Hong Kong, China
Briefing Notes for the Launch in Hong Kong, China, 6 May 2010
Impact of the crisis
- When the global financial crisis hit Asia-Pacific towards the end of 2008, Hong Kong, China experienced its worst contraction since the Asian financial turmoil of 1998. In Hong Kong, China, the fall in GDP was 7.5% during the first quarter but had become 3.7% in the second quarter; by the third quarter it was down to 2.2 %.
- The crisis largely impacted East and North-East Asia through trade channels, with plunges in import demand from developed countries amounting to over 25% for Japan and the United States, and the European Union. The decline in exports was already evident by the end of 2008 and exports fell steeply in the first half of 2009. Year-on-year decreases in merchandise trade were around 20% Hong Kong, China, in the first half of 2009. Yet, in tandem with the slowdown in exports, imports also adjusted. As a result, the trade deficit only widened slightly, to US$29 billion in 2009, around 9% of exports.
- The global crisis affected inward flows of foreign direct investment (FDI) in East and North-East Asia. In 2009, Hong Kong, China recorded net capital inflows associated with financial derivatives and other investments that exceeded the net outflows in direct and portfolio investment. Combined with its current account surplus, by end-2009 foreign reserve assets had exceeded US$250 billion.
- Deflationary pressures were much more evident in this subregion than in others, following marked corrections in oil and food prices and excess capacity. Housing costs showed the greatest downward adjustment among major expenditure items, owing to the consolidation in the property market. In Hong Kong, China, deflation emerged in mid-2009, after months of downward price adjustments.
From rebound to sustainable recovery
- Low inflation levels and the accumulated budget surpluses enabled the Government to support aggressive fiscal spending.
- Towards the end of 2009, notable recovery was observed, with GDP growing by 2.6% in the fourth quarter of 2009 over a year earlier. Stock market also recouped its earlier loss. Property market has seen rapid price rises over 2009.
- The economic outlook of Hong Kong, China is tied with the global economic recovery which will drive the export sector of the economy. Meanwhile, Hong Kong, China, given its closer integration with the Chinese economy, should benefit from a strong performance in China and be able to grow by 4.5% in 2010.