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.
Hong Kong Country Risk
The Hong Kong economy's Q116 downturn is likely to be a harbinger of a further slowdown, and we have therefore downgraded our 2016 real GDP growth forecast for the territory to 1.2%, versus 1.7% previously. Our downward revision reflects weaknesses in both the domestic real estate market, as well as China-related external headwinds which will continue to undermine trade activity. We also note that the slowdown is likely to continue into 2017, for which we have downgraded our real GDP forecast to 1.7%, versus 2.2% previously.
The HKMA is unlikely to remove its macroprudential measures targeting the residential real estate market despite a significant decline in price levels over recent quarters. With affordability ratios still extremely stretched, both the...
Hong Kong Operational Risk Coverage (9)
Hong Kong Operational Risk
Hong Kong Operational Risk
BMI View: Investors in Hong Kong stand to benefit from the country's modern and highly reliable logistics network. As a major regional and global trade hub, Hong Kong has invested heavily in its transport network, developing a range of supply chain options across road, rail, air and maritime connections. The country's utilities infrastructure is similarly advanced and there is therefore very little risk to businesses in terms of interruptions to supply. Reliability does come at a cost, however, and fuel and electricity prices are among the highest regionally. Overall this does little to dampen Hong Kong's appeal and the country is ranked a positive fifth out of the 38 Asia region states for Logistics Risk, with a score of 77.2 out of 100....
Hong Kong Crime & Security
Hong Kong Crime & Security
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...
Hong Kong Labour Market
Hong Kong Labour Market
BMI View: Hong Kong offers businesses a highly flexible and low-cost work force, with a high minimum wage offset by low labour and social tax contributions. A relatively large domestic labour force alongside a steady supply of migrant workers from mainland China and other Asian states helps to ensure labour availability, as does Hong Kong's near total urbanisation. Investors may however face a shortage in terms of skilled labour which detracts somewhat from the country's score in this section. Overall, however, Hong Kong's labour market is competitive and the country has a score of 72.0 out of 100 for Labour Market Risks, placing the country third in the Asia region behind New Zealand and Singapore and sixth on a global basis.
Almost 75% of Hong Kong's workforce has a...
Hong Kong Logistics
Hong Kong Logistics
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,...
Hong Kong Trade & Investment
Hong Kong Trade & Investment
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...
Hong Kong Industry Coverage (18)
Hong Kong Autos
BMI View: A slowdown in economic growth and weak consumer sentiment will lead to subdued growth in passenger vehicle sales over our forecast period 2016-2019, with average growth of 1.9% over this period.
|Weak Econony Dampening Passenger Vehicle Sales|
|Passenger Vehicle Sales,Units|
|e/f = BMI estimate/forecast. Source: HKDT, BMI|
|* Weak economic outlook...|
Hong Kong Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Hong Kong Consumer Electronics
BMI View: Hong Kong is a high-value consumer electronics market, particularly for smaller products such as smartphones, tablets and notebooks where the spending of visitors boosts the market. The maturity of the domestic market, in which most product categories have reached saturation, and an uncertain spending outlook for visitors, particularly from the mainland, combine to produce our modest growth forecast for consumer electronics device spending over the medium term. We envisage a CAGR of 0.5% over 2016-2020 to reach USD4.8bn in 2020, with elevated downside risk from the potential for a hard landing in China or a faster than expected shift in the spending habits of Chinese consumers away from purchasing as visitors in Hong Kong.
Latest Updates And Industry Developments
Food & Drink
Hong Kong Food & Drink
BMI View: We forecast private consumption growth to slow down in 2016, due to mounting economic headwinds, especially the slowdown in China. Combined with a small and ageing population and existing high levels of food consumption, we expect only moderate growth in food and drink sales throughout our forecast period to 2019.
Headline Industry Data
Total food consumption (local currency) growth in 2015: +4.4%; forecast compound annual growth rate (CAGR) 2014-2019: +3.7%.
Alcoholic drinks value (local currency sales growth in 2015: +3.4%; forecast CAGR 2014-2019: +3.9%.
Mass grocery retail sales (local currency) growth in 2015: +3.0%; forecast CAGR 2014-2019: +2.7%.
Hong Kong Freight Transport
BMI View: We forecast modest but nonetheless positive growth for Hong Kong's freight sector in 2016 and beyond. The current slowdown in the Chinese economy is affecting trade flows in Hong Kong, hurting the economy and consequently impacting all freight modes in the city state owing to its dependence on trade with China. Due to the developed nature of the freight sector in Hong Kong, and with a forecasted downturn in demand for goods over the medium term, we expect growth to be robust, but subdued for all freight modes.
GDP growth is forecasted at 3.5% for 2016 and to steadily increase over the medium term at an annual average of 3.5%. However, Hong Kong's economy is...
Hong Kong Freight Transport
BMI View: Growth in Hong Kong's trade will be positive over the coming years, albeit slower than experienced over the previous five years. The city state's close relations with China mean that it is heavily influenced by the larger country, although increasing numbers of free trade deals with countries all over the world should offer some support. This will support growth across the country's freight transport modes, of which we expect air freight to be the outperformer.
Latest Updates And Forecasts
After another poor year in 2015, in which container volumes declined by 10%, we expect only sedate growth in container handling at the port of Hong Kong over the course of our forecast period to 2020. A newly formed committee will strive to turn the port around, but we believe that the competition posed by mainland...
Hong Kong Information Technology
BMI View: After a sharp decline in hardware spending dragged down Hong Kong's IT market in 2015 we forecast a much more stable outlook over the medium term, with a CAGR of 5.3% forecast for 2016-2019 to a total of HKD45.76bn. The volatility in the hardware market was the result of the boom and subsequent slowdown in the tablet market, as well as concentrated desktop and notebook replacement demand in 2014, but 2016-2019 dynamics will be more stable and based on income growth and replacement spending. Meanwhile, the lucrative enterprise software and services markets will continue to outperform retail spending and Hong Kong's position as a regional datacentre and cloud services hub will sustain growth rates above those observed...
Hong Kong Infrastructure
BMI View: The long- term outlook for Hong Kong's construction sector remains muted, with a structural slowdown in China, a more challenging business environment, as well as shortage of labour weighing on growth. Public construction works which were previously delayed and an increase in expenditure on public housing will offer some reprieve over coming quarters. A deteriorating business environment, coupled with a shortage of labour leading to escalating costs means that growth of Hong Kong's construction sector will remain below potential over the long term in spite of a substantial project pipeline.
Latest Updates And Structural Trends
We maintain our conservative outlook for Hong Kong's construction sector, as long-term growth fundamentals remain weak and forecast the sector to expand by an annual...
Hong Kong Insurance
BMI View: As of mid-2016, the latest results from the leading insurance companies highlight the dynamism and sophistication of the players in both the life and the non-life segments. In the life segment, demand is being boosted by high savings rates, the central role played by insurers in the organised savings landscape and mainland visitors. In the non-life segment, growth has been driven by accident & health insurance.
Hong Kong Medical Devices
BMI View: Steady growth in Hong Kong's medical device market will continue with a US dollar CAGR of 7.4%, ranging from 6.0% for other medical devices to 10.3% for patient aids. This is in line with growth over the previous five-year period and reflects current budgeted health expenditure. We believe growth will be driven by Hong Kong's aging population and continued investment in the health sector, which will be boosted by increased private sector involvement.
|Total (USDmn)||Per Capita (USD)||Total (Local Currency mn)||...|
Oil & Gas
Hong Kong Oil & Gas
BMI View: Plans for a LNG import terminal will pose upside risk to Hong Kong's rising natural gas consumption. Increases in vehicle population and air traffic will sustain the uptrend in Hong Kong's refined fuels demand, although growth will remain stunted until 2016, due to a weaker economic outlook.
Pharmaceuticals & Healthcare
Hong Kong Pharmaceuticals & Healthcare
BMI View: Hong Kong's FY2016/17 budget will be largely positive for the healthcare sector. Additional resources have been committed to develop the administrative region's medical infrastructure, while funding for healthcare programmes and the elderly continue to grow. A key downside has been the reduction in funds channelled into the Hospital Authority, which is already struggling to meet the existing demand for medical services. This will necessitate it to take a more conservative approach in its spending, to the detriment of drugmakers seeking to list high-value medicines on the country's formulary.
Headline Expenditure Projections
Hong Kong Power
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...
Hong Kong Real Estate
BMI View: The office sector continues to offer the most promise regarding rentals, as Grade A establishments remain in high demand and lack of available space is pushing upward trend. Industrial real estate also represents a potential area for investment as the limited space, good demand and inauguration of national 'reindustrialisation' looks to offer opportunities in the mid-term. We opine that Retail will witness further contractions and advise vigilance when considering this market over the same period.
We have revised our economic forecast for growth in Hong Kong with real GDP to remain steady at 2.5% over 2016, no change from 2015, as the regional pressures, predominantly stemming from fiscal reforms and corrections in China, Hong Kong's largest trade partner, weigh-in on demand into the Asian Tiger economy. A main culprit that has subdued interest is the strong...
Hong Kong Retail
BMI View: Retail sales in Hong Kong have been declining for several quarters in a row, mostly on account of declining tourist arrivals from Mainland China. Struggling residential real estate market and poor external demand present additional headwinds, which will continue weighing on Hong Kong's economic and retail sector's performance over the coming year. As a result, we forecast 2016 total household spending growth to record the lowest levels since 2011.
|Headline Household Spending|
Hong Kong Telecommunications
BMI View: A decline in total mobile subscribers is attributable to high market saturation, which cannot sustain further growth in light of Hong Kong's slowing economic growth. Operators are deriving growth by migrating subscribers on to greater revenue-generating networks such as LTE. In addition, the potential for postpaid subscribers to outnumber prepaid ones will remove some subscriber number volatility and reduce churn rates for operators in the longer term. This change in the mobile landscape will also buoy average revenues per user (ARPU).
|Operators Combat Market Saturation With LTE|
|Hong Kong Mobile Market Forecasts|
Hong Kong Tourism
B MI View : Hong Kong is home to a well-developed and mature tourism market. The country attracts high volumes of visitors from mainland China, and as a major regional travel hub also welcomes many visitors from throughout the Asia Pacific region and beyond. Tourism infrastructure is modern, including an extensive public transport network and one of the largest and busiest airports in the world. The government continues to invest in transport infrastructure, while high visitor numbers and solid occupancy rates mean investors remain interested in the hotel sector despite high real estate costs. While there are some potential downside risks, particularly in terms of a fall in...
Hong Kong Water
BMI View: Hong Kong is a reasonably attractive market, with customers concentrated in a densely populated area that is well served by existing water infrastructure. Mains domestic consumers represent the larger user base. While we expect this trend to continue, water conservation campaigns are being launched by the government to bring consumption down. We believe this will have an effect on water consumption habits of domestic consumers in particular, and relieve some of the city-state's burden. However, we expect that as the country's water-consuming industries maintain their momentous growth, demand for water will continue to increase.
Latest Updates And Key Forecasts
Hong Kong plans a desalination project worth HKD9.3bn (USD1.19bn) to meet water...