Economic analysis
Hong Kong, S.A.R.

Hong Kong, S.A.R.

Population 7.5 million
GDP per capita 48,627 US$
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major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 3.0 -1.2 -6.0 4.0
Inflation (yearly average, %) 2.4 2.9 0.3 2.4
Budget balance (% GDP) 2.4 -1.5 -11.8 -6.6
Current account balance (% GDP) 3.7 6.2 4.4 4.7
Public debt (% GDP) 0.1 0.3 0.3 0.3

(e): Estimate (f): Forecast


  • Open economy
  • High-quality infrastructure
  • Top-class global financial centre, airlock between China and the rest of the world
  • Healthy banking system
  • Anchoring of the currency to the US dollar


  • Lack of innovation and diversification of the economy
  • Exposure to slowdown in mainland China
  • Mismatch between business cycles in the United States and China, as the HKD is pegged to the USD
  • Real estate sector risks and housing affordability
  • Rising income inequality and social discontent
  • Industry has fully relocated to mainland China
  • Caught in between rising U.S.-China tensions 

Risk assessment

Downside pressures on growth to linger into 2021

GDP growth is likely to remain weak in 2021, as a new wave of COVID‐19 infections prompted the government to tighten containment measures once again in November 2020. This will continue to weigh on private consumption and investment. Private consumption (65% of GDP) has suffered from the social unrest that started in June 2019 and from the pandemic over the first half of 2020. That said, since the National Security law was enacted in June 2020, the resurgence of protests should be occasional and the impact on private consumption would ease in 2021. The services sector relies on tourism, of which arrivals dropped by ‐99.8% YOY as of November 2020 as international borders remain shut. Inflation should increase from a low base in 2020, but would remain weaker than before the pandemic, while the labour market should only partly absorb the rise in unemployment triggered by the pandemic (6.4% in October), which would drag on disposable income in 2021.
Investment (21% of GDP) growth is expected recover, but could be pressured from political uncertainties surrounding the National Security law and Hong Kong’s autonomy from western countries. Credit conditions have eased, in line with the zero rate policy undertaken by the U.S. Federal Reserve (Fed) since March 2020 because of the pandemic. The Hong Kong Monetary Authority (HKMA) follows the monetary policy moves of the Fed since the currency is pegged to the U.S. dollar. With a housing shortage, excess liquidity and the Fed unlikely to raise interest rates any time soon, housing prices had hardly experienced a drop and should correct further in 2021, which would drag on consumption through wealth effects. In July 2020, the government unveiled a USD 124 billion fiscal stimulus (9.5% of GDP) package in the 2020‐21 budget. This gave little relief to the economy, as only half of it is allocated to employment and businesses.


Large budget deficit ahead, albeit cushioned by large reserves

Hong Kong is set to register the largest budget deficit ever recorded in the financial year ending March 2021. This is mainly due to the pandemic, which urged the government to undertake policies prioritizing the economic recovery and employment, with a package of relief measures amounting to 4.3% of GDP. That being said, the prudent policymaking approach over the years has led to large reserves, accumulated for rainy days, which represent 22 months of expenditure. The trade balance surplus should pick up slightly, as exports should increase faster than imports, since these largely dominated by re‐exports to and from China, which is recovering.

Financial services should remain dynamic despite pressures on capital inflows because of geopolitical uncertainties. Banks’ balance sheets, which saw a slight deterioration in 2020, as well as a deterioration in credit quality, are still resilient and should remain so in 2021 thanks to strong capital and liquidity positions. Furthermore, Hong Kong is a top global Initial Public Offering (IPO) centre and the largest financial hub in the region, with assets under management (AUMs) far exceeding those of regional competitors such as Singapore and Tokyo.


Further integration into mainland China

Chief Executive Carrie Lam’s pro‐Beijing establishment coalition lost the majority in the Legislative Council (Legco) in 2019. Her popularity has plummeted since the Extradition bill, and even worsened with the National Security law that China passed on 30 June 2020. This law stipulated four offences ‐ secession, subversion, terrorism and collusion with foreign forces ‐ and granted broader powers to the Hong Kong police. Critics from western countries saw this move as an attempt to curtail protests and freedom of speech. In response to this, the Trump administration put an end to Hong Kong’s special status with the U.S. through a call to label imports from Hong Kong as ‘Made in China’ from September 2020 onwards, and restricting visas for Chinese officials. That said, the impact could be somehow limited, as more than 80% of Hong Kong exports consisted of re‐exports from China to the U.S., while only 1.2% were domestic exports.

In her annual policy address in November 2020, Carrie Lam continued to stress the importance of the National Security law and said that she had no plans for Hong Kong’s democratic reform until the end of her term. Further integration of the city within mainland China in the future, especially through the Greater Bay Area concept, was at the heart of her policy address. She promoted programs that would boost employment opportunities, particularly among the youth in China, through wage subsidies for tech companies that would send staff in China.


Last updated: March 2021


Bank transfers are one of the most popular payment instruments for international and domestic payments in Hong Kong, thanks to the territory’s highly developed banking network.

Standby Letters of Credit also constitute reliable payment methods, as the issuing bank guarantees the debtor’s credit rating and repayment abilities. Irrevocable and confirmed documentary letters of credit are also widely used, as the debtor guarantees that a certain sum of funds will be made available to the beneficiary via a bank, once specific terms agreed by the parties are met.

Cheques and bills of exchange are also frequently used in Hong Kong.

Debt collection

Amicable phase

During the amicable phase, the creditor sends one or more notice letters (summons) to the debtor, in an attempt to persuade them to pay the due debts.

The Practice Directions on Mediation, introduced in 2010, set out voluntary processes that involve trained and impartial third party mediators. This helps both parties involved in a dispute to reach an amicable agreement for repayment. Debtors and creditors are usually urged to pursue this process before resorting to legal action.


Legal proceedings
Ordinary proceedings

The judicial system in Hong Kong comprises three distinct courts:

  • The Small Claims Tribunal handles relatively small cases (of up to HKD 75,000 in a fast and efficient manner. The rules of procedure are less strict than in those of other types of courts and no legal representation is permitted;
  • The District Court has jurisdiction over more substantial financial claims, ranging from HKD 75,100 to HKD 3,000,000;
  • The High Court deals with much larger legal disputes and is additionally charged with handling claims of over HKD 3,000,000.

Hong Kong’s District court and High Court allow legal representation. Cases in these courts are initiated by issuing a Writ of Summons to the debtor, who then has 14 days to file a defence. The creditor is also required to file a notarised Statement of Claim. If the debtor responds to the Writ and requests a payment plan, the creditor has two weeks to reply. If the parties find it impossible to enter into an agreement, a hearing will be called for by the judge, during which a judgment is normally made. If the debtor does not respond, a default judgment can be rendered.

Enforcement of a legal decision

A domestic judgment is enforceable once it becomes final (if no appeal is lodged within 28 days). If the debtor fails to comply with the judgment, the creditor can request an enforcement order from the court. This usually entails either a garnishee order (allowing the creditor to obtain payment of the debt from a third party which owes money to the debtor), a Fieri Facias order (which enables a bailiff to seize and sell the debtor’s tradable goods), or a charging order (for seizing and selling the debtor’s property to satisfy the debt).

Foreign judgments are enforced under the Foreign Judgments (Reciprocal Enforcement) Ordinance. Decisions issued in a country with which Hong Kong has signed a reciprocal treaty (such as France or Malaysia) only need to be registered and then become automatically enforceable. Where no such treaty is in place with a country, enforcement can be requested before the court, via an exequatur procedure.

An Arrangement on Reciprocal Recognition and Enforcement of judgments in Civil and Commercial Matters (REJA) was concluded with the People’s Republic of China in 2006. This makes judgments rendered in Mainland China or in Hong Kong automatically enforceable by the courts of the other contracting party.

Insolvency proceedings

The only formal insolvency procedure under the Companies Ordinance Act is liquidation.


Out-of court proceedings

The law does not provide for formal procedures for restructuring company debts. Restructuring proceedings therefore need to take place through informal “workouts” or a scheme of Arrangement.



A workout is an out-of-court agreement made between a debtor company and its major creditors for the rescheduling of its debts. This proceeding can be initiated at any time. Restructuring plans are usually recommended by a committee which is chaired by a lead creditor. The courts are not involved and the process is entirely voluntary. Once a plan has been agreed, the company continues to operate and is managed under the terms of the arrangement. This procedure does not provide legal protection from creditors.


Scheme of Arrangement

A Scheme of Arrangement is a statutory, binding compromise reached between a debtor and its creditors. It must be accepted by all classes of creditors. A court reviews the plan, before sanctioning the convening of separate meetings with creditors. The scheme must be approved by the court, at least 50% of creditors in terms of number and 75% of creditors in terms of value of debts. An administrator is appointed to implement the scheme.



Liquidation can be voluntary or compulsory. It involves selling the debtors’ assets in order to redistribute the proceeds to creditors and dissolve the company. Voluntary liquidation can be either a member’s voluntary liquidation (MVL), or a creditors’ voluntary liquidation (CVL). In both cases, company directors lose control and a court-supervised liquidator is appointed.

Creditors can initiate a compulsory liquidation by filing a winding-up petition with the courts on the grounds of insolvency. An MVL is a solvent liquidation process whereby all creditors are to be paid in full and any surplus distributed among the company’s shareholders. CVLs are insolvent liquidations.


Regulatory Update on Insolvency regime

The Hong Kong Government Gazette’s Companies (Winding Up and Miscellaneous Provisions) Ordinance 2016 (“Amendment Ordinance”) entered into force on February 13, 2017. These updates were introduced in order to increase protection for creditors and to streamline and improve regulations under Hong Kong’s corporate winding-up regime.

Insolvency trend Hong Kong