protected rights and freedoms in Hong Kong. It is hard at this stage to gauge how 
profound this inhibiting effect is.  

The EU Office and EU Member State missions in Hong Kong have had numerous contacts 
with representatives of civil society, academia and the media to understand the impact of the 
NSL on their work. The law has undoubtedly prompted greater recourse to self-censorship, a 
‘safety first’ approach to the storage of information and the use of social media, and concerns 
that  legitimate  contacts  with  foreign  missions  might  expose  individuals  to  prosecution  for 
‘collusion’. 

The  NSL  has  unlimited  extraterritorial  application  and  provides  for  the  exercise  of 
jurisdiction by the mainland authorities in certain cases. In addition, NSL cases can be heard 
in closed courts, which requires careful attention. 

The power vested in the Chief Executive to designate a pool of judges to hear NSL cases has 
been  subject  to  criticism.  However,  in  designating  such  judges,  the  Chief  Executive  may 
solicit  the  advice  of  the  Chief  Justice.  Moreover,  the  Chief  Executive  does  not  allocate  a 
particular judge to a particular case.  

It  remains  unclear  how  far  the  NSL  requirement  placed  on  the  Hong  Kong  government  to 
strengthen  supervision  and  regulation  over  matters  concerning  national  security  in  schools, 

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universities,  social  organisations,  the  media  and the  internet  will  have  an impact  on  human 
rights and fundamental freedoms. 

Foreign  businesses  in  Hong  Kong  are  exposed  to  the  NSL.  Articles  21  and  23  of  the  NSL 
foresee hefty prison sentences for anyone who ‘incites, assists in, abets or provides pecuniary 
or  other  financial  assistance  or  property’  for  the  commission  of  subversion  or  secession 
offences. There is no stipulation that such assistance must have been granted intentionally for 
it to constitute an offence under the law, which has spurred banks to scrutinise the services 
they  provide  to  individuals  and  groups  engaged  in  pro-democracy  and  other  political 
activities. Under Article 31 of the NSL, companies and organisations can be held criminally 
liable, fined and have their licence revoked. 

In  2020,  there  were  31  arrests  under  the  NSL,  and  charges  have  been  laid  in  four  cases. 
Among  these  arrests,  several  concerned  high-profile  pro-democracy  activists.  The  arrest  of 
media magnate Jimmy Lai on 10 August, on allegations of collusion with foreign forces, was 
followed  by  a  raid  on  his  media  outlet,  Apple  Daily,  by  around  200  police  officers.  This 
large-scale  police  operation  involving  a  prominent  and  outspoken  media  group  provoked 
concerns  about  possible  political  motivations.  Agnes  Chow,  a  co-founder  of  the  now 
disbanded  pro-democracy  platform  Demosisto,  was  also  arrested  on  10  August  on  NSL-
related charges.  

Similar concerns were voiced over decisions by the Department of Justice to prosecute pro-
democracy activists  and  lawmakers for public order offences  relating to  the demonstrations 
and unrest, and to their conduct during LegCo proceedings. However, no charges were laid 
against  individuals  from  pro-establishment  parties  who  were  involved  in  some  of  the  same 
LegCo  incidents.  Moreover,  the  absence  of  convincing  action  to  bring  to  justice  assailants 
involved in the 2019 Yuen Long MTR attack has also raised questions about the probity of 
prosecutorial decisions. 

It  is  too  early  to  say  how  the  Hong  Kong  courts  will  interpret  the  NSL  and  the  extent  to 
which rights and freedoms will be protected, although the NSL states that human rights will 
be  respected  and  protected  in  safeguarding  national  security.  In  a  first  NSL  ‘test  case’,  the 
Court  of  First  Instance  underlined  that  the  courts  will  have  recourse  to  common  law 
principles when interpreting the new law and will take account of human rights safeguards. 
There  continues to  be a  high level  of  confidence in  the competence and  integrity of judges 
and their readiness to uphold the rule of law, but the ultimate  prerogative of the NPCSC to 
issue ‘interpretations’ with respect to the law needs to be borne in mind. The first trial of an 
NSL case is due to begin only in 2021. 

Opinion polls have found that a majority of respondents are opposed to the NSL. In a survey 
by the Hong Kong Public Opinion Research Institute (PORI) on behalf of Reuters in August 
2020,  almost  60%  of  those  interviewed  voiced  opposition.  The  poll  also  signalled  that 
support for the protest movement had diminished, with just 44% of respondents saying they 
backed it. 

The police have responded robustly to unauthorised assemblies, relying on a combination of 
the  NSL,  public  order  laws  and  COVID-related  restrictions.  They  have  deployed  a  new 
purple flag that warns of suspected breaches of the NSL, while the authorities have taken a 
broad interpretation of what constitutes a potential violation of the new law in the context of 
demonstrations.  This  includes  use  of  the  popular  protest  slogan  ‘Liberate  Hong  Kong, 

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revolution  of  our  times’  and  even  the  holding  of  blank  placards  by  protesters.  While  the 
protest-related  anthem  ‘Glory  to  Hong  Kong’  has  not  been  expressly  outlawed,  its  use  is 
forbidden  in  schools.  In  addition,  the  police  national  security  unit  launched  a  hotline  to 
facilitate the reporting of acts that allegedly violate the NSL. 

EU response to the imposition of the National Security Law 

In  July,  EU  ministers  adopted  Council  conclusions  underlining  that  China’s  actions  in 
relation  to  the  adoption  of  the  NSL  were  not  in  conformity  with  its  international 
commitments under the Sino-British Declaration of 1984 or with the Basic Law.  According 
to the conclusions, these actions called into question China’s will to uphold its international 
commitments,  undermined  trust  and  impacted  EU-China  relations.   They  set  out  a 
coordinated package of measures as an initial EU response to the NSL:  

1.  Considering the implications of the national security legislation for asylum, migration, 
visa  and  residence  policy  in  accordance  with  the  applicable  law,  including  by 
discussing relevant aspects at EU level; 

2.  Further  scrutinising  and  limiting  exports  of  specific  sensitive  equipment  and 
technologies  for  end-use  in  Hong  Kong,  in  particular  where  there  are  grounds  to 
suspect  undesirable  use  relating  to  internal  repression,  the  interception  of  internal 
communications or cyber-surveillance;  

3.  Exploring  possibilities  for  stepping  up  and  coordinating  scholarships  and  academic 

exchanges involving Hong Kong students and universities; 

4.  Further engaging with and supporting civil society in Hong Kong; 

5.  Ensuring  continued  observation  of  the  trials  of  pro-democracy  activists  in  Hong 

Kong; 

6.  Discussing  at  EU  level  the  potential  risks  to  EU  citizens  presented  by  the  national 

security legislation; 

7.  Monitoring the extraterritorial effect of the national security legislation; 

8.  Reviewing  the  implications  of  the  national  security  legislation  on  the  operation  of 

Member States’ extradition and other relevant agreements with Hong Kong; 

9.  For the time being, not launching any new negotiations with Hong Kong.  

Key actions taken under the Council Conclusions include the suspension by six EU Member 
States2  of  their  extradition  agreements,  or  negotiations  for  such  an  agreement,  with  Hong 
Kong  following  the  adoption  of  the  Council  Conclusions;  heightened  scrutiny  by  Member 
States’ authorities of relevant exports for end-use in Hong Kong; coordinated attendance by 
EU and member state diplomatic representatives in Hong Kong to observe court hearings of 
their  contacts  with  civil  society 
pro-democracy  activists;  and 

intensification  of 

2 Germany, France, Ireland, Netherlands, Finland and Italy. 

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organisations.   Hong Kong students, academic and university staff continued to participate in 
a wide range of higher-education exchanges under Erasmus+ and bilateral exchange schemes 
run by Member States. No new negotiations with Hong Kong were launched.   

The  implementation  of  the  measures  foreseen  in  the  Council  Conclusions  was  closely 
followed in the relevant Council bodies.  At the Foreign Affairs Council on 7 December, the 
High  Representative  reviewed  the  implementation  of  the  NSL,  its  effects  on  rights  and 
freedoms  and  the  business  environment  in  Hong  Kong,  and  the  impact  of  the  EU  response 
package.   Based  on  this,  ministers  agreed  that  the  EU  should  continue  to  implement  the 
measures agreed in  July, and consider additional measures if appropriate,  depending on the 
evolution of the situation. 

Concerns over the NSL  were voiced  at  the EU-China Summit  on 22 June, and Hong Kong 
was also raised at the EU-China Leaders’ Meetings held on 14 September and 30 December. 
The  EU  expressed grave  concerns  about  the  erosion  of  fundamental  rights  and  freedoms 
following the imposition of the NSL; the EU also reiterated concerns over the postponement 
of  the  LegCo  election  by  a  full  year  and  the  disqualification  of  several  pro-democracy 
candidates. The  President  of  the  European  Commission,  Ursula  von  der  Leyen,  mentioned 
human  rights  abuses  in  Hong  Kong  in  her  ‘State  of  the  Union’  address  to  the  European 
Parliament on 16 September.  

On 19 June, the European Parliament adopted a resolution on the ‘PRC national security law 
for Hong Kong and the need for the EU to defend Hong Kong’s high degree of autonomy’. 
The resolution deplored the introduction of the NSL as an assault on Hong Kong’s autonomy 
and a breach of China’s international commitments, including the Sino-British Declaration of 
1984. It made several recommendations for action by the EU and others. 

International response to the imposition of the National Security Law 

International actors, including the G7, the UN High Commissioner for Human Rights and UN 
special rapporteurs also voiced concern over the NSL. 

On  27  May,  the  US  administration  announced  that China  had  fundamentally  undermined 
Hong  Kong’s  autonomy  and  that  Hong  Kong  no  longer  warranted  differential  treatment  to 
mainland  China.  Further  to  this  announcement,  the  US’s  Hong  Kong  Autonomy  Act  was 
signed into law on 14 July. On 7 August, the US imposed sanctions on 11 individuals from 
the  Hong  Kong  and  mainland  governments  on  the  grounds  of  involvement  in  undermining 
the SAR’s autonomy and restricting freedom of expression or assembly. These included the 
Chief  Executive,  the  Secretary  for  Justice,  the  Secretary  for  Security,  the  Secretary  for 
Constitutional  and  Mainland  Affairs,  the  Police  Commissioner,  the  Director  of  the  HKLO, 
Luo  Huining,  and  other  senior  mainland  officials  implicated  in  Hong  Kong  affairs.  The 
sanctions provide for the seizure of property and freezing of assets in the US, in response to 
the  ‘unusual  and  extraordinary  threat’  posed  by  China’s  undermining  of  Hong  Kong’s 
autonomy.  The  US  imposed  sanctions  on  a  further  18  people  in  relation  to  the 
implementation of the NSL on 9 November and 7 December. 

The UK extended immigration rights to provide a path to citizenship for Hong Kongers with 
British National Overseas (BNO) status; around 3 million Hong Kong residents are estimated 
to  hold  BNO  status.  Under  the  new  arrangements,  those  with  BNO  status  are  afforded five 
years’ limited leave to  remain in  the UK,  with  the right  to  work or study. After  five  years, 

7 

 
 
 
  
 
 
 
 
 
they are able to apply for settled status, and after a further 12 months with settled status they 
will  be  able  to  apply  for  citizenship. Visa  provisions  to  accompany  the  new  arrangements 
were announced in October. 

In response to the NSL, the UK, Australia and New Zealand also suspended their extradition 
agreements with Hong Kong.  

Crackdown on dissent 

Arrest of pro-democracy activists on various charges had already taken place in 2020 before 
the adoption of the NSL and continued throughout the year. Fifteen high-profile figures were 
arrested  in  April,  including:  Martin  Lee,  founder  of  the  Democratic  Party  and  prominent 
barrister; Albert Ho, a senior lawyer and former Chairman of the Democratic Party; Jimmy 
Lai, the founder of Apple Daily. The arrests relate to alleged ‘unlawful assembly’ at rallies 
and protests held in August and October 2019, an offence that can carry  up to five years in 
prison. They were released on bail pending the commencement of trials due to take place in 
2021. Jimmy Lai was re-arrested under the NSL on 10 August but later charged with fraud. 
On 3 December, he was refused bail.   

On  23  August,  12  Hong  Kongers  trying  to  flee  the  region  by  boat  were  stopped  by  the 
Chinese coastguard and detained in mainland China. The cases were formally transferred to 
the prosecuting authorities on 27 November on charges of attempting to cross the border. 

On  24  September,  pro-democracy  activist  Joshua  Wong  was  arrested  as  part  of  a  series  of 
arrests over the summer that also targeted his fellow activists Ivan Lam and Agnes Chow. On 
2 December, the three activists were sentenced to terms ranging from seven to thirteen-and-a-
half months’ imprisonment for public order offences linked to protests in 2019. 

On  7  December,  police  arrested  eight  people  over  protests  which  had  taken  place  at  The 
Chinese  University  of  Hong  Kong  the  previous  month,  three  of  whom  were  suspected  of 
violating  the  NSL  by  ‘inciting  secession’.  On  8  December,  another  eight  pro-democracy 
activists were arrested over their alleged roles in an unauthorised assembly in July.  

On 15 May, the  Independent  Police Complaints Council (IPCC) published its report  on the 
protests  triggered  by  the  proposed  extradition  bill.  The  report  covers  events  from  June  to 
October 2019 and concludes that there was no systemic problem with the police force. The 
IPCC found no fault in police actions during the Yuen Long mob attack in July 2019, where a 
group  of  white-clad  men  believed  to  be  associated  with  Triad  gangs  attacked  subway 
passengers.  The  IPCC  warned  of  the  dangers  of  incipient  terrorism  in  Hong  Kong,  and 
cautioned  that  the  force  faced  ‘blatant  propaganda’  aimed  at  smearing  the  police.  In  its  52 
recommendations, the report emphasised the need for additional training on tactics, the use of 
tear  gas,  improving  communication  and  dispelling  rumours.  The  IPCC  is  vested  with  only 
limited  prerogatives  and  the  report  drew  strong  criticism  for  its  failure  to  address 
convincingly concerns over accountability. 

For the first time in 30 years, the authorities in Hong Kong refused permission for events to 
commemorate the 1989 Tiananmen Square crackdown in China, citing public health concerns 
linked to COVID-19. The organisers of the annual vigil, the Hong Kong Alliance in Support 
of  Patriotic  Democratic  Movements  in  China,  contended  that  the  ban  was  politically 
motivated.  Several  people  were  arrested  and  charged  with  taking  part  in  an  unauthorised 

8 

 
 
 
 
 
 
 
 
 
 
assembly  following  the  holding  of  a  vigil  in  spite  of  the  ban.  Activities  relating  to  the 
Tiananmen  crackdown  are  otherwise  permitted,  and  the  museum  run  by  the  Alliance  in 
Support of Patriotic Democratic Movements in China reopened its doors in May.  

On 4 June, LegCo passed the controversial National Anthem Bill that criminalises insulting 
the  ‘March  of  the  Volunteers’  with  a  maximum  fine  of  HKD  50  000  [EUR  5  530]  and 
imprisonment for three years. The NPCSC in Beijing first adopted the National Anthem Law 
in September 2017 and decided to add it to Annex III to the Basic Law two months later. The 
LegCo vote gave local effect to this decision. 

The HKLO has exerted increasing influence over Hong Kong’s policymaking and its political 
establishment,  calling  into  question  the  maintenance  of  Hong  Kong’s  high  degree  of 
autonomy.  The  NSL  has  also  established  a  new  mainland  institution  in  Hong  Kong, the 
Office for Safeguarding National Security, which can exercise jurisdiction in serious national 
security cases, including where there are ‘complex’ elements linked to the involvement of a 
foreign  country  or  ‘external  elements’  that  are  not  accountable  to  Hong  Kong  institutions. 
These provisions have not been invoked to date. 

The  LegCo  elections  had  been  set  to  take  place  on  6  September,  and  on  30  July  12  pro-
democracy candidates were disqualified from running in the elections. The returning officers 
said  that  they  did  not  believe  the  candidates  would  genuinely  uphold  the  Basic  Law,  as 
formally  required  through  signed  declarations.  Among  those  disqualified  were  four 
incumbent  lawmakers.  Three  incumbent  district  councillors  elected  through  universal 
suffrage were also barred, along with former Demosisto leader Joshua Wong. 

The Hong Kong government issued a statement backing the disqualifications, citing actual or 
alleged  behaviour  on  the  part  of  those  disqualified  as  justification  for  the  step,  including: 
support for Hong Kong independence (which is not directly advocated by those concerned); 
objections  to  the  NSL;  intending  indiscriminately  to  vote  down  the  government’s  proposed 
bills;  and  soliciting  interventions  by  foreign  governments.  It  insisted  that  there  was  no 
political censorship or restriction of freedoms and warned that insults and threats to returning 
officers would be investigated by the police. The HKLO also welcomed the decision of the 
returning officers. 

The mass disqualifications drew much international criticism. An EU Declaration issued by 
HRVP Borrell stated that the disqualification ‘weakens Hong Kong’s international reputation 
as a free and open society’. 

The  pan-democrats  ran  primary  elections  on  11-12  July  in  order  to  identify  LegCo 
candidates, garnering a turnout of around 600 000 voters. A  young generation of activists - 
who generally advocate greater self-determination - performed well in the polls. 

On  31  July,  the  LegCo  elections  were  postponed  for  one  year  under  the  Emergency 
Regulations Ordinance. The Chief Executive justified the measure by citing the health risks 
should the elections proceed in the midst of the ‘third wave’ COVID-19 outbreak. She noted 
the particular danger posed to elderly voters, the inability of around 100 000 eligible voters 
presently  in  mainland  China  to  exercise  their  right  to  vote,  and  the  impediments  to 
campaigning  occasioned  by  social  distancing  measures.  She  cited  the  postponement  of 
elections in other jurisdictions.   

9 

 
 
 
 
 
 
 
 
 
 
The Basic Law does not foresee a situation where elections are postponed for such a lengthy 
period.  Article  69  stipulates  that  LegCo’s  term  of  office  is  four  years.  The  NPCSC 
subsequently  issued  a  short  decision  that  the  sixth  LegCo  would  continue  to  perform  its 
duties for at least one year after its term expired on 30 September. The next LegCo will be 
elected for the customary four years.  

Incumbent lawmakers who had been disqualified from running for re-election were initially 
not  excluded  from  their seats  for  the  one-year  extended  period.  However,  there  was  heated 
debate  within  the  pan-democratic  camp  as  to  whether  pro-democracy  lawmakers  should 
remain  in  the  LegCo  chamber.  Given  divisions  within  the  movement,  an  opinion  poll  was 
commissioned to solicit views from the public on the issue. The inconclusive results of that 
poll prompted agreement  by all but  two lawmakers to  remain in  their  LegCo seats.  A third 
lawmaker resigned for health reasons. 

On  11  November,  the  NPCSC  issued  a  decision  that  provided  the  basis  for  the  immediate 
expulsion  of  four  pro-democracy  lawmakers  from  LegCo  by  the  Hong  Kong  government. 
The decision also set out wide-ranging criteria to determine when an individual lawmaker or 
prospective lawmaker is deemed unable to fulfil the oath to uphold the Basic Law and hence 
should  be  excluded  from  office.  These  include  support  for  Hong  Kong  independence,  a 
refusal  to  recognise  China’s  sovereignty  over  Hong  Kong,  encouragement  to  foreign 
countries or ‘external elements’ to interfere in the affairs of Hong Kong, or the committing of 
acts  that  endanger  national  security.  The  NPCSC  decision  was  strongly  criticised  in  Hong 
Kong  and  by  the  international  community,  including  on  the  grounds  that  it  significantly 
undermines Hong Kong’s high degree of autonomy and the protection of fundamental rights 
and freedoms.  

Disqualification  of  the  four  lawmakers  prompted  the  resignation  of  the  15  remaining  pro-
democracy  lawmakers  from  LegCo.  The  legislature  continued  to  function,  but  with 
significantly reduced democratic checks and balances. 

Several  senior  pro-democracy  figures  resigned  from  their  party  roles  following  these 
developments. Ted Hui of the Democratic Party, who is facing several criminal charges with 
connected bail conditions, went into self-exile in the UK, generating a strong response from 
the mainland and Hong Kong authorities. 

The courts were buffeted by accusations of bias during the year, particularly in relation to the 
adjudication  of  protest-related  cases.  On  23  September,  the  Chief  Justice  issued  a  rare 
statement defending the judiciary and warned that attacks on judges would erode public trust 
in the rule of law. In September, Australian Justice James Spigelman stepped down as one of 
the  14  foreign  judges  who  sit  in  Hong  Kong’s  Court  of  Final  Appeal  (CFA)  as  non-
permanent judges. The Hong Kong government underscored its commitment to the system of 
appointing foreign judges, noting its importance to the independence of the judicial system. 
In  October,  the  government  appointed  Mr  Justice  Patrick  Hodge,  Deputy  President  of  the 
UK’s Supreme Court, to the CFA. 

On  21  December,  the  CFA  –  including  the  Chief  Justice  Geoffrey  Ma  and  the  UK’s  Lord 
Hoffman  participating  as  a  non-permanent  member  –  unanimously  rejected  the  legal 
challenge to the government’s ban on wearing face coverings by pro-democracy activists and 
upheld  the  constitutionality  of  the  Emergency  Regulations  Ordinance  (ERO)  pursuant  to 
which the ban was imposed. The CFA decision vindicated the government’s recourse to the 

10 

 
 
 
 
 
 
 
 
ERO during the unrest, underlining that, whilst emergency powers are wide and flexible, their 
exercise is subject to “meaningful control” in the shape of judicial review, LegCo vetting and 
the  Basic  Law’s  requirements  that  such  regulations  must  be  prescribed  by  law  and  be 
proportionate. 

The  30th  anniversary  year  of  the  Basic  Law  witnessed  controversy  over  the  question  of 
separation  of  powers.  In  the  context  of  the  revision  of  school  textbooks,  the  Hong  Kong 
government  asserted  that  the  principle  was  not  applicable  in  Hong  Kong.  This  triggered  a 
substantial  debate,  with  leading  lawyers  contending  that,  while  the  Basic  Law  does  not 
expressly mention separation of powers, there is a clear delineation of responsibilities among 
the different branches of government, with judicial independence safeguarded by Article 85. 

LegCo  witnessed  ugly  scenes  of  violent  disorder  during  the  course  of  the  year,  one  cause 
being  the  controversy  over  the  occupancy  of  the  chair  of  the  House  Committee.  The 
committee was paralysed for several months as a result of filibustering by the pan-democrats 
and disagreement over the ceding of the chair to the deputy chairperson pending the outcome 
of  the  election  of  the  new  chair  in  May.  Eight  pan-democratic  politicians,  including  five 
serving legislators and two former legislators, were later arrested over incidents in the LegCo 
chamber. The arrests prompted serious concern about the use of criminal provisions against 
lawmakers, and former lawmakers, and the selective targeting of pro-democracy politicians. 

The Chief Executive postponed by a month her annual Policy Address that was due to take 
place on 14 October. She indicated that the delay was motivated by the need to consult the 
central government authorities on measures to aid Hong Kong’s recovery and visited Beijing 
in early November to that end. 

Her  fourth  Policy  Address  was  delivered  on  25  November  to  a  LegCo  bereft  of  opposition 
voices. The Chief Executive referred  to  the ‘multiple  blows’ that  had  struck  Hong Kong,  
including the  human  and  economic  impact   of  COVID-19  and the   social   unrest.  She 
defended the NSL and other recent political developments, including the disqualification of 
pro-democracy  lawmakers  and  included  a  section  on  the  ‘Full  Support  of  the  Central 
Government.’ She cited  Articles 9  and 10 of the NSL  as the basis for  government  plans to 
strengthen regulations with respect to social organisations, the media and the internet, and to 
promote national security education in schools and universities. She also confirmed that the 
government would introduce a bill to amend provisions relating to oath-taking.  

Impact of the COVID-19 pandemic 

Regarding  the  COVID-19  pandemic,  Hong  Kong  has  reported  over  8  847  cases  and  148 
deaths.  Hong  Kong’s  excellent  healthcare  system,  robust  policy  response,  including  strict 
quarantine measures, and the responsible attitude of its residents - as reflected in the almost 
ubiquitous wearing of facemasks during the outbreak - contributed to effective management 
of  the  outbreak.  Hong  Kong  also  drew  on  valuable  experience  with  the  SARS  epidemic  in 
2003. 

Hong  Kong  reported  its  first  case  in  late  January.  Shortly  thereafter,  the  SAR  closed  all 
border points apart from the international airport, Shenzhen Bay and the Hong Kong-Zhuhai-
Macau Bridge, allowing Hong Kong residents to return to the city. There was some criticism 
of  the  government’s  initial  response  to  the  outbreak,  including  the  procurement  of  masks. 
With  support  from  the  central  government,  Hong  Kong  conducted  a  city-wide  voluntary 

11 

 
 
 
 
 
 
 
 
 
testing  programme  in  September  with  around  1.78  million  people  participating.  The 
government provided a range of relief measures to mitigate the economic and social impacts 
of the outbreak.  

During the course of the outbreak, with three infection ‘waves’ over the course of the year, 
the government recurrently tightened and relaxed social distancing measures. These measures 
have  included  the  closure  of  certain  commercial  establishments  deemed  to  be  high-risk, 
restrictions  on  spacing  and  numbers  in  restaurants,  and  limits  on  the  number  of  people 
permitted to gather in one group.  

In the second half of the year, Hong Kong launched discussions on possible travel ‘bubbles’ 
to  facilitate  travel  with  11  states.  An  agreement  in  principle  on  the  establishment  of  a 
‘bubble’ with Singapore was reached in October, although its implementation was delayed by 
a COVID-19 surge. The EU decided in October to list the Hong Kong and Macao SARs as 
regions with which non-essential travel could be restored on the basis of reciprocity and when 
conditions allow. 

Rights, freedoms and equal opportunities 

The  NSL  has  undoubtedly  had  an  impact  on  the  exercise  of  freedoms,  and  the  leaders  of 
Demosisto  disbanded  the  pro-democracy  party  when  the  law  was  enacted.  The  party  had 
advocated self-determination for Hong Kong, but relinquished that goal in January 2020.  

Self-censorship in public life increased, though its extent is hard to gauge. Direct censorship 
is  not  yet  a  widespread  feature  of  the  media  landscape,  although  some  journalists  speak  of 
questionable  editorial  decisions  and  increased  ‘gatekeeping’  on  sensitive  issues  by  editors.  
Though  not  directly  linked  to  the  NSL,  the  public  broadcaster  RTHK  has  been  subject  to 
increasing  pressure  to  avoid  activities  and  reporting  deemed  ‘provocative’  by  the 
government. 
The  arrest  of  a  freelance  journalist  on  3  November  for  her  work  on  an  investigative 
documentary for RTHK on the Yuen Long MTR attacks in July 2019 was criticised strongly 
for seeking to criminalise legitimate journalistic work. 

Academics  are facing uncertainty over what they can and cannot teach in light of the NSL, 
particularly  those  that  teach  ‘sensitive’  subjects  and  those  catering  to  mainland  students. 
Some  academics  are  refraining  from  soliciting  research  funding  from  foreign  sources, 
particularly the US, to avoid creating sensitivities. 

NGOs are trying to ensure that they do not fall foul of the NSL, with resulting complications 
for their work. The Friedrich Naumann Stiftung is the first major international organisation to 
close its operations in Hong Kong as a result of the NSL. 

Schools are under increasing pressure, after the Beijing and Hong Kong authorities signalled 
that there needs to be a reorientation of teaching to encourage patriotism and understanding 
of the NSL. A teacher was ‘deregistered’ for life by the Education Bureau for discussing pro-
independence  thinking  in  classrooms  prior  to  the  NSL,  school  textbooks  have  been  revised 
and  teachers  have  been  advised  to  avoid  falling  foul  of  the  law.  The  education  sector  has 
become  increasingly  politicised,  with  pro-Beijing  figures  asserting  that  many  teachers  are 
supportive  of  the  cause  of  democracy  or  even  independence,  and  that  students  are  being 
indoctrinated  with  western  ideologies  in  classrooms  and  encouraged  to  engage  in  social 

12 

 
 
 
 
 
 
 
 
 
 
movements.  The  Chief  Executive  has  put  forward  reforms  to  teacher  training  to  ensure 
greater adherence to government guidelines. 

Freedom of assembly has been subject to restrictions in light of the COVID-19 outbreak and 
the NSL. In the first six months of 2020, there were 107 applications for public assemblies, 
with  87  turned  down.  All  applications  since  July  2020  have  been  refused.  The  COVID-19 
outbreak has regularly been cited as the principal reason for refusal, with public gatherings of 
more than four, and then eight, people banned since March. The police have hoisted a purple 
warning  flag  at  unauthorised  gatherings  to  warn  of  possible  breaches  of  the  NSL,  although 
the scope of what is and is not acceptable in terms of political expression is not clear. 

There  was  some  progress  in  Hong  Kong’s  courts  in  terms  of  recognising  the  rights  of 
LGBTI  persons. In  March,  a  Housing  Authority  policy  that  barred  same-sex  couples  who 
had  married  overseas  from  applying  for  public  housing  was ruled  unconstitutional  and 
unlawful by the Court of Appeal. In June, the Inland Revenue Department amended the tax 
code to allow a married person, whether in a heterosexual marriage or same-sex marriage, to 
choose  joint  assessment  or  personal  assessment  jointly  with  the  person’s  spouse. On  18 
September, Hong Kong’s High Court ruled that same-sex couples married according to other 
jurisdictions’ laws should enjoy equal rights under inheritance laws in Hong Kong. However, 
on  the  same  date,  the  court  declined  to  accord  broader  recognition  to  overseas  same-sex 
marriages, noting that particular instances of discrimination could be tackled through specific 
court cases. Concerns came to light in 2020 about allegations of homophobic remarks made 
by an adjudicator in relation to the sexual orientation of an asylum claimant.  

Hong  Kong  has  taken  some  steps  to  address trafficking  in  human  beings,  though  the  US 
placed  Hong  Kong  on  its  Tier  2  watch  list.  The  US  annual  report  on  trafficking  in  human 
beings cited, among the points of concern, an ineffective identification mechanism, the small 
number of prosecutions and penalisation of victims for illegal acts that they were compelled 
to commit.  A fifth EU-Hong Kong seminar on trafficking in human beings took place on 17-
18  December  and  addressed  shared  issues  of  concern.  These  included  international 
cooperation on tackling trafficking, assistance to victims, and collaboration with civil society. 

The COVID-19 outbreak is believed to have had a negative impact on the working conditions 
of some foreign domestic workers. This includes reports that some employers did not allow 
workers  to  leave  home  to  enjoy  their  customary  one  day-off  per  week.  The Hong  Kong 
Federation  of  Asian  Domestic  Workers  Unions reported  increased  discrimination  against 
workers  as  a  result  of  the  pandemic.  Examples  included  unlawful  termination  of  contracts 
when  employees  were  believed  to  have  contracted  the  coronavirus,  and  a  refusal  to  pay 
incoming  foreign  domestic  workers  while  they  undertook  compulsory  quarantine.  A  large 
number  of  domestic  workers  who  lost  their  jobs  remained  stranded  in  Hong  Kong,  with  a 
heavy  reliance  on  charitable  support  in  the  absence  of  other  assistance.  The  Hong 
Kong government  has  introduced  free  COVID-19  tests  and  masks  for  foreign  domestic 
workers who are waiting in boarding facilities to join the households of their new employers. 

The anti-corruption system remained vigorous and resilient, with Hong Kong boasting 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. 

13 

 
 
 
 
 
 
 
 
The economic impact of the COVID-19 outbreak has had an impact on poverty levels, with 
unemployment rising to a 16-year high of 6.6% by the end of 20203, and the unemployment 
rate for youth between 20 and 29 reaching 11%. The poverty rate had already risen to 20.4% 
in  2019.  In  January  2020,  the  Chief  Executive  announced  10  new  initiatives  intended  to 
support grassroots and underprivileged people, including increasing the target for transitional 
housing  to  15  000  from  10  000  by  2023,  and  providing  cash  allowances  to  applicants  for 
public rental housing who have been waiting for more than three years.  

II. Economic Developments 

Hong Kong’s economy deteriorated significantly in 2020 and recorded a second consecutive 
year of recession, after a 1.2% fall in GDP in 2019. Despite some improvement later in the 
year,  on  the  back  of  China’s  recovery,  the  economy  still  contracted  by  9.1%  in  the  first 
quarter, 9.0% in the second quarter and 3.5% in the third quarter of 2020 when compared to 
2019.  COVID-19  played  a  major  role  in  the  contraction,  though  it  came  on  top  of  existing 
headwinds such as the 2019 unrest and the US-China trade war.  

The SAR has a very open economy, traditionally prospering as a triple hub: for China to raise 
offshore  capital,  for  global  and  China  trade,  and  for  tourism  (largely  Chinese  tourists). 
Among the city’s four key industries - financial services, tourism, trading and logistics, and 
professional and producer services - finance was the only one that performed well in 2020. 

Industries with a large exposure to tourist spending were among the hardest hit during the 
year. This includes retail, food and beverage, hospitality, transport and aviation. Retail sales 
fell by 25.3% year on year (y-o-y) in the first eleven months of 2020, restaurant receipts fell 
by  30.8%  y-o-y  in  the  first  three  quarters  of  the  year  and  passenger  numbers  at  the  airport 
were down 87.5% y-o-y for the whole year. This can largely be explained by a massive fall in 
tourist arrivals, which decreased by 93.6%  y-o-y  to just 3.6 million tourists, on the back of 
travel  restrictions  and  fear  of  travelling.  Traditionally,  around  80%  of  tourists  are  from  the 
mainland and they account for an estimated 40% of the retail sales in the city, notably in the 
luxury sector. Domestic spending was also impacted by the weak economy and local social 
distancing rules in restaurants and other businesses. 

Thanks  to  some  improvement  in  the  later  part  of  the  year,  and  the  improving  economic 
situation  in  China  and  some  other  parts  of  the  world,  impact  of  the  pandemic  on  Hong 
Kong’s  external  trade  was  limited:  For  the  first  eleven  months  of  2020,  exports  in  goods 
(almost exclusively re-exports) dropped by 2.8% y-o-y and imports fell by 5.0%. This in turn 
affected  the  trade  and  logistics  industries,  which  account  for  about  20%  of  Hong  Kong’s 
GDP.  

The labour market deteriorated significantly during the year. Unemployment reached 6.6% 
by  the  end  of  the  year,  compared  with  3.3%  at  the  end  of  2019.  There  are  also  significant 
disparities between sectors, with unemployment of just 3.2% in the financial industry. 

Property prices  increased by 0.3% during the  year (compared with  an increase of 5.5% in 
2019). Hong Kong remains one of the world’s least affordable urban centres for homebuyers. 
Scarcity of housing is a long-term issue impacting many households. 

3 These and following are the latest statistics available at the time of writing.  

14 

 
 
 
 
 
 
 
 
 
                                                           
The  financial  sector  has  been  much  more  resilient  than  the  rest  of  the  economy  and 
continued  growing  during  the  year.  The  industry  was  supported  by  a  strong  pipeline  of 
activity  in  Initial  Public  Offerings  (IPOs).  There  were  154  IPOs  during  the  year,  raising  a 
total amount of HKD 397.5 billion (EUR 42.4 billion). That is an increase of 26.5% y-o-y in 
the amount raised, even after Ant Group’s dual IPO in Hong Kong and Shanghai - which was 
to  be  the  largest  in  history  -  was  cancelled  at  the  last  moment  due  to  objections  from 
mainland China regulators. 

IPOs are a source of revenue for many players in the financial industry and attract investors 
and capital. New stricter rules for Chinese companies listed in the US and broader US-China 
tensions  are seen as  encouraging  IPOs of Chinese firms  in  Hong Kong.  Another reason for 
the resilience of the financial industry is its relatively small exposure to the local economy. 
About  80%  of  Hong  Kong’s  stock  market  capitalisation  is  composed  of  mainland  China 
companies, meaning  that the industry has a large exposure to  the Chinese economy  (which 
performed better than Hong Kong during the year). During the year, average daily turnover 
on the Hong Kong Stock Exchange increased by 49% y-o-y and market capitalisation reached 
a record high of HKD 47.5 trillion (EUR 5.1 trillion). The Hong Kong Hang Seng index was 
down by about 3.4%. The banking sector remained well capitalised and with strong buffers. 
Despite  an  uncertain  economic  situation  and  destabilising  local  political  developments,  the 
SAR  has  not  recorded  significant  capital  outflows.  The  Hong  Kong  dollar  was  strong 
and the Hong Kong Monetary Authority had to intervene on several occasions to make sure it 
did not appreciate too much and remained within its trading band with the US dollar. In this 
regard, the inflows of money following IPO activities supported the strength of the currency, 
together with strong foreign exchange reserves. 

Average inflation amounted to 0.4% in the first eleven months of 2020. 

Government support and fiscal situation 

To  cope  with  the  economic  recession  and  support  the  population,  the  government 
implemented  several  rounds  of  relief  measures  during  the  year.  In  total,  the  measures 
amounted to HKD 311.5 billion (EUR 33.2 billion), or about 10-11% of the city’s GDP, 
according  to  government  figures.  They  included  a  HKD  10  000  (EUR  1  066)  one-off  cash 
handout  to  residents,  a  wage  subsidy  scheme  and  various  tax  cuts,  waivers  of  fees  and 
charges, and subsidy schemes for various industries. 

While providing vital support to the economy, the measures have also been criticised for not 
being  targeted  enough,  thus  reducing  their  efficiency  and  increasing  their  fiscal  cost.  This 
was the case for the two most expensive measures - the cash handout and wage subsidies - as 
they  were  open  to  most  residents  and  companies,  irrespective  of  their  financial  situation. 
Most of the measures were announced in the first half of the year and the government scaled 
down support thereafter. 

These  actions  were  complemented  by  a  set  of  measures  by  the  Hong  Kong  Monetary 
Authority,  including  increasing  liquidity  in  the  banking  sector,  reducing  the  level  of 
regulatory reserves by half to release lending capacity, and implementing principal repayment 
holidays on loans for bank customers.  

15 

 
 
  
 
  
 
 
  
 
 
In the summer, the government bailed out Hong Kong flagship carrier Cathay Pacific with a 
large  injection  of  liquidity  and  the  stated  goal  of  safeguarding  jobs  and  the  status  of  Hong 
Kong  as  an  aviation  hub.  Despite  this  support,  the  company  announced  a  massive 
restructuring a few months later. 

On the fiscal front, after recording its first budget deficit in 15 years in 2019, the situation 
worsened  significantly  in  2020  due  to  weak  revenues  and  the  cost  of  economic  support 
measures. As  a result, in  the April to  November  period, the public deficit reached a record 
HKD 318 billion (EUR 34 billion) while fiscal reserves decreased from HKD 1.16 trillion to 
HKD 842 billion (EUR 90 billion).   

Business environment  

The  economic  recession  and  the  impact  of  COVID-19  on  business  operations  and  revenue 
were  the  main  concerns  for  European  companies  during  the  year.  At  the  same  time,  many 
firms  also  took  into  consideration  the  changing  political  environment  in  the  city,  including 
the implementation of the NSL and the growing influence of Beijing.  

As was the  case during  the unrest  in  2019, European businesses largely  maintained a ‘wait 
and  see’  approach  during  2020.  However,  there  is  a  perception  among  the  business 
community that the NSL has damaged the international reputation of Hong Kong. There are 
also  concerns over the potential impact  of the law on companies and, more broadly, on the 
business  environment  in  the  SAR.  These  impacts  differ  from  one  industry  to  another  but, 
broadly  speaking,  concerns  include  the  need  to  ensure  the  continued  independence  of  the 
judiciary, freedom of speech and of doing business, access to data, and the impact on hiring 
and  maintaining  talent4.  As  a  result,  some  companies  are  reassessing  their  presence  in  the 
city, while others are working on contingency plans. Although there are also some businesses 
that see the NSL as a positive development, including from the perspective of social stability, 
business surveys suggest that this is not the majority view. 

Due to the economic downturn, some European companies have downsized their operations 
in  the  SAR.  Those  in  industries  with  a  large  exposure  to  tourist  spending  were  among  the 
hardest  hit  and  recorded  significant  cuts  in  revenues.  Companies  in  the  trade  and  logistics 
sectors were affected by weak global trade and the global economic downturn.  

Travel restrictions in and out of Hong Kong are also having a significant impact on European 
businesses, especially as many of them are doing business with China and the Asia region. 

Hong  Kong’s  operational  efficiency,  its  high  degree  of  autonomy,  the  rule  of  law  and  its 
independent judiciary have long been considered key competitive advantages. Erosion of any 
of  these  would  therefore  negatively  affect  Hong  Kong’s  attractiveness.  Tensions  between 
China and the US, including over Hong Kong, are also a concern for businesses. 

Trade and other policies 

In January, a free trade agreement (FTA) with Australia - which was signed in March 2019 
and which also includes an amended investment agreement - entered into force. In March, an 

4 These concerns were highlighted in several business surveys conducted during the year.  

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investment  agreement with the United Arab Emirates entered into force.  During the  year, a 
FTA  with  the  ASEAN  economies,  signed  in  2017,  also  continued  to  enter  gradually  into 
force.  
The  government  announced  measures  to  support  the  role  of  Hong  Kong  as  a  financial  hub 
and the premier green hub in the region. These include a waiver on stamp duty for Exchange 
Tract  Funds  (ETF)  and  measures  to  attract  equity  funds.  A  new  technology  index  was  also 
launched,  called  the  Hang  Seng  TECH  Index.  It  represents  the  30  largest  technology 
companies listed in Hong Kong that have high exposure to  technology and pass the index’s 
screening  criteria.  On  green  finance,  the  government  and  financial  regulators  in  the  city 
established  the  Green  and  Sustainable  Finance  Cross-Agency  Steering  Group,  and  the 
government said it would issue new government green bonds in the next few years (after the 
first issuance in 2019). 

To boost innovation and technology - one of its main priorities - the government earmarked 
HKD  3  billion  (EUR  320  million)  for  the  expansion  of  Hong  Kong’s  Science  Park  and 
strengthened its technology voucher programme. In December, the government also released 
the  Smart  City  Blueprint  for  Hong  Kong  2.0.  On  housing,  the  government  set  a  target  of 
supplying  100  400  units  of  public  housing  by  2024  (and  19  600  private  housing  units 
annually by 2024). On the environmental front, one of the priorities was to further promote 
the  use  of  electric  vehicles  and  to  phase  out  more  polluting  vehicles.  The  government 
launched a HKD 2 billion (EUR 212 million) subsidy scheme to upgrade charging facilities 
for electric vehicles at private residential buildings.  

Regarding energy, the government aims to increase the share of natural gas in the energy mix 
to allow for a reduction of coal. Waste management remains a major issue in the city, with 
just a small share of the city’s waste being recycled locally. A setback came in June, when 
lawmakers  withdrew  a  long-delayed  bill  on  a  mandatory  waste  disposal  charge,  which  had 
been introduced in 2018.  

In  her  2020  Policy  Address,  delivered  on  25  November,  the  Chief  Executive  proposed  to 
strengthen  Hong  Kong’s  recovery.  The  short-term  focus  was  on  containing  the  pandemic, 
while  longer-term  economic  plans  confirmed  the  established  priorities  of:  strengthening 
integration  within  the  Greater  Bay  Area  and  with  mainland  China;  supporting  the  role  of 
Hong  Kong  as  a  hub  for  trade,  finance  and  business  services;  promoting  innovation  and 
technology  and the development  of a smart city.  While the Policy  Address  contained some 
measures  for  businesses,  and  the  pledge  to  boost  infrastructure  spending,  it  did  not  add 
significantly to the 10-11% of GDP already injected into the economy over the course of the 
year. 

Once  again,  the  Policy  Address  emphasised  solving  the  long-lasting  issues  of  shortage  and 
unaffordability  of  housing.  On  this  point,  the  Chief  Executive  reiterated  her  support  for 
Lantau  Tomorrow  Vision,  a  massive  and  contested  land  reclamation  project.  Given  the 
challenges facing Hong Kong’s reputation, the Policy Address also announced a large-scale 
publicity exercise to promote the city as a business hub.  

A notable announcement was the decision for Hong Kong to reach carbon neutrality by 2050, 
as part of which Hong Kong’s climate action plan will be updated by the middle of 2021. The 
Address  included other ‘green’  announcements, including transport, building,  green finance 
and waste energy. 

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The Chief Executive’s visit  to Beijing raised expectations that China might  soon reopen its 
boundary with Hong Kong. Many businesses have operations, clients and/or suppliers in the 
mainland  and  Chinese  tourists  to  Hong  Kong  are  key  spenders  in  the  retail,  food  and 
beverage,  hospitality  and  transport  industries.  However,  as  at  the  end  of  the  year,  travel 
restrictions such as mandatory quarantine remained in place.  

III. Relations between Hong Kong and mainland China 

The HKLO has exerted increasing influence over Hong Kong’s policymaking and its political 
establishment,  calling  into  question  the  maintenance  of  Hong  Kong’s  high  degree  of 
autonomy.  The  assertion  in  April  that  the  HKLO  was  not  bound  by  the  Basic  Law’s 
protection of Hong Kong’s autonomy against interference by central government (Article 22) 
sent  a  worrying  signal  about  China’s  commitment  to  safeguarding  ‘one  country,  two 
systems’. The HKLO’s statement confirming this interpretation stated that the HKLO enjoys 
wide-ranging authority in Hong Kong, including powers of supervision. The appointment in 
January  2020  of  Luo  Huining  as  Director  of  the  HKLO  foreshadowed  a  more  proactive 
posture  by  the  HKLO,  reflected  in  the  regular  issuing  of  press  releases  commenting  on 
developments relating to Hong Kong. These included trenchant criticism of pan-democratic 
lawmakers. 

Mainland China remained Hong Kong’s largest trading partner in goods, accounting for 59% 
of Hong Kong’s total exports and 43% of its imports during the first eleven months of 2020. 
In turn, the SAR is an important trading hub for the mainland and ranked as the fifth-largest 
trading partner of China in 2020. The Chinese province of Guangdong remains an important 
outward-processing base for Hong Kong.  

Hong Kong has also remained China’s key offshore financial centre and investment hub.  
As at the end of 2019, Mainland China was Hong Kong’s largest source of inward Foreign 
Direct  Investment  (FDI),  excluding  offshore  centres,  and  the  first  destination  for  Hong 
Kong’s outward FDI, accounting for 28% and 45% of the total stocks respectively.  In turn, 
about  65%  of  the  FDI  into  the  Mainland  come  from  Hong  Kong  and  61%  of  Chinese 
outbound FDI flow goes to Hong Kong. There are 1 319 mainland enterprises listed in Hong 
Kong,  accounting  for  80%  of  the  total  market  capitalisation  in  the  city.  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 the mainland continued to develop their relationship under 
the China-Hong Kong Closer Economic Partnership Agreement (CEPA), first signed in 
2003.  New  liberalisation  measures  for  trade  in  services,  signed  in  November  2019,  entered 
into force in June 2020. 

Regional integration under the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) 
continued during the year. The blueprint released in 2019 set, as a target, the unimpeded flow 
of  goods,  services  and  capital  within  the  GBA  by  2035.  During  the  year,  the  government 
announced  measures  to  further  integration  and  facilitate  business  in  various  sectors.  In  the 
financial sphere, a plan to implement a two-way cross-boundary wealth management connect 
pilot scheme (‘Wealth Management Connect’) was announced jointly by the People’s Bank 
of China, the Hong Kong Monetary Authority and the Monetary Authority of Macao in June. 
It  would  allow  residents  in  Hong  Kong,  Macao  and  nine  cities  in  Guangdong  Province  to 

18 

 
 
 
 
 
 
  
 
carry out cross-boundary investment in wealth management products distributed by banks in 
the area. An ‘insurance connect’ within the GBA is also planned. 

Businesses are largely positive about the opportunities offered by the GBA, but it comes with 
challenges  relating  to  taxation  policies,  regulatory  and  legal  aspects,  policy  uncertainty, 
transparency and visibility, and  IPR protection. More broadly, there are  still questions over 
how  to  bring  together  three  different  economic,  legal,  tax  and  customs  systems  and  over 
possible  rivalry  between  the  participating  cities.  Hong  Kong’s  competitive  advantage  as  a 
super-connector  to  China  could  also  be  eroded  as  cities  in  Guangdong  liberalise  their 
economies,  improve  their  competitiveness  and  connect  to  the  world  through  finance  and 
trade.  

IV. EU-Hong Kong bilateral relations and cooperation in 2020 

In 2020, the annual EU-Hong Kong Structured Dialogue did not take place, for the first time 
since  these  meetings  were  established  in  2006.  In  the  past,  the  Structured  Dialogue  has 
provided an opportunity to review and give impetus to cooperation in fields such as financial 
services,  trade,  investment,  procurement,  customs,  innovation  technology,  trafficking  in 
human beings and environmental issues. The EU believes that it is important for both sides to 
have a regular institutional dialogue that allows relations to be reviewed comprehensively and 
any  issue  of  concern  or  mutual  interest  falling  under  the  other  side’s  jurisdiction  or 
competence  to  be  addressed.  The  EU  hopes  that  the  conditions  will  be  in  place  for  the 
Structured Dialogue to resume in 2021. 

In  2020,  1  560  EU  companies  have  set  up  business  in  Hong  Kong  and  many  of  them  are 
using Hong Kong as their regional headquarters or regional office. EU business is present in a 
wide  range  of  sectors,  mainly  financial  and  business  services,  trading,  logistics,  retailing, 
food and beverage, and construction.  

In  2020,  Hong  Kong  was  the  EU’s  25th largest  trading  partner5  in  goods and  ranked  as  the 
EU’s twelfth-largest trading partner in Asia. Total bilateral trade for the period totalled EUR 
27.4  billion,  a  drop  of  10.8%  y-o-y  compared  to  the  same  period  in  2019.  EU  exports  of 
goods to Hong Kong in that period amounted to EUR 23.0 billion, while imports from Hong 
Kong totalled EUR 7.1 billion, resulting in a surplus of EUR 15.8 billion for the EU. The EU 
was  Hong  Kong’s  third  largest  trading  partner  in  goods  in  2020,  after  mainland  China  and 
Taiwan.  The  EU  was  Hong  Kong’s  second  largest  exports  destination  and  fifth  import 
supplier. Hong Kong remained an important entrepôt for trade between mainland China and 
the EU. 

In  2019,  Hong  Kong  was  the  EU’s  fourth-most  important  trading  partner  in  services  in 
Asia. In 2019 (the most recent  year for which data are available), bilateral (EU-27) trade in 
services  amounted  to  EUR  26.8  billion  (+9%  y-o-y).  EU  imports  of  services  from  Hong 
Kong were EUR 11.0 billion, while exports to Hong Kong were EUR 15.8 billion, resulting 
in a surplus of EUR 4.7 billion for the EU6. 

5 Based on EU-27 figures. 

6 Preliminary statistics by Eurostat.   

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Two-way  investment  between  the  EU  and  Hong  Kong  continued  to  be  significant.  Hong 
Kong statistics show that, excluding offshore centres, the EU was the seventh-largest foreign 
investor in Hong Kong and the second main destination of Hong Kong’s outward FDI as at 
the end of 2019 (latest available figures). In turn, by the end of 2019 the total stock of FDI 
from Hong Kong into the EU-27 totalled, according to Eurostat figures, EUR 185.8 billion, 
making Hong Kong a noteworthy source of FDI into the EU , while the EU-27 investments in 
Hong Kong were at EUR 163 billion. In terms of investment flows, most recent data over the 
first three quarters of 2020 show a net  FDI inflow from Hong Kong to the EU of EUR 7.6 
billion (compared with net outflow of EUR 49.8 billion in the first three quarters of 2019). 

During the  year, the EU and Hong Kong continued to work together on  customs, under an 
action  plan  to  improve  protection  of  intellectual  property  rights  (IPR)  under  the  EU-Hong 
Kong Customs Cooperation and Mutual Administrative Assistance Agreement and the Action 
Plan on Customs Enforcement in IPR. In 2020, the mutual exchange of risk information ran 
smoothly, although some planned operational activities were impacted by the COVID crisis. 
Despite excellent cooperation, Hong Kong remains the second-largest place of provenance by 
value of IPR-infringing goods imported into the EU, even if these goods are not produced in 
the city.  

As  regards  research,  science  and  innovation,  the  Hong  Kong  authorities  published  two 
application calls in 2020 to support Horizon 2020 participants from the SAR; the deadline for 
applications  for  the  last  call  is  mid-January  2021.  Since  the  present  collaboration  scheme 
under Horizon 2020 finishes along with the European Framework Programme at the end of 
2020,  discussions  should  restart  with  Hong  Kong  to  expand  the  scheme  under  Horizon 
Europe, including a co-funding mechanism open to the private sector. Any future discussions 
on  Horizon  Europe  will  prioritise  reciprocity,  level-playing  field,  openness,  inclusiveness, 
and the respect of high ethical and integrity standards. On this note, going forward, the effects 
of the NSL on researchers and research mobility, academic freedom, and research institutions 
will be closely monitored by the EU side.  

In  terms  of  anti-money  laundering  and  countering  the  financing  of  terrorism 
(AML/CFT), the Financial Action Task Force (FATF) issued a mutual evaluation report of 
Hong  Kong7  last  year,  after  which  the  territory  was  placed  under  a  regular  follow-up 
procedure. Given that Hong Kong is a thriving financial and trade hub, there are high risks 
that  its  system  could  be  misused  as  a  transit  point  for  foreign  proceeds  of  crime.  In  this 
regard, Hong Kong should continue to take action so that beneficial ownership information is 
available and accurate for all relevant legal arrangements. 

A 5th annual EU-Hong Kong workshop on trafficking took place on 17-18 December. The 
workshop  consisted  of  two  half-day  online  sessions,  covering  international  standards, 
partnerships to tackle trafficking, support to victims and the state of play in the fight against 
trafficking in the EU and Hong Kong. There was an excellent turn-out from the Hong Kong 
side,  with  around  80  participants  from  a  diverse  cross-section  of  government  departments. 
The TAIEX instrument mobilised 7 expert speakers from Europe to address the workshop. 

Due  to  the  COVID-19  pandemic,  most  planned  people-to-people  activities  had  to  be 
suspended,  including  cultural  events,  research,  academic  cooperation,  student  mobility  and 

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

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activities involving the creative industries. The EU Office therefore sought alternative ways 
to  host  public  diplomacy  events.  In  February,  the  EU  Office  hosted  the  EU  Film  Festival 
2020, with the support of EU Member States, amid increased health measures. Together with 
EU Member States, the EU Office organised the third edition of ‘Make Music, Hong Kong’ 
in an online format. The EU Office also organised a design competition in cooperation with 
the Vocational Training Council.  

The  EU  Office  met  frequently  with  government  officials,  lawmakers,  academia  and  civil 
society. 

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