With very low labour taxes, social contributions and other employment regulations, Hong Kong is an attractive investment destination for many of our clients. Its growing workforce supplies cheap and flexible labour, complemented by the rapid expansion of its university-educated labour force. Supply chains benefit from an extensive and high quality transport network which offers excellent connections to global trade routes. That said, Hong Kong faces significant challenges from mainland China.

We keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. They also benefit from in-depth analysis on 18 of Hong Kong’s most important industries. We provide interactive data and forecasting, alongside detailed and risk-assessed analysis from our experts. We aim to keep you one step ahead, so you can operate with confidence in Hong Kong.

Country Risk

Hong Kong Country Risk

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Hong Kong

Core Views

  • Hong Kong's real economic growth slowed to 2.3% in 2014, versus 2.9% in 2013. While we still envisage a modest growth rebound to 2.7% in 2015, dual headwinds from China as well as the overvalued domestic property market provide downside risks to this forecast.

  • We expect the ongoing run-up in Hong Kong residential property prices to fade in 2015, particularly as supply limitations subside and interest rates increase. However, the eventual correction is likely to be relatively mild, with price declines in the range of 10-15% within the realm of possibility.

  • Extremely large-scale pro-democracy protests, which began in September 2014 and were only wound up in December, failed to bring about any significant political compromise from either the Hong Kong or Chinese...

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Hong Kong Operational Risk Coverage (9)

Hong Kong Operational Risk

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BMI View: As one of the world's major hubs for international trade, investment, and finance, Hong Kong offers among the most favourable operating environments of any state globally. The Special Administrative Region (SAR) of China is a very low-risk location for businesses with no single, significant deterrent to foreign investors. Hong Kong's position as a premier investment destination is boosted by a number of factors, namely its large pool of skilled labour, its highly developed logistics network, an open economy with few fiscal, financial or trade barriers, and its low crime rate. Hong Kong receives the highest score in the overall BMI Operational Risk Index, at 81.6 out of 100, making it the most attractive investment destination out of 201 countries worldwide.

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Hong Kong Crime & Security

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Overall, crime and security risks for investors and businesses in Hong Kong are very low with regards to all types of risks (crime, terrorism, interstate conflict) due to low crime rates, the absence of domestic terror groups/attacks and an effective security/counter-terrorism apparatus, as well as a secure neighbourhood under the security patronage of military heavyweight China. Thus we have awarded Hong Kong a total score of 90.9 out of 100 in our Crime and Security Index, ranking Hong Kong among the most secure countries/territories in the world, six places behind global leader Slovenia, outperforming all other regional peers in Asia.

In comparison, the greatest risks for companies and the general public in Hong Kong relate to the global terrorism threat that affects Hong Kong as global financial hub and capitalist engine of China. Terrorism threats in China are related to the Muslim Uighur minority in the north-western region of Xinjiang...

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Hong Kong Labour Market

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BMI View: A large labour force of more than 5mn and a steady supply of migrant workers from China and other Asian states ensure suitable availability of cheap and flexible labour in Hong Kong. Authorities are keen to keep government intervention in the labour market to the bare minimum to preserve Hong Kong's status as an employer-friendly business hub. However, some sectors, such as construction and information technology, will face skilled labour shortages owing to inadequate education in technical vocational schools and too much government spending on the tertiary education sector. Nevertheless, Hong Kong is a strong performer in our Labour Market Risk Index, scoring 72.1 out of 100 and placing third regionally, behind New Zealand and Singapore.

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Hong Kong Logistics

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Hong Kong is a clear outperformer with regard to Logistics Risks. Its very well-developed transport system with top-rated road, rail, port and airport infrastructure, its easy trade procedures and strong governance leading to extremely low import and export lead times and documentation as well as high freight capacities by sea and air combine to put it in first place out of 30 countries in the region and in second globally after the Netherlands. The only category in which Hong Kong scores comparatively poorly is Market Size and Utilities, since Hong Kong has no natural resources of its own and is thus forced to import resources.

The Transport Network in Hong Kong is very sophisticated, ranking in third place regionally and in 16 th position out of 170 countries in the world, which is many places in front of mainland China. The need to develop very smart and efficient transport infrastructure, both in terms of extent and quality,...

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Hong Kong Trade & Investment

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Hong Kong presents minimal trade and investment risks owing to its relatively open economy and attractive foreign investment policy. Specifically, investors are exposed to reduced costs due to a transparent legal system, limited corruption and strong contract enforceability. These risks are further mitigated by favourable tax rates and attractive financial incentives. Overall, Hong Kong is the regional outperformer in the BMI Trade and Investment Risk Index with a score of 82.4 out of 100, outperforming fellow financial hub Singapore, which places second in the Asian rankings.

Hong Kong is an open country for economic activity due to its market-oriented economy and superior financial market development. The government offers financial incentives for foreign investors in the shape of tax breaks, and government assistance, which boosts its attractiveness. In addition, foreign entities are able to access credit in Hong...

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Hong Kong Industry Coverage (18)

Autos

Hong Kong Autos

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Passenger Car Sales

According to the Hong Kong Department of Transport, domestic passenger car sales declined by 9.5% year-on-year (y-o-y) in April 2014 to 2,578 units, which is in line with our expectations of a more challenging market for the sector despite a strong start. This brings passenger car sales for the first four months of 2015 to 12,806 units, representing growth of 1.2% y-o-y. As we expect additional headwinds to weigh on passenger car sales in the latter half of the year, we now forecast passenger car sales to grow by 2.1% in 2015, down from 3.8% previously.

A key risk which we foresee over the coming quarters is a cooling property market will weigh on consumer sentiment. Our Country Risk team sees an increasing likelihood of a property price correction as demand from mainland Chinese investors, which have traditionally been an important source of demand for Hong Kong real estate...

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Commercial Banking

Hong Kong Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Hong Kong Consumer Electronics

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BMI View: Hong Kong's consumer electronics market has diminished growth prospects due to the maturity of the market; however, it will continue to be lucrative for vendors due to high incomes and a tech-literate population. Spending growth on consumer electronics devices slowed in 2012 and 2013 due to a combination of a weaker economic environment, price erosion and high penetration of devices in key markets. Growth was lacklustre in 2014 due to a decline in...

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Food & Drink

Hong Kong Food & Drink

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BMI View :  Despite largely favourable business and regulatory environment, food and drink market in Hong Kong is highly mature and saturated thus presenting limited growth opportunities for foreign investors. Economic headwinds facing the territory over the coming quarters will put a further restraint on consumer spending. That said, we believe that innovative, convenience-oriented and private label products will continue to enjoy relatively high popularity over the coming year.

Headline Industry Data

  • Total food consumption (local currency) growth year-on-year (y-o-y) in 2014: +3.2%; forecast compound annual growth rate (CAGR) 2013-2018: +3.4%.

  • Per capita food consumption (local currency) growth (y-o-y) in 2014: +2.5%; forecast CAGR...

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Freight Transport

Hong Kong Freight Transport

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BMI View: We forecast positive growth across Hong Kong's freight sector in 2015 - namely, in air freight volumes, road haulage volumes and in box and gross tonnage throughput through the port of Hong Kong. The special administrative region (SAR) discontinued rail freight operations in 2011, and so all of its landside freight volumes are now transported by road. That said, while growth will be positive, benefitting from an improved macroeconomic domestically, and globally, it will be far from spectacular. The slowdown in China, and the already high level of development of the freight transport sector in Hong Kong, means that gains will be incremental. This is nevertheless an improvement on the declines experienced in recent years.

Hong Kong's size - 1,104 square kilometres (sq km) - and small population of 7.3mn belies the massive...

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Information Technology

Hong Kong Information Technology

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BMI View: Hong Kong's position as a regional data centre and cloud services hub will sustain growth rates above those observed in the majority of developed markets globally 2015-2019. Drivers of cloud investment will be demand from Hong Kong's large financial services industry, as well as ...

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Infrastructure

Hong Kong Infrastructure

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BMI View: Delays with several ongoing public projects suggest construction work on these projects could spill over to 2015, boosting construction and infrastructure growth rates. The expansion of the Chek Lap Kok airport will also add upside to our outlook. That said, we still do not believe this boost will be sufficient to bring 2015 growth to levels seen between 2009 and 2013.

Key Trends And Developments

  • We have revised up our construction and infrastructure growth estimates for 2014. Growth in 2014 came in much higher than expected at 8.3% compared to 6% as previously forecast. In 2015, however, growth will slow to 5.8%, which is slightly less than in the previous forecast of 6.5%. The following year's growth will slow further to 4%.

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Insurance

Hong Kong Insurance

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BMI View: Despite already high rates of penetration, particularly in the life sector, Hong Kong's insurance market continues to expand, driven by domestic economic growth and strong demand for a broad range of insurance products across both life and non-life insurance. We expect premiums across most lines to increase throughout the forecast period, although motor insurance will underperform due to a stalled autos segment, while general liability insurance will be the star performer.

Despite being one of the top 10 most penetrated insurance markets in the world, with a life insurance penetration of 12.8% of GDP, we expect the Hong Kong insurance market to continue growing steadily over the coming years and as a result life insurance penetration will...

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Medical Devices

Hong Kong Medical Devices

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BMI Industry View: The Hong Kong medical device market has experienced strong growth in recent years and this is expected to continue over the forecast period, with the highest growth projected for the patient aids sector. Imports of medical devices to Hong Kong are high, especially for such a small market. The bulk of imports tend to be more expensive advanced medical equipment, much of which is re-exported with only a small proportion intended for domestic use. Although its status as a trade hub may be compromised slightly as the proportion of export-related service provision wanes and China becomes more accessible to trade, Hong Kong continues to be an important gateway to the West.

Headline Industry Forecasts

  • Despite being small in size, the Hong Kong market for...

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Oil & Gas

Hong Kong Oil & Gas

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BMI View: With no domestic energy resources, Hong Kong will be required to meet growing oil and gas demand through imports alone. As a positive development for the market, the decline in crude and refined product prices and the weaker oil price environment over our forecast period will see Hong Kong's net oil import bill substantially reduced over the short and medium term. While Hong Kong can ostensibly fall back on China in order to fulfil its energy needs, there is some resistance to an overreliance on its parent state from both private and public entities. Still, as Hong Kong becomes increasingly politically intertwined with Beijing, so too will its energy policy. The city-state is increasingly likely to turn to the mainland to achieve its goal of...

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Pharmaceuticals & Healthcare

Hong Kong Pharmaceuticals & Healthcare

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BMI View: Hong Kong's strong reliance on the public health sector will continue to place a strain on the government's budget. This is especially critical in light of its ageing population. We maintain that health expenditure in Hong Kong will continue to shift towards private expenditure and the private sector.

Headline Expenditure Projections

  • Pharmaceuticals: HKD12.07bn (USD1.56bn) in 2014 to HKD12.96bn (USD1.67bn) in 2015; +7.2% in local currency and 7.1% US dollars terms. Forecast unchanged from previous quarter.

  • Healthcare: HKD132.71bn (USD17.11bn) in 2014...

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Power

Hong Kong Power

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BMI View: Hong Kong remains heavily dependent on thermal energy, with coal accounting for approximately 65.5% of the city-state's energy production as of 2014. Although the government is actively researching renewable energy solutions to curb this dependency, it is most likely Hong Kong will become increasingly reliant on mainland China and imported natural gas over the medium term.

BMI forecasts Hong Kong's real GDP growth will average 3.6% a year between 2015-2024, with an increase of 2.7% estimated for 2015. BMI is forecasting an average annual increase in total electricity consumption of 1.8% to 46.12TWh between 2015-2019. Thermal generation, comprising coal, gas and oil, is expected to grow by an average of 2.2% per annum over the same...

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Real Estate

Hong Kong Real Estate

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BMI View: Hong Kong, as a global financial hub and a gateway to mainland China, has one of the most dynamic commercial real estate markets in the world. Rental rates, particularly for retail, are among the highest in the world, and the market has traditionally been characterised by strong demand and, due to its small size, limited supply. With the market vulnerable to the impact of an economic slowdown in China, the medium-term outlook is one of stability in rental rates.

Hong Kong is a Special Administrative Region (SAR) of the People's Republic of China. It is governed under the principle of 'one country, two systems', which means that it retains many institutions, for example its common law legal system, that date back to its time as a British colony. All this gives a level of predictability to the business environment, although tensions with Beijing over the level of...

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Retail

Hong Kong Retail

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BMI View: Hong Kong, Asia's prime destination for retailers, will be exposed to various risks in the nearest future. The heavily tourism-dependent city will have to face declines in tourist arrivals from Mainland China and more price-conscious tourists from the eurozone who will be dealing with shrinking value of their currency. The city's retail sector will be forced to show its resilience in 2015 and adjust to changing consumer expectations.

Hong Kong's retail sector depends greatly on China, the world's second largest economy. The city state is projected to receive 50mn Chinese tourists in 2015 alone. Hong Kong's world class retail scene attracts wealthy Chinese who support the growth of the...

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Shipping

Hong Kong Shipping

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BMI View: A decline in both the port of Hong Kong's tonnage and container throughput displays how the slowdown in China's economic growth story is negatively impacting the ports operations. The port functions as a transhipment point for China and so is exposed more than most facilities to the country's fortunes.

So far in 2015 throughput at the port of Hong Kong has declined, with BMI projecting that volumes for both tonnage and container will be down y-o-y for the whole of 2015. The fact that China's economic slowdown is forecast to continue over the medium term (2015-2019) will continue to place downside pressure to the port's throughput. In fact BMI is projecting another year of container throughput decline in 2016 and that volumes at the port will struggle to expand by more than 1% for the rest of the...

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Telecommunications

Hong Kong Telecommunications

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BMI View: Mobile market growth stalled in 2014 and consequently BMI does not believe that there is much scope for organic growth in the Hong Kong mobile market. However, the recent spectrum auction will boost 4G usage as data usage is expected to be one of the key drivers for Hong Kong's telecoms sector over the next few years. This is also likely to reflect on the increasing revenues of the operators. The Hong Kong government is actively promoting the territory as a regional hub for data centres, and BMI believes Hong Kong has the right characteristics to attract data centre investments.

Key Data

  • Latest data from the OFCA showed there were 17....

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Tourism

Hong Kong Tourism

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BMI View: Hong Kong is already established as one of the most popular tourism destinations in the world and has the supporting hotel and transport infrastructure to match. Although arrivals from China have been impacted by domestic hostility towards the high volume of shopping visit day trippers, overall inbound tourism to Hong Kong continues to increase. Along with a healthy outbound tourism market, this points towards robust gains in tourist-related expenditure and industry value.

China has long been Hong Kong's most important source of inbound tourism, and the country currently accounts for around 80% of inbound visitors. Recent domestic hostility towards the high volumes of day...

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Water

Hong Kong Water

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BMI View:  We have expanded our forecasts to include domestic freshwater resources (largely rainwater collected in reservoirs), desalination production (predominantly used for flushing purposes), and domestic water extraction, total consumption as well as mains consumption, and water losses.

It is our opinion that most of the opportunities in Hong Kong's energy and utilities sector lie with the water utilities sector. The Hong Kong government is becoming increasingly concerned about water scarcity and is looking to explore new water sources so as to ensure a sustainable supply for Hong Kong.

Hong Kong is heavily reliant on the Guangdong imports for the majority of its freshwater consumption, with desalination being largely reserved for flushing, and water recycling resources predominantly being allocated to industrial users. Imported waters from...

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