Economic overview
Officially a Special Administrative Region of China, Hong Kong has navigated a “one country, two systems” form of limited democracy since 1997. That’s the year the United Kingdom handed the territory back to the Chinese government after nearly a century of British control. The island of Hong Kong, a densely populated area slightly smaller than Manhattan, is an important financial gateway to mainland China. The mainland has long been Hong Kong’s largest trading partner, accounting for about half of total trade by value. In 2012, about half of the firms listed on the Hong Kong Stock Exchange were based on the mainland. Mainland interests accounted for 40% of Hong Kong banking system assets in mid-2014, according to The New York Times. Visitors from China to Hong Kong outnumber visitors from all other countries combined. Services make up more than 90% of Hong Kong’s gross domestic product. The city’s economy grew 2.3% in 2014, compared to 2.9% in 2013.
Business travel industry insight
The travel industry is set to benefit from a recently announced stimulus plan designed to spur growth and help businesses recover from the effects of pro-democracy and economically motivated protests that shut down parts Hong Kong last year. Measures include license fee waivers for travel agents, hotels, restaurants, taxis and buses, as well as increased spending to promote Hong Kong as a travel destination. In addition, the government plans to build a third runway at the Hong Kong International Airport. Construction could begin next year and finish by 2023. The government reported that despite the Occupy movement protests, tourist arrivals to Hong Kong increased 12% last year, while tourist spending rose 9%.
Opportunities
- Tax rates in Hong Kong are low compared to global standards: 15% for individuals and 16.5% for companies. The government relies heavily on profits from land sales and taxes on real estate transactions, and its revenue has increased in tandem with property prices. Officials estimate Hong Kong’s budget surplus to be about 64 billion Hong Kong dollars (US$8.25 billion).
- Hong Kong is spending billions of dollars on infrastructure projects. According to The New York Times, the spending includes nearly US$10 billion on a 50-kilometer (31-mile) bridge and tunnel to the cities of Macau and Zhuhai; US$6 billion on a new cluster of theaters and arts venues; US$9 billion on a high-speed rail link to Guangzhou, in southern China; and US$14 billion on extensions to the local subway system.
- Separately, the government plans to spend HK$34 billion (US$4.4 billion) to stimulate growth; aid businesses disrupted by the Occupy protests in 2014 (including measures for the travel industry, described above); and provide economic support to lower- and middle-class residents.
Challenges
- Hong Kong has one of the world’s biggest wealth gaps, a catalyst for last year’s Occupy protests. The steep rise in property prices has made housing increasingly unaffordable for lower- and middle-income residents. In addition, individual spending power has been eroded by stagnant wage growth and rising consumer prices, which jumped more than 4% in 2013.
- Hong Kong’s economic fortunes are closely tied to other markets, especially China. As growth on the mainland slows and Europe continues to struggle, Hong Kong is feeling the effects. Officials have offered a conservative growth estimate of 1% to 3% for 2015.
- More than a third of Hong Kong’s elderly live in poverty, and their numbers are growing. The Organization for Economic Cooperation and Development and the World Health Organization forecast 42% of Hong Kong’s population will be 65 and older by 2050—the highest per-capita percentage in Asia.
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