JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Hong Kong Special Administrative Region: Annual Report for 2021
Date: 2022-05-20
Institutions: European Commission, European External Action Service
Subjects: Hong Kong, activity report, bilateral relations, coronavirus disease, economic development, economic relations, epidemic, fundamental rights, human rights, political situation

EN 

  EN 

   EUROPEAN COMMISSION HIGH REPRESENTATIVE OF THE UNION FOR FOREIGN AFFAIRS AND SECURITY POLICY Brussels, 20.5.2022  JOIN(2022) 16 final  JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Hong Kong Special Administrative Region:           Annual Report for 2021       
 
 
JOINT REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

HONG KONG SPECIAL ADMINISTRATIVE REGION: 

ANNUAL REPORT FOR 2021 

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). 

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 stated in the Basic Law.  

This  is  the  24th  report,  covering  2021.  This  year  has  been  characterised  by  a  further 
undermining of the ‘one country, two systems’ principle, the implementation of the National 
Security Law (NSL), an electoral overhaul, shrinking press freedom, the disbandment of many 
pro-democracy civil society groups including trade unions, and more restrictions to access the 
territory of Hong Kong because of the COVID-19 pandemic. 

The  erosion  of  Hong  Kong’s  high  degree  of  autonomy  and  the  erosion  of  the  rights  and 
freedoms that the Sino-British Joint declaration was meant to protect until at least 2047 has 
rapidly accelerated. The year 2021 started with the mass arrest of 55 pro-democrats in early 
January  and  ended  with  the  elections  to  a  Legislative  Council  void  of  opposition  on  19 
December. The year also saw the start of the first trials under the NSL and an election overhaul 
reinforced  by  an  ordinance  on  oath  taking  that  served  to  disqualify  pro-democracy  district 
councillors elected in 2019.  

Hong Kong has taken an authoritarian turn: most democratic politicians are either in prison or 
in exile; numerous civil society organisations have disbanded and several international NGOs 
have closed their offices in Hong Kong. The implementation of the NSL has been more forceful 
than expected. The wide-ranging nature of the offences under the NSL and the severity of the 
sentences prescribed by  the law are a serious concern and have had a chilling effect on the 
exercise of previously protected rights and freedoms. The trend towards self-censorship in the 
media, academia and civil society has accelerated. 

While the EU Office still met with a wide range of political contacts and  representatives of 
civil society at the beginning of the year, this was no longer the case towards the end of the 
year. Many of them have become reluctant to have contact with foreign diplomats, as they are 
wary of the provisions of ‘collusion with foreign forces’ under the NSL, which can lead to long 
prison sentences.  

The mainland authorities have strengthened oversight of Hong Kong affairs in many ways. In 
Beijing,  the  Hong  Kong  and  Macao  Affairs  Office  added  two  new  departments  overseeing 
national security and propaganda. In Hong Kong, the Liaison Office  of the Central People's 
Government became more visible in reaching out to Hong Kong citizens.  

1 

 
 
 
 
 
 
 
 
 
 
 
 
 
The independence of the judiciary remained an essential safeguard for upholding key rights 
and freedoms but the role of the rule of law in protecting civil liberties has been affected by the 
implementation of the NSL. While court proceedings and legal arguments may be largely in 
line with  common law practices, the judiciary  has become less liberal  and tolerant  in cases 
involving the exercise of political freedoms. There continued to be a certain level of confidence 
in the competence and integrity of judges and their readiness to uphold the rule of law.  

The EU has publicly and privately raised concerns about the developments in Hong Kong.  

The High Representative issued the following declarations on behalf of the EU relating to Hong 
Kong: 

  7 January – Declaration on the mass arrest of people involved in the July 2020 pro-

democracy primary elections1 

  11 March - Declaration on the electoral system2  

  9 June - Statement on the changes to Hong Kong’s electoral system3 

  20 December  - Statement  on the Legislative Council Election held  on 19 December 

20214 

The EU spokespersons’ statements on Hong Kong covered the following: 

  5 March: Statement on possible electoral reform5  

  16 April: Statement on the sentencing of pro-democracy activists6  

  23 June – Statement on the closure of Apple Daily’s Hong Kong operations7   

1 Declaration by the High Representative on behalf of the EU on the mass arrest of people involved in the July 2020 pro-
democracy primary elections, Council of the EU, 7 January 2021, available at: 
https://www.consilium.europa.eu/en/press/press-releases/2021/01/07/hong-kong-declaration-by-the-high-representative-on-
behalf-of-the-eu-on-the-mass-arrest-of-people-involved-in-the-july-2020-pro-democracy-primary-elections/ 
2 Declaration by the High Representative on behalf of the EU on the electoral system, Council of the EU, European External 
Action Service, 11 March 2021, available at: https://www.consilium.europa.eu/en/press/press-releases/2021/03/11/hong-
kong-declaration-by-the-high-representative-on-behalf-of-the-eu-the-electoral-system/ 
3 Statement by the High Representative on the changes to Hong Kong’s electoral system, European External Action Service, 
9 June 2021, available at: https://eeas.europa.eu/headquarters/headquarters-homepage/99822/hong-kong-statement-high-
representativevice-president-josep-borrell-changes-hong-kong%E2%80%99s_en 
4 Statement by High Representative/Vice-President Josep Borrell on the Legislative Council Election held on 19 December 
2021, European External Action Service, 20 December 2021, available at: https://eeas.europa.eu/headquarters/headquarters-
homepage/109196/hong-kong-statement-hrvp-josep-borrell-legislative-council-election-held-19-december-2021_en 
5 Statement by the Spokesperson on possible electoral reform, European External Action Service, 5 March 2021, available 
at: https://eeas.europa.eu/headquarters/headquarters-homepage/94303/hong-kong-statement-spokesperson-possible-electoral-
reform_en 
6 Statement by the Spokesperson on the sentencing of pro-democracy activists, European External Action Service, 16 April 
2021, available at: https://eeas.europa.eu/delegations/mali/96763/hong-kong-spokesperson-statement-sentencing-pro-
democracy-activists_en 
7  Statement by the Spokesperson on the closure of Apple Daily’s Hong Kong operations, European External Action Service, 
23 June 2021, available at: https://eeas.europa.eu/headquarters/headquarters-homepage/100567/hong-kong-statement-
spokesperson-closure-apple-daily%E2%80%99s-hong-kong-operations_en 

2 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
  21 October - Statement on the expulsion of democratically elected district councillors 

and the shrinking space for civil society8 

The deterioration of the situation in Hong Kong was also discussed on several occasions at the 
EU’s Foreign Affairs Council. The EU has stepped up coordination with like-minded partners 
in its response on Hong Kong, as shown in the G7 statement on electoral reform of 12 March.  

During 2021, COVID-19 was kept largely under control in Hong Kong with several restrictions 
in place, such as a ban on public gatherings. Restrictions to access the territory of Hong Kong 
have become increasingly severe, and by the end of the year, were on par with the restrictions 
to access mainland China. The border with mainland China had not reopened by the end of the 
year.  

Hong Kong performed well economically in 2021. It was the world’s third-largest investment 
destination and became the sixth-largest trading economy. While foreign staff were leaving, 
the presence of EU companies increased in the 12 months ending June by 3.5% in terms of 
number  of  companies  (reaching  1614),  and  thus  remained  the  largest  non-Chinese  business 
community in Hong Kong. The EU was Hong Kong’s third largest trading partner in goods in 
2021, after mainland China and Taiwan.  

Hong Kong’s economy rebounded by 7.0% year-on-year in the first 9 months of 20219. The 
economy  was  supported  by  strong  performance  in  the  trade  and  logistic  sectors  and  the 
financial  industry  while  retail,  transport  and  construction  navigated  a  still  challenging 
environment. Yet, Hong Kong’s status as an international business hub could be eroded if the 
downsizing  in  non-Chinese  foreign  companies  continues.  This  would  also  bring  new 
challenges in terms of global competitiveness, availability of talent and labour market shortages 
(in  a  recent  survey,  the  number  of  staff  employed  by  foreign  companies  in  Hong  Kong 
decreased by 4% or 20,000 in a two-year period). 

I. Political and social developments 

The year 2021 has been marked by strong democratic setbacks and an increasingly restrictive 
interpretation  and  undermining  of  the  ‘one  country,  two  systems’  principle  aided  by  the 
National Security Law (NSL).  

The  first  days  of  2021  saw  the  mass  arrest  of  55  persons  linked  to  the  pro-democracy 
movement, including prominent political figures. They were detained for subversion under the 
NSL, following their involvement in the informal pro-democracy primary elections of 2020. 
Of them, 47 were charged with ‘conspiracy to commit subversion’. The High Representative 
issued a Declaration, on behalf of the EU, on the mass arrest of people involved in the July 
2020 pro-democracy primary elections on 7 January. 

8 Statement by the Spokesperson on the expulsion of democratically elected district councillors and the shrinking space for 
civil society, European External Action Service, 21 October 2021, available at:  
https://eeas.europa.eu/headquarters/headquartershomepage_en/106025/Hong%20Kong:%20Statement%20by%20the%20Sp
okesperson%20on%20the%20expulsion%20of%20democratically%20elected%20district%20councillors%20and%20the%2
0shrinking%20space%20for%20civil%20society 
9 Comprehensive overview of Hong Kong's social and economic developments from a statistical perspective (Hong Kong 
Annual Digest of Statistics), the Census and Statistics Department of the Hong Kong Special Administrative Region, 29 
October 2021, available at: https://www.censtatd.gov.hk/en/EIndexbySubject.html?pcode=B1010003&scode=460#section2 

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On 30 March, the National People’s Congress amended the annexes of the Basic Law to 
overhaul  Hong  Kong’s  electoral  system.  This  further  weakened  the  already  modest 
democratic elements of the electoral system and ensured that pro-establishment voices could 
control all levels of government - the Government, the Legislative Council (LegCo) and the 
Election  Committee.  The  High  Representative  made  a  statement  on  the  changes  to  Hong 
Kong’s electoral system on 9 June. 

The Election Committee was  enlarged from 1200 to 1500 members (in practice it  has 1448 
largely  pro-establishment  members).  In  September,  this  committee  was  elected  by  4389 
persons, meaning a turnout rate of 89.77%. The voters only elected one self-proclaimed ‘non 
pro-establishment’ politician. Its composition and role were altered. The 117 seats reserved for 
District Councillors were eliminated. New seats for members of the Chinese People’s Political 
Consultative  Conference  and  Hong  Kong  members  of  selected  national  organisations  were 
added. The Election Committee was given new powers of scrutiny, in particular a say in the 
election of almost half of LegCo’s members.  

The electoral overhaul also modified the size and composition of LegCo. The total number 
of seats in the legislature grew from 70 to 90, with only 20 secured through direct elections 
(geographical constituencies). Forty seats were filled by the Election Committee. Thirty seats 
remained as functional constituencies and tended to be filled by pro-establishment figures. The 
five  super  seats’  in  LegCo  were  abolished,  terminating  the  only  successful  political  reform 
since the handover.  

The  Legislative  Council  election  on  19  December  was  the  first  LegCo  election  since  the 
imposition of the NSL and the electoral overhaul. A total of 153 candidates ran in three broad 
groups of constituencies. 219 254 voters registered to vote in the functional constituencies and 
4 472 863 in geographical constituencies]. 

The seventh Legislative Council Election, originally scheduled for September 2020, took place 
on 19 December 2021. This was the first of such election since the imposition of the NSL and 
the implementation of sweeping changes in the electoral system.  

In the directly-elected Geographical Constituencies, a total of 1 350 680 voters cast their ballot 
papers, meaning a turnout rate of 30.2% - a record low. In the indirectly-elected Functional 
Constituencies and the new Election Committee Constituency, 70 490 voters and 1 426 voters 
respectively cast their ballot papers, representing a turnout rate of 32.22% and 96.28%. 

A total of 153 candidates ran in three broad groups of constituencies. Only one self-proclaimed 
‘non pro-establishment’ lawmaker managed to win enough votes and earn a seat. Meanwhile, 
the mass arrests in relation to the July 2020 primary elections have prevented 47 pro-democracy 
advocates,  including  former  opposition  lawmakers  and  civil  society  representatives,  from 
standing  in  this  election  as  they  were  held  in  custody  on  charges  pursuant  to  the  National 
Security Law. 

In addition, the electoral overhaul mandated the establishment of Candidate Eligibility Review 
Committee  to  disqualify  contenders  deemed  “unpatriotic”  in  the  Election  Committee,  the 
LegCo and the Chief Executive elections. Decisions arrived after consultation with the National 
Security  Committee  would  not  be  subject  to  judicial  challenges.  The  overhaul  also  made  it 
illegal to call on people to cast blank votes. 

4 

 
 
 
 
 
 
 
 
 
 
The Oath-taking Bill added another element to the electoral overhaul: On 23 February, the 
government introduced the Public Offices (Candidacy and Taking Up Offices) (Miscellaneous 
Amendments) Bill 2021, stipulating the requirement for current and future members of district 
councils to take an oath when assuming office. The law entered into force on 21 May. As a 
result, a first batch of 214 district councillors resigned in July after media began to report that 
the  government  could  pursue  retroactive  claims  for  salaries  and  allowances  of  those 
disqualified. Starting from September, the authorities disqualified 49 pro-democracy district 
councillors, invalidating their oaths to uphold the Basic Law and bear allegiance to the SAR as 
‘not genuine’, reportedly on the basis of opinions they had previously expressed, confirming 
the retroactive character of the Ordinance. This move negated the results of the November 2019 
district council elections, in which pro-democracy candidates had secured over 80% of the seats 
and gained absolute majorities in 17 of the 18 district councils. The EEAS Spokesperson issued 
a statement on the expulsion of democratically elected district Councillors and the shrinking 
space for civil society on 21 October.  

2021 saw the end of effective political opposition in Hong Kong. The Democratic Party, the 
Civic Party and a few others remained, but their position became increasingly tenuous, as their 
existence  was  questioned  unless  they  played  the  role  of  ‘loyal  opposition’.  However,  these 
parties did not field candidates for the LegCo elections and the majority of leading democratic 
politicians  were  barred  from  running  for  election.  Civic  Passion,  the  only  ‘non-pro-
establishment’ party remaining in LegCo in 2021, disbanded in September. The Alliance for 
True Democracy dissolved in August, and the NeoDemocrats disbanded in June.  

2021  also  witnessed  deep  changes  in  Hong  Kong’s  civil  society.  All  major  civil  society 
organisations  that were  not  pro-establishment disbanded  out  of  fear of the NSL, with  some 
activists citing threats  to  personal  safety. The Civil  Human Rights  Front, the China Human 
Rights Lawyers Concern Group, the Hong Kong Alliance in Support of Patriotic Democratic 
Movements of China, the Democratic Alliance, the local chapter of Amnesty International, but 
also student unions, trade unions, media groups, church-related groups dissolved. In total, more 
than 50 organisations have disbanded. Many of their leaders have been arrested.  

The  tax  code  was  revised  to  stipulate  that  any  group  supporting,  promoting  or  engaging  in 
activities detrimental to national security would not be recognised as a charitable organisations. 
Like in mainland China, only civil society organisations involved in fields that do not challenge 
the government were allowed to continue operating.  

The Hong Kong SAR government confirmed that more than 10 000 persons have been arrested 
since the 2019 social unrest, including many juveniles. It is estimated that the trials could last 
3 years. Chief Executive Carrie Lam confirmed in her annual Policy Address on 6 October that 
a ‘mega courtroom’ would be built to handle cases involving a large number of defendants.  

Since June 2020, around 162 individuals including former pro-democracy activists, opposition 
lawmakers,  journalists  and  academics  have  been  arrested  under  the  NSL  and  other  related 
legislation as of 31 December. 99 of them have been charged.  

The NSL’s extraterritorial provisions remained a source of concern. Around 30 activists located 
overseas were reportedly on a wanted list of the law enforcement forces. Included among them 
were a number of non-Chinese nationals. 

5 

 
 
 
 
 
 
 
 
 
 
The sentencing for the first conviction of a case under the NSL took place in July 2021. The 
court handed down a nine-year sentence for ‘incitement to secession’ and ‘engaging in terrorist 
activities’. The Hong Kong courts have interpreted the NSL with severity, although the law 
stated that human rights would be respected and protected while safeguarding national security. 
The  granting  of  bail  was  the  exception  rather  than  the  norm  in  spite  of  the  Court  of  Final 
Appeal’s judgment that provided some leeway to the lower courts in determining whether to 
remand  defendants  in  custody.  For  example,  in  the  case  of  the  47  pro-democracy  activists 
prosecuted in relation to the primary elections, only 14 secured bails as of end of 2021. The 
long pre-trial detentions, sometimes in isolation, were increasingly a source of concern.  

In  a  ruling  dated  14  December,  the  Court  of  Final  Appeal  confirmed  that  the  standard  for 
granting bail to national security suspects could also apply to those charged under other laws – 
as  long  as  the  alleged  acts  are  seen  as  endangering  national  security.  These  could  include 
offences listed in Article 23 of the Basic Law.  

The NSL also  affected the education system at  all levels. The Education  Bureau released a 
circular  in  October,  providing  national  security  guidelines  for  school  administration  and 
education in order to help schools ‘put in place measures to maintain a safe and orderly learning 
environment in schools and promote national security education’.  

The  NSL  also  required  the  authorities  to  reinforce  supervision  and  regulation  over  national 
security in social organisations, the media and the internet.  

An increasing number of foreign businesses expressed concerns about Hong Kong’s increasing 
integration  with  mainland  China.  Political  developments  have  had  an  impact  on  the 
predictability  and  the  overall  business  climate,  affecting  the  ability  of  companies  to  do 
business. This has been exacerbated by the pressure on freedom of information and the risk 
that mainland China would impose more laws on Hong Kong, including for instance legislation 
on anti-doxing, anti-sanctions, cybersecurity, data.  

Against the background of the on-going political developments, emigration increased. Official 
figures of the Statistics Department released in August showed a net outflow of around 89 200 
residents  since  mid-2020.  In  September,  official  statistics  showed  that  there  were  81  fewer 
primary one classes than the year before. Many Hong Kong citizens left for the UK, which on 
31 January extended immigration rights to provide a path to citizenship for those with British 
National (Overseas), or BN(O), status. According to UK official statistics, 88 900 BN(O) visa 
applications were made between 31 January and 30 August 2021 - not taking student visas into 
account. Other major destinations included Australia, which introduced permanent residence 
visas for Hong Kong citizens, as well as Canada, the US and Taiwan. Hong Kong also faced a 
declining birth rate. According to the Census and Statistics Department, the total fertility rate 
was lower than the population replacement rate.  

Chief Executive Carrie Lam delivered her fifth policy address to the Legislative Council on 
6 October. The government prioritised national security and integration with mainland China. 
She announced the implementation of Article 23 of the Basic Law, which states that the Hong 
Kong  Special  Administrative  Region  will  enact  laws  on  its  own  (i)  to  prohibit  any  act  of 
treason, secession, sedition, subversion against the Central People’s Government, or theft of 
state secrets, (ii) to prohibit foreign political organisations or bodies from conducting political 
activities in the Region, and (iii) to prohibit political organisations or bodies of the Region from 
establishing  ties  with  foreign  political  organisations  or  bodies.  The  Chief  Executive  also 

6 

 
 
 
 
 
 
 
 
emphasised the importance of the principle of ‘patriots governing Hong Kong’. She announced 
the  establishment  of  a  separate  bureau  for  culture  and  for  sports  and  said  there  would  be 
legislation on fake news and cyber security. 

As of 31 December, Hong Kong reported 12,631 cases of COVID-19, resulting in 213 deaths. 
The vaccination campaign took off slowly. As of 31 December, 4 662 013 persons had received 
two doses of vaccines and 387 074 people three doses. Restrictions were gradually eased, but 
the limit on the number of people permitted to gather in one group remained in place.  

Maintaining a ‘zero-COVID’ approach and reopening the border with mainland China were 
the political priorities. The central government required Hong Kong to adopt stringent policies 
as  a  condition  for  reopening  the  border.  In  late  November,  it  was  announced  that  a  digital 
tracking system similar to the one in use on the mainland would be launched in Hong Kong. 

In contrast, access to Hong Kong from foreign countries became increasingly difficult.  This 
contributed to the relative isolation of Hong Kong and raised questions about its status as an 
international hub in the long term. Hong Kong’s discussions on possible ‘travel bubbles’ were 
not conclusive. In June, the EU added Hong Kong to the list of countries and territories with 
which non-essential travel could take place. 

The  measures  taken  by  the  EU  and  Member  States  in  response  to  the  NSL  in  the  Council 
Conclusions adopted in July 2020 remain in force10. This package of measures included: 

  a  review  of  the  asylum,  migration,  visa  and  residency  policy,  and  of  extradition 

agreements;  

  scrutiny and limitation of exports of sensitive equipment;  
  observation of trials; support for civil society;  
 
  monitoring of the extraterritorial impact of the law; and  
 

the possibility of more scholarships and academic exchanges;  

the refraining from launching any new negotiations with Hong Kong.  

These measures were implemented throughout the year.  

The EU raised its concerns about Hong Kong at the EU-China Political Directors Dialogue in 
January 2021, at the Strategic Dialogue on 28 September, and in the call between President of 
the European Council Charles Michel and President of China Xi Jinping on 15 October.  

Rights, freedoms and equal opportunities 

The deterioration of rights, freedoms and equal opportunities directly affected many sectors of 
society. The community of foreign journalists and academics has been shrinking. Politicians 
and members of civil society were largely reluctant to meet foreign diplomats, in part due to 
accusations of foreign collusion, or because of their bail conditions.  

For the second year in a row, the authorities denied permission for events to commemorate the 
1989 Tiananmen Square crackdown, citing public health concerns linked to the pandemic. 24 

10 Council conclusions on Hong Kong’s national security law, Council of the EU, 28 July 2020, available at: 
https://www.consilium.europa.eu/en/press/press-releases/2020/07/28/hong-kong-council-expresses-grave-concern-over-
national-security-law/ 

7 

 
 
 
 
 
 
 
 
 
 
 
                                                           
activists who participated in the vigil in 2020 were charged with ‘taking part in an unauthorised 
assembly.’ 21 of them received jail terms ranging between 4 months and 24 months, the rest 
received suspended sentences. 

On 4 June, police pre-emptively arrested a leader of the Alliance. Several citizens who came 
to Victoria Park, where the vigil was held in previous years, were also arrested. The June 4th 
museum, which has been run by the Alliance for 10 years, closed in June after the Food and 
Environmental Hygiene Department stated that it did not have a public entertainment venue 
licence.  Police  raided  the  museum  in  September  shortly  after  the  Alliance’s  leaders  were 
detained. Hong Kong authorities adopted comprehensive measures to suppress remembrance 
of  the  4  June  crackdown  in  other  areas.  The  Pillar  of  Shame,  a  sculpture  designed  to 
commemorate the Tiananmen Square crackdown, was removed from its current location in the 
University  of  Hong  Kong  after  the  university  called  for  it  to  be  removed.  The  Chinese 
University of Hong Kong, Lingnan University and City University of Hong Kong have since 
followed suit and removed related art work from campus. Public libraries have also removed 
books on the crackdown.  

In line with the Council Conclusions, the EU Office and Member States have to date monitored 
81  court  hearings,  including  the  ongoing  trial  of  15  pro-democracy  activists  on  unlawful 
assembly charges.  

Under the Sino-British Joint declaration, Hong Kong retained its common-law legal system 
and is party to the International Covenant on Civil and Political Rights (ICCPR). The Basic 
Law  prescribes  that  the  ICCPR  as  applied  to  Hong  Kong  will  remain  in  force  and  be 
implemented through the laws of Hong Kong. The closure of Amnesty International’s local 
and regional offices in October 2021 confirmed that Hong Kong is no longer a safe harbour for 
human rights activism.  

A vast range of civil rights and fundamental freedoms were adversely affected in 2021:  

Media freedom regressed. In January, police officers visited the newsrooms of Stand News 
and Apple Daily with search warrants demanding documents relating to the 2020 democratic 
primary  elections.  Apple  Daily  closed  in  June.  Former  Apple  Daily  executives  and  editors, 
along with three companies previously associated with the paper, were charged with foreign 
collusion under the NSL. The challenges for Next Digital – the parent company of Apple Daily 
– continued well after the newspaper ceased printing.  

In  December,  police  raided  the  newsroom  of  independent  online  outlet  Stand  News  and 
arrested seven individuals related to  the publication for publishing seditious  materials.  Two 
former editors-in-charge were brought to the court and denied bail.  

The replacement of personnel at Radio Television Hong Kong (RTHK) and  I-Cable further 
demonstrated  an  increase  in  self-censorship.  The  work  of  the  Hong  Kong  Journalists’ 
Association came under close scrutiny. 

In addition to local media, the presence of foreign journalists and news outlets in Hong Kong 
has been impacted. A survey on press  freedom  released  in November  2021 pointed to high 
levels of concern regarding the proposed fake news law and self-censorship. The continued 
unexplained  visa  denials  for  foreign  journalists  showed  that  their  working  conditions  are 
increasingly restricted. A number of high-profile journalists, commentators and broadcasters 

8 

 
 
 
 
 
 
 
 
 
  
ceased their programmes or departed from Hong Kong. Government officials have also written 
to international media, accusing them of publishing “incitement materials” and threatened to 
take “necessary action”. 

The vague wording and strict implementation of the NSL damaged freedom of expression. In 
2021, self-censorship became more widespread. This affected the right of access to culture, as 
censorship over cultural productions, films, books and media in general became more common. 
Public libraries removed around 70 titles. The government agency organising the Hong Kong 
Book Fair issued warnings in relation to the NSL over five books displayed.  

The  film  industry  came  under  increased  scrutiny.  In  June,  a  movie  theatre  cancelled  the 
projection of a documentary about the 2019 protests and the distributor of the film was deprived 
of public funding. LegCo adopted a film censorship law enabling the Chief Secretary to directly 
ban films that ‘violate China’s national security interests’, including films that were previously 
permitted to be screened in Hong Kong.  

Regarding internet freedom, the ‘anti-doxing law’, Personal Data Privacy Ordinance 2021, 
which became effective in October, raised concerns about its capacity to target civil society. 
The scope of powers granted to authorities by the law prompted concern from major internet 
companies.  Access  to  a  website  that  had  documented  the  2019  protests  was  blocked  at  the 
request of the police on grounds of ‘doxing’.  

In November, the Chief Executive announced the intention to ‘plug loopholes’ of the internet 
using the NSL. As part of such efforts, new cybersecurity legislation was proposed in the Policy 
Address in October.  

Freedom  of  assembly  was  subject  to  restrictions  in  light  of  the  NSL  and  the  COVID-19 
outbreak.  Applications  for  public  assemblies  have  been  refused  since  July  2020.  Public 
gatherings of more than four people have been banned since March 2020. The Civil Human 
Rights  Front  decided  not  to  organise  its  annual  July  1st  march,  on  the  anniversary  of  the 
handover.  The  June  4th vigil,  organised  by  the  Hong  Kong  Alliance  in  Support  of  Patriotic 
Democratic Movements of China for more than 20 years, was banned on the basis of public 
health concerns.  

Freedom  of  association  decreased  as  the  two  groups  most  closely  associated  with  Hong 
Kong’s two best-known annual political demonstrations both disbanded this year. Prior to their 
disbandment, both groups were accused of receiving ‘foreign support’. In August, the Alliance 
was asked to submit documents under Article 43 of the NSL and accused of being a ‘foreign 
agent’.  

Many trade union leaders are in prison  or awaiting trial  and all the ‘non pro-establishment’ 
trade unions disbanded in 2021. Trade unions from different sectors disbanded, starting with 
the  Professional  Teachers’  Union  (PTU),  which  was  the  largest  teachers’  union  and  the 
Confederation of Trade Unions (CTU), which was the largest pro-democracy coalition of trade 
unions.  Other  unions  that  disbanded  in  2021  include  the  Finance  Technology  Professional 
Services  Personnel  Union,  the  Pharmaceutical  and  Medical  Device  Industries  Employees 
General Union, the Maritime Transport Services Industry Trade Union, the New Media Trade 
Union, the Frontline Doctors’ Union, the Union for New Civil Servants and the General Union 
of  Hong  Kong  Speech  Therapists.  The  General  Union  of  Hong  Kong  Speech  Therapists 

9 

 
 
 
 
 
 
 
 
 
received  particular  attention  as  they  were  accused  of  inciting  anti-government  hatred  with 
children’s picture books. Five leaders of this union were arrested.  

The average remand population in detention centres reached a decade-long high in 2020, rising 
37% from 1436 to 1962 according to the Correctional Services Department’s annual report. 
Prisoners’ rights were often undermined by overcrowding in particular in pre-trial detention 
facilities. The main advocacy group for prisoners’ rights, Wall-fare, disbanded in September 
2021. Another prominent association providing support for prisoners, the 612 Humanitarian 
Relief  Fund,  ceased  its  operations  and  is  being  investigated  by  the  National  Security 
Department  of the  police for ‘suspected contravention of the Hong Kong National  Security 
Law or other Hong Kong laws’.  

Same-sex unions or civil partnerships continued not to be recognised in Hong Kong, but the 
rights of LGBTI persons saw some progress. In June, the Court of First Instance ruled that the 
government  policy  to  deny  same  sex  couples  the  right  to  add  occupants  and  transferring 
ownership  of  subsidised  housing  constituted  unlawful  discrimination  on  the  basis  of  sexual 
orientation.  In  October,  in  a  lawsuit  filed  by  a  gay  widower,  the  government  clarified  that 
various  departments  did  not  have  any  policies  and  guidelines  prohibiting  the  provision  of 
services on death arrangements to the same-sex spouses of the deceased and denied the same-
sex spouse of the deceased from applying for a death certificate. Positive LGBTI mainstream 
media representation became prevalent, with Hong Kong’s first mainstream television drama 
covering  gay relationships  and same-sex marriage  The Gay Games originally scheduled for 
November 2022 were postponed due to concerns over COVID-19 travel restrictions. The Chief 
Executive and other pro-establishment politicians expressed support for the games. The annual 
Pink Dot and Pride Parade both moved indoors.  

Ethnic  minorities  represented  4%  of  Hong  Kong’s  permanent  residents.  They  faced 
discrimination in particular in access to housing, health care and quality education. Because 
they  often  occupied  low-skill  jobs,  they  were  particularly  hit  by  the  social  impact  of  the 
pandemic. It is estimated that 1 in 3 members of this community live in poverty.   

Hong Kong continued not to be a signatory to the 1951 Convention relating to the Status of 
Refugees. The government has a policy of not determining the refugee status of or granting 
asylum to anyone, but would accept claims for non-refoulement protection against expulsion, 
return or surrender from Hong Kong under the Unified Screening Mechanism. In 2021, there 
were 13 000 refugee claimants  in  Hong Kong,  according to  the  government11. The average 
acceptance rate for the past 11 years was 1%, according to some estimates. Existing laws bar 
protection claimants from working.  

The government has amended new immigration law in April that became effective in August. 
The law provided authorities unlimited powers to prevent residents and others from entering 
or leaving the SAR without a Court order. The Security Bureau promised that it would table 
subsidiary legislation to limit the power to inbound flights targeting illegal border crossings by 
migrants without offering a timeline. 

11 Letter from the Secretary for Security, May 6, 2021: 
https://www.sb.gov.hk/eng/articles/letters_2021_04_30.html 

10 

 
 
 
 
 
 
 
 
                                                           
Child and elderly care remained dependent on domestic foreign domestic workers, most often 
from the Philippines and Indonesia. Their working conditions remained an issue, as they were 
legally obliged to reside with their employers, making it sometimes difficult to protect them 
from abuses. The restrictions in accessing Hong Kong caused a shortage of domestic helpers. 
In order to address the shortage, the government opened specific quarantine hotels for domestic 
helpers, but froze their minimum wage.  

Following the declaration of the Government of China upon accession, the  UN Protocol to 
Prevent, Suppress and Punish Trafficking in Persons does not apply to Hong Kong. 

The  anti-corruption  system  remained  resilient.  The  authorities  and  political  and  business 
figures recognise that transparency is vital in maintaining Hong Kong’s strong position as an 
international business centre. 

II. Economic developments 

Hong Kong continued to have a very open economy (trade in goods being around 300% of 
GDP). Political and economic integration with mainland China deepened, notably through 
the Greater Bay Area and closer financial market links. However, some economic distinctions 
remain,  such  as  free  and  open  trade,  negligible  tariff  or  non-tariff  barriers,  well-protected 
property ownership and intellectual property rights.  

Hong  Kong  continued  to  exercise  independent  authority  in  implementing  commercial 
agreements, setting a monetary policy autonomously from mainland China and participating 
separately  in  its  own  right  in  many  international  organisations  and  multilateral  entities, 
including the Financial Action Task Force, and the World Trade Organisation (WTO). Hong 
Kong also remained a separate legal jurisdiction from mainland China, maintaining a separate 
currency not limited by capital limitations, as well as separate regulatory structures to supervise 
companies operating in the territory. Economic integration with the mainland and the recently 
announced  Northern  Metropolis  were  among  the  government’s  main  priorities.  In  terms  of 
finance,  Hong  Kong  remained  among  the  largest  capital  markets  in  the  world,  aimed  at 
increasing its role in green finance and environmental, social and corporate governance and at 
becoming more closely  connected with the Chinese financial market.  

Hong Kong performed well economically in 2021. It was the world’s third largest investment 
destination and became the sixth largest trading economy. While many foreign employees were 
leaving (staff employed by foreign firms decreased by 4.1% over 2 years, a drop of 20 000 
people)12,  the  number  of  new  non-Hong  Kong  companies  (including  those  from  mainland 
China) and start-ups stood at record highs.    

Hong Kong’s position as a hub for foreign direct investment (FDI) strengthened in 2020. 
According to the World Investment Report 2021 by the United Nations Conference on Trade 
and Development (June)13, Hong Kong was the third largest investment hub globally.  

12 Report on 2021 Annual Survey of Companies in Hong Kong with Parent Companies Located outside Hong Kong, the 
Census and Statistics Department of Hong Kong Special Administrative Region, 7 October 2021, available at: 
https://www.censtatd.gov.hk/en/press_release_detail.html?id=5133 
13 The World Investment Report 2021 monitoring global and regional investment trends and national and international policy 
development, United Nations Conference on Trade and Development, 21 June 2021, available at: 
https://unctad.org/webflyer/world-investment-report-2021 

11 

 
 
 
 
 
 
 
 
 
 
                                                           
Key environmental legislation (waste management, animal trafficking) was adopted in 2021. 
Hong Kong’s climate action plan set the target of achieving carbon neutrality by 2050; the plan 
envisages a 50% cut in carbon emissions before 2035 compared to the 2005 level and an interim 
target to stop using coal for the daily generation of electricity by 2035.  

After  2  years  of  contraction  (-1.7%  in  2019;  -6.1%  in  2020),  Hong  Kong’s  economy 
rebounded by 7.0% year-on-year (y-o-y) in the first 9 months of 202114. The economy was 
supported by strong performance in the trade and logistic sectors and the financial industry, 
while  retail,  transport  and  construction  navigated  a  still  challenging  environment.  The 
economy  remained  below  its  level  in  2018,  with  several  sectors  still  underperforming. 
Inflation was moderate, with an annual 1.5% increase in the consumer price index in the first 
10 months of the year15.  

The job market improved, with unemployment rates falling to 4.1% in November 2021, from 
7.2% at the beginning of 202116. However, this remained above the unemployment rates seen 
before the COVID-19 crisis.   

The  trade  and  logistics  sector  –  which  accounted  for  about  20%  of  Hong  Kong’s  GDP  – 
largely contributed to the recovery. GDP from import and export activities increased by 20.8% 
y-o-y in the first half of 2021. This strong performance was supported by a significant increase 
in the value of Hong Kong’s external trade in goods. External trade reached HKD 8.3 trillion 
(EUR 921 billion)17 in the first 10 months of 2021, a 26% increase compared to the same period 
in 202018– surpassing the recovery in global trade.  

The financial industry remained a key driver for growth, with a 6.8% increase in financing 
and insurance activities in the first half of 2021– an acceleration compared to the same periods 
in 2020 (2.6% y-o-y) and 2019 (3.3% y-o-y)19.  

Initial public offerings (IPOs) supported financial activities. During the first 10 months of 
2021, Hong Kong’s stock exchange hosted fewer but larger IPOs: 76 IPOs with a total of HKD 
291 billion (EUR 32 billion) raised – compared to 120 IPOs and HKD 251 billion in 2020. 
Hong Kong was the world’s second largest hub for IPOs in 2020 (after ranking first seven times 
since 2009). Tightened scrutiny of Chinese firms listed in the US played a role in the increased 
number of IPOs in Hong Kong, due to firms shifting to the Hong Kong listing.  

14 Press Release on advance estimates on Gross Domestic Product for third quarter of 2021, 1 November 2021, the Census 
and Statistics Department of the Hong Kong Special Administrative Region, available at: 
https://www.censtatd.gov.hk/en/press_release_detail.html?id=4917 
15 Press Release on Consumer Price Indices for October 2021, 22 November 2021, the Census and Statistics Department of 
the Hong Kong Special Administrative Region, available at: 
https://www.censtatd.gov.hk/en/press_release_detail.html?id=4924 
16 Press Release Unemployment and underemployment statistics for September - November 2021), the Census and Statistics 
Department of the Hong Kong Special Administrative Region, 16 December 2021, available at: 
https://www.censtatd.gov.hk/en/press_release_detail.html?id=4934 
17 Exchange rate dated from November 2021 of 1EUR = HKD 9.0167 

18 Press Release of Hong Kong External merchandise trade statistics for October 2021, the Census and Statistics Department 
of the Hong Kong Special Administrative Region, 25 November 2021, available at: 
https://www.censtatd.gov.hk/en/press_release_detail.html?id=4925 
19 Chain volume measures of Gross Domestic Product (GDP) by economic activity - in chained (2019) dollars, the Census 
and Statistics Department of the Hong Kong Special Administrative Region, 12 November 2021, available at: 
https://www.censtatd.gov.hk/en/scode250.html  

12 

 
 
 
 
 
 
 
 
 
                                                           
Market capitalisation on the Hong Kong stock exchange reached HKD 45.3 trillion (EUR 
5 trillion) at the end of October 2021 (up 4.5% y-o-y). As of end-September 2021, Hong Kong 
was the world’s 7th largest and Asia’s 4th largest stock market (by market capitalisation) as well 
as the largest offshore Renmimbi business hub. Average daily turnover for the first 10 months 
of 2021 was HKD 175.8 billion (EUR 19.5 billion), an increase of 41% y-o-y20. Nevertheless, 
there was volatility in the stock market, and the Hong Kong Hang Seng Index registered a 
loss of 8.4% by the end of October 2021 – making the Hang Seng one of the worst performing 
indices globally. This was due to a combination of concerns over the world economy and the 
pandemic (including in mainland China), geopolitical tensions, high corporate debt in mainland 
China  and  the  regulatory  tightening  in  several  industries  in  mainland  China  (technologies, 
online gaming, education, property), especially as the Hong Kong stock market continued to 
be dominated by companies from mainland China. 

In June, the  International Monetary Fund (IMF)21 stated that Hong Kong’s banking sector 
remained well capitalised, profitable and with low nonperforming loan ratios. Banks’ solvency 
was resilient to severe macro-financial shocks, thanks to high capital buffers and profitability. 
The  exchange  rate  mechanism,  the  Linked  Exchange  Rate  System  (LERS),  remained  well 
anchored and resilient to shocks, underpinned by large foreign exchange reserves. However, 
the IMF also noted that the banking system’s macro-financial vulnerabilities were related to 
extensive linkages to mainland China, stretched real estate valuations, and exposure to shifts 
in global market and domestic risk sentiments. 

Industries  exposed  to  tourist  spending  (retail,  food  and  beverage,  transport,  travel, 
hospitality) were still facing a challenging situation in 2021, as inbound tourism remained very 
low. In 2018, Hong Kong welcomed 65 million visitors (78% of which were mainland Chinese, 
accounting for an estimated 40% of the city’s retail sales) but this number fell to 72 458 in the 
first 10 months of 202122. Despite a 4.9% rebound y-o-y in the first half of 2021, GDP in the 
accommodation and food services industries was still significantly lower than in 2018 (43% 
compared to the first half of 2018). During the first 9 months of 2021, retail sales increased by 
8% y-o-y but remained 28.5% below the level of 2018, and restaurant receipts rebounded by 
12.9% y-o-y but 24.2% below their level in 2018. In the same period, the hotel room occupancy 
rate was 60% (vs. 90% in 2018), supported by compulsory quarantine requirements for inbound 
travellers. Unemployment in the retail, accommodation and food services sectors was 6.9% in 
October 2021 – an improvement (11.3% at the beginning of 2021). 

The aviation industry (and related industries) was severely hit. In the first 10 months of 2021, 
the number of flights at Hong Kong International Airport was 67.5% below the level of 2018 
and  the  number  of  passengers  reduced  to  a  fraction  of  the  previous  level  (a  98.3%  drop 
compared to 2018). Freight performed better, with a 13.7% rebound y-o-y, almost back to the 

20 IMF report on Detailed Assessment of Observance on Principles for Financial market Infrastructures for the People’s 
Republic of China–Hong Kong Special Administrative Region, Country Report No. 21/122, 15 June 2021, available at: 
https://www.imf.org/en/Publications/CR/Issues/2021/06/15/Peoples-Republic-of-ChinaHong-Kong-Special-Administrative-
Region-Financial-Sector-460761 
21 IMF report on Detailed Assessment of Observance on Principles for Financial market Infrastructures for the People’s 
Republic of China–Hong Kong Special Administrative Region, Country Report No. 21/122, 15 June 2021, available at: 
https://www.imf.org/en/Publications/CR/Issues/2021/06/15/Peoples-Republic-of-ChinaHong-Kong-Special-Administrative-
Region-Financial-Sector-460761 
22 Visitor Arrivals to Hong Kong in 2021; Hong Kong Tourism Board, November 2021, available at: 
https://www.discoverhongkong.com/eng/hktb/newsroom/tourism-statistics.html   

13 

 
 
  
 
 
                                                           
level of 201823. Airlines expressed concerns over the stringent COVID-19 travel restrictions 
making it difficult to schedule flights. Some decided to stop operations, while others introduced 
stopovers elsewhere so that crew did not have to stay over in Hong Kong.  

The construction industry recorded 2.0% y-o-y a decrease in GDP in the first half, and real 
estate activities rebounded by 2.3% y-o-y in the same period.  

Business environment  

A  2021  annual  survey  on  foreign  companies  in  Hong  Kong24 indicated  that  the  number  of 
foreign companies (excluding mainland Chinese companies) fell in the past 2 years (by 3.8%). 
The decrease was driven by the reduction in the number of foreign regional headquarters based 
in Hong Kong (by 9.1%) – indicating that the city might be losing some relevance as a regional 
business  hub.  These  numbers  confirmed  anecdotal  evidence  of  companies  reducing  their 
activities  in  Hong  Kong  or  relocating  to  other  cities  in  Asia.  While  non-Chinese  foreign 
companies dropped in the survey, mainland Chinese companies in Hong Kong increased by 
15.6% over the past 2 years. The decrease in the number of non-Chinese foreign companies 
has  started  to  affect  Hong  Kong’s  position  as  an  international  business  hub.  This  was  also 
related to the availability of talent and specialised labour (according to the survey mentioned 
above, the number of staff employed by foreign companies in Hong Kong decreased by 4% 
over 2 years – or 20 000 employees).  

Some  companies  considered  leaving  Hong  Kong.  International  companies  headquartered  in 
Hong Kong or with regional chief  executive officers in Hong Kong found that operating in 
Hong Kong had become more complicated due to COVID measures and to due diligence and 
compliance issues. Some offices, including banks were relocating to other cities in the region. 
Open  letters  of  business  associations  were  sent  to  the  Hong  Kong  government  to  express 
concern over stringent COVID-19 measures that would prompt business to consider relocating 
out of Hong Kong. The political developments mentioned above, which include risks regarding 
freedom of information, the imposition of the NSL, data privacy and sanctions, have also had 
a detrimental effect on the business environment.  

Companies  were  impacted significantly by the stringent COVID-19 travel  restrictions. 
Piloting regional operations in the region and/or their business with China as well as conducting 
regular  business  travel  became  increasingly  difficult.  Bringing  staff  to  Hong  Kong  and  /or 
running normal business operations became more challenging. Companies exposed to tourist 
spending  also  lost  a  source  of  income.  Strict  travel  restrictions  and  long  compulsory  hotel 
quarantines were put in place for most inbound travellers during 2021. Foreign non-residents 
were also largely barred from entering Hong Kong. A few existing exemptions were scrapped 
in November 2021, including for most diplomats. The travel restrictions are kept in place in 
order to achieve a reopening of the boundaries with the mainland. However, the boundaries 
remained closed and Hong Kong was mostly isolated from both China and the world.  

23 Hong Kong International Airport Civil International Air Transport Movements of Aircraft, Passenger and Freight (1998 
onward), October 2021, available here: https://www.cad.gov.hk/english/statistics.html  
24 Report on 2021 Annual Survey of Companies in Hong Kong with Parent Companies Located outside Hong Kong, the 
Census and Statistics Department of the  Kong Special Administrative Region, 7 October 2021, available at: 
https://www.censtatd.gov.hk/en/press_release_detail.html?id=5133 

14 

 
 
 
 
 
 
 
 
 
                                                           
 
Government support and fiscal situation 

The government continued to support the economy impacted by the pandemic. The 2021-
2022 budget included about HKD 81 billion (EUR 9 billion) in one-off relief measures, down 
from HKD 122 billion in the previous budget and HKD 300 billion (EUR 33 billion, 11% of 
GDP) when including additional packages that were also rolled-out. The measures announced 
included  lower  taxes  on  profits  and  wages,  the  waiving  of  certain  business  fees,  rental 
concessions  on  government  properties  and  government  loan  guarantees  schemes  (for 
companies and unemployed persons). Electronic spending vouchers worth HKD 5,000 (EUR 
555) were distributed to all residents regardless of their financial situation.  

Hong Kong is expected to record its third consecutive fiscal deficit25 in fiscal year 2021-
2022 ending March 2022. The deficit was HKD 112 billion (EUR 12.42 billion) in the first 7 
months to October 2021. This would be a significant improvement after a deficit of HKD 250 
billion (roughly 10% of GDP) in the previous fiscal year but remained unusual in an economy 
accustomed to having a fiscal surplus (the deficit in fiscal year 2019-2020 was the first in 15 
years).   

The deficit was largely funded by tapping into the city’s ample fiscal reserves26. As a result, 
reserves  dropped  from  HKD  1,160  billion  in  March  2020  to  HKD  816  billion  (EUR  90.49 
billion) as of the end of October 2021. In the 2021-2022 budget, the government forecast fiscal 
deficits to run until 2025 or longer and reserves could drop to HKD 775 billion (EUR 86 billion) 
in 2025. This would be equivalent to an estimated 15 months of expenditure at current levels, 
a drop by 10 months compared to 2018.  

In  2021,  stamp  duties  on  stock  transfers  were  raised  from  0.1%  to  0.13%,  and  the  first 
registration  tax  and  vehicle  licence  fee  for  private  cars  were  increased,  bringing  additional 
revenues. On the expenditure side, total government spending from the 2021-2022 budget was 
10.3% lower y-o-y. 

Trade policy 

In  2021,  the  Free  Trade  Agreement  (FTA)  and  Investment  Promotion  and  Protection 
Agreement (IPPA) with ASEAN (signed in 2017) entered into force with Cambodia.  By the 
end of the year, the agreement was in full force with ASEAN’s 10 members. An IPPA with 
Mexico  entered  into  force  in  June.  Hong  Kong  expressed  interest  in  joining  the  Regional 
Comprehensive  Economic  Partnership  (RCEP)  as  soon  as  possible.  In  May,  Hong  Kong 
suspended the operation of its Economic, Trade and Cultural Office in Taiwan, even though 
Taiwan became its second largest trading partner. The government explained that the decision 
was due to Taiwan’s interference in Hong Kong's affairs.  

Chief Executive Carrie Lam proposed several policies for the SAR’s economy in her recent 
policy address, including further enhancing Hong Kong’s role in finance. Hong Kong aimed at 

25 Press Release on financial results for the past 7 months until end of October 2021, 31 October 2021, The Treasury of 
Government of the Hong Kong Special Administrative Region, available at: 
https://www.info.gov.hk/gia/general/202111/30/P2021112900457.htm 
26 Press Release on financial results for the past 7 months until end of October 2021, 31 October 2021, The Treasury of 
Government of the Hong Kong Special Administrative Region, available at: 
https://www.info.gov.hk/gia/general/202111/30/P2021112900457.htm 

15 

 
 
 
 
 
 
 
 
 
                                                           
 
becoming an international green finance centre, with the ambition of becoming a carbon market 
in co-operation with the Guangzhou Futures Exchange. Environmental, social and corporate 
governance  professionals  will  be  added  in  the  Talent  List  of  Hong  Kong.  This  meant  that 
environmental,  social  and  corporate  governance  professionals  would  be  eligible  for 
immigration facilitation under the Quality Migrant Admission Scheme (QMAS).  

Regional integration 

Chief Executive Carrie Lam presented the concept of Northern Metropolis, an area spanning 
300  square  kilometres  that  would  become  the  city’s  ‘most  important  area’  to  facilitate 
integration  with  Shenzhen  and  connect  with  the  Greater  Bay  Area  (GBA).  The  Northern 
Metropolis will accommodate a population of about 2.5 million, with the total number of jobs 
set to increase from 116 000 at present to about 650 000, including 150 000 I&T-related jobs.  

Integration with the GBA is supported by a number of initiatives: mainland China’s 14th Five-
Year  Plan  (including 
the 
Comprehensive  Deepening  Reform  and  Opening  Up  of  the  Qianhai  Shenzhen-Hong  Kong 
Modern  Service  Industry  Cooperation  Zone,  the  economic  development  for  domestic  and 
international  dual  circulation,  and  the  Belt  and  Road  Initiative.  Innovation  and  technology 
development are key objectives under these initiatives.  

the  Guangdong-Hong  Kong-Macao  Greater  Bay  Area), 

Chief Executive Carrie Lam also proposed to allow stocks traded via the southbound trading 
under  the  Stock  Connect  scheme  to  be  denominated  in  Chinese  yuan.  The  government 
supported the Hong Kong Stock Exchange to promote cooperation with the Guangzhou Futures 
Exchange in developing carbon emission trading-related financial products and assessed the 
feasibility of developing Hong Kong into a regional carbon-trading centre. Hong Kong aimed 
at  further  developing  RMB  cross-boundary  trade,  developing  offshore  RMB  products  and 
promoting cross-border financial technologies (Fintech). 

Important environmental policies were adopted in 2021 such as the Waste Blueprint, the 
Electric  Vehicle  Roadmap,  and  a  Climate  Action  Plan  2050.  On  climate  change,  Chief 
Executive Carrie Lam announced that Hong Kong, as an international city of China and as part 
of the overall Chinese commitment, would reduce carbon emissions by 50% before 2035 as 
compared to the 2005 level and achieve carbon neutrality before 2050. In the next 15 to 20 
years,  the  government  would  devote  about  EUR  27  billion  to  finance  measures  on  climate 
change mitigation and adaptation. The government set up an Office of Climate Change and 
Carbon Neutrality, and a climate action plan was presented in October 2021.  

A green and sustainable finance grant scheme was launched in May 2021 to provide subsidies 
for eligible bond issuers and loan borrowers. During 2021, the ceiling under the government 
green  bond  programme  was  doubled  to  HKD  200  billion  (EUR  22  billion)  helping  the 
government  to  promote  the  local  green  bond  market  while  advancing  the  city’s  carbon 
neutrality objective. Three additional offerings of government green bonds were completed in 
2021: USD 2.5 billion in January, USD 1 billion and EUR 1.75 billion in November 2021 and 
another RMB 5 billion later the same month (after a first issuance of USD 1 billion in 2019).  

III. Relations between Hong Kong and mainland China 

The central government adopted an increasingly visible role in Hong Kong’s political and 
economic  affairs.  On  28  January,  the  principle  of  ‘patriots  ruling  Hong  Kong’  as  the 

16 

 
 
 
 
 
 
 
 
 
 
foundation for the ‘one country, two systems’ principle was made public when Chief Executive 
Carrie Lam presented her annual report to President Xi Jinping. For the second year in a row 
the National People’s Congress (NPC) adopted legislation on Hong Kong. On 11 March, the 
NPC  approved  the  Decision  on  Improving  the  Electoral  System  of  the  Hong  Kong  Special 
Administrative  Region,  with  immediate  effect.  The  Decision’s  explanatory  document 
mentioned ‘loopholes and deficiencies’ in Hong Kong’s electoral system and aimed at ensuring 
that Hong Kong is administered by ‘patriots’.  

The role of the Central Government Liaison Office (CGLO) in Hong Kong evolved.  Its 
director intensified engagement and reached out to the people of Hong Kong. The CGLO, the 
size  of  which  increased  by  100  people,  exerted  increasing  influence  over  Hong  Kong’s 
policymaking  and  political  establishment,  calling  into  question  the  maintenance  of  Hong 
Kong’s high degree of autonomy.  

Hong Kong’s policies were increasingly aligned with those of the mainland. Hong Kong 
was  included  in  the  PRC’s  Five  Year  Plan,  with  a  focus  on  integration  in  the  GBA.  In 
November, the communiqué of the Party’s 6th plenum mentioned Hong Kong for the first time 
in a resolution on history and endorsed the principle of ‘patriots governing Hong Kong’. 

Mainland China was Hong Kong’s largest trading partner in goods, accounting for 60% 
of Hong Kong’s total exports and 45% of its imports during the first 10 months of 2021. In 
turn, the SAR was an important trading hub for the mainland and ranked as China’s the fifth 
largest  trading partner  in  the first  10  months  of 2021. The Chinese province of Guangdong 
remained  an  important  outward-processing  base  for  Hong  Kong.  The  Closer  Economic 
Partnership  Arrangement  (CEPA)  with  the  mainland  (2003)  was  Hong  Kong’s  most 
substantial trade agreement. There was no major amendment under the agreement this year. 

Hong Kong also remained mainland China’s key offshore financial centre and investment 
hub. At the end of 2020, 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 27% and 47% of the total stocks respectively27. In turn, Hong 
Kong remained the leading destination for mainland China’s FDI and a leading source of FDI 
to the mainland – accounting for more than half of the total in each direction. There were 1 350 
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  were  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.  

Hong  Kong  strengthened  its  preferential  mutual  access  with  the  mainland’s  capital 
market. Two initiatives were launched in the second half of 2021: the Greater Bay Area (GBA) 
Wealth  Management  Connect  (WMC)  and  the  southbound  leg  of  the  Bond  Connect.  They 
complement existing channels.  

In September 2021, the central government announced a plan was to extend and further open 
up the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone (Qianhai 

27 Statistical report on External Direct Investment Statistics of Hong Kong (2020 Edition), 10 December 2021: available at 
https://www.censtatd.gov.hk/en/EIndexbySubject.html?pcode=B1040003&scode=260 

17 

 
 
 
 
 
 
 
 
 
                                                           
 
zone) in Shenzhen. The zone was launched more than a decade ago and hosted about 11 500 
Hong  Kong  invested  enterprises.  Other  developments  in  relation  to  the  GBA  included:  (i) 
hosting  the  inaugural  GBA  Legal  Professional  Examination  –  with  candidates  obtaining  a 
lawyer’s practice certificate (GBA) to provide legal services in the GBA on specified civil and 
commercial  matters  (including  litigation);  (ii)  establishing  a  framework  for  cooperation  on 
liquidation  proceedings;  (iii)  opening  up  more  national-level  science  and  technology 
programmes to Hong Kong; and (iv) promoting equivalence of qualifications for architecture 
and engineering professionals.  

IV. EU-Hong Kong bilateral relations and cooperation in 2021 

High-level visits from the EU institutions could not take place for the second year in a row. 
The  EU  Office  met  frequently  with  government  officials,  lawmakers,  academia  and  civil 
society, although it proved more challenging than in previous years. In 2021, the annual EU-
Hong Kong Structured Dialogue did not take place, for the second year in a row.  

In 2021, the EU was the largest foreign business community in Hong Kong, ranking ahead of 
Japan, the US and the UK. As of June 2021, at least 1 614 EU companies set up business in 
Hong Kong, and many of them were using Hong Kong as regional headquarters. EU businesses 
were  present  in  a  wide  range  of  sectors,  including  financial  and  business  services,  trading, 
logistics, retailing, food and beverage, and construction. Based on the annual survey on foreign 
companies by the Hong Kong Census and Statistics28, the number of EU companies registered 
a slight increase in the past 2 years (+0.7%), reaching 1614. However, EU companies that have 
cut or relocated some activities and / or staff while remaining in Hong Kong are not reflected 
in those numbers.  

In 2021, bilateral trade in goods reached EUR 30.5 billion, an increase of 2.5% y-o-y compared 
to 2020. EU exports of goods to Hong Kong amounted to EUR 23.5 billion, while imports from 
Hong Kong totalled EUR 7 billion, resulting in a surplus of EUR 16.5 billion for the EU29. The 
EU was Hong Kong’s third largest trading partner in goods in 2021, after mainland China 
and Taiwan30. Hong Kong remained an important platform for trade between mainland China 
and the EU. 

EU bilateral trade in services with Hong Kong amounted to EUR 27.2 billion in 2020 (-2.5% 
y-o-y) 31 of which EU imports from Hong Kong, which amounted to EUR 9.8 billion, and EU 
exports to Hong Kong, which totalled EUR 17.4 billion. This resulted in a EUR 7.6 billion 
trade surplus for the EU. Preliminary data for 2021 shows strong growth in bilateral trade in 
services with Hong Kong in the first three quarters of the year (+23.1% y-o-y to EUR 24.5 

28 Report on 2021 Annual Survey of Companies in Hong Kong with Parent Companies Located outside Hong Kong, the 
Census and Statistics Department of Hong Kong Special Administrative Region, 7 October 2021, available at: 
https://www.censtatd.gov.hk/en/press_release_detail.html?id=5133 
29 Source: Eurostat/Comext database available at https://ec.europa.eu/eurostat/web/international-trade-in-goods/data/focus-
on-comext)  
30 Statistical report on Hong Kong External Merchandise Trade (December 2021), 9 February 2022. Available at: 
https://www.censtatd.gov.hk/en/EIndexbySubject.html?pcode=B1020005&scode=230   
31 Source: Eurostat: European Union and euro area balance of payments - quarterly data available at 
https://ec.europa.eu/eurostat/databrowser/view/BOP_EU6_Q__custom_457552/bookmark/table?lang=en&bookmarkId=906
b5b31-513e-4656-95e7-613fde4706ed 

18 

 
 
 
 
 
 
 
 
                                                           
billion)32. Two-way investment between the EU and Hong Kong dropped by almost a quarter, 
but remained significant: according to the most recent data, investment stocks from Hong Kong 
into  the  EU  amounted  to  EUR  162  billion  and  investment  from  the  EU  into  Hong  Kong 
amounted to EUR 128 billion33. 

With  regard  to  the  EU-Hong  Kong  Customs  Cooperation  and  Mutual  Administrative 
Assistance  Agreement  and  the  Action  Plan  on  Customs  Enforcement  in  IPR,  planned 
operational activities were impacted by the COVID crisis. Hong Kong remained the second-
largest place of provenance by value of IPR-infringing goods imported into the EU, even if 
these goods were not produced in the city. Meetings in Hong Kong with the leadership of the 
Customs and Excise Department did not take place in 2021, despite several requests. 

With regard to taxation, the Code of Conduct Group (COCG) launched communication with 
jurisdictions  which  were  identified  as  relevant  in  relation  to  their  foreign  sourced  income 
exemptions, including Hong Kong. As a result of the dialogue and the information provided, 
Hong  Kong was  asked to commit to  reform  its  Foreign Sourced  Income Exemption  (FSIE) 
regime as it was found to be non-compliant. The authorities were also requested to implement 
the reform by the end of 2022. 

Regarding research, science and innovation, the Hong Kong authorities published two calls 
for applications in 2021 to support Horizon 2020 participants from the SAR. The EU and Hong 
Kong were exploring the expansion of the existing collaboration scheme under the EU’s new 
flagship programme Horizon Europe.  

Drastic restrictions due to the COVID-19 pandemic caused the rescheduling of many planned 
people-to-people  activities  such  as  cultural  events,  research,  academic  cooperation,  student 
mobility and activities involving the creative industries. However, the EU Office was able to 
gradually restart public outreach and engage with the local community. The EU Film Festival 
2021  was  organised  with  the  support  of  EU  Member  States.  The  Office  also  hosted  –  in 
cooperation with the European Chamber of Commerce in Hong Kong – a green event entitled 
‘EU-Hong Kong:  the Green Way’, where the industry  handed over  12  recommendations to 
senior government representatives on ways to accelerate the green transition in the SAR.  The 
EU Office also engaged with the local authorities to promote the EU’s reform proposal of the 
World Trade Organisation towards a sustainable and effective multilateral trading system and 
in  preparation  for  the  12th  WTO  Ministerial  Conference.  Two  events  took  place  with  the 
Department of Commerce and many technical meetings with government and industry on key 
EU Policies, including finance, the green deal and commerce. The 6th annual EU-Hong Kong 
workshop on trafficking was delayed to January 2022.  

32 Source: Eurostat: European Union and euro area balance of payments - quarterly data 
https://ec.europa.eu/eurostat/databrowser/view/bop_its6_det/default/table?lang=en 
33 Source: Eurostat database available at : 
https://ec.europa.eu/eurostat/databrowser/view/BOP_FDI6_GEO__custom_2077647/default/table 

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