Journal Issue

People’s Republic of China—Hong Kong Special Administrative Region

International Monetary Fund. Asia and Pacific Dept
Published Date:
December 2019
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Fund Relations

Membership Status

As a Special Administrative Region of the People’s Republic of China, Hong Kong SAR is not a member of the Fund. However, annual consultation discussions have been held with the Hong Kong SAR authorities since October 1990, and the staff also holds discussions with the authorities in connection with the Fund’s Global Financial Stability reports. STA has provided Hong Kong SAR with technical assistance in the area of balance of payments statistics and Hong Kong SAR officials have attended IMF Institute courses on balance of payments and monetary statistics, and financial programming. The FSAP is currently underway, with a Board date tentatively planned for the first half of 2020.

Exchange Rate Arrangement

The Hong Kong dollar has been linked to the U.S. dollar under a currency board arrangement, the Linked Exchange Rate System (LERS), since October 1983 at a rate of HK$7.8/US$1. The Hong Kong Monetary Authority (HKMA) refined the operations of the LERS in May 2005—the first changes since September 1998. For the first time since the introduction of the LERS in 1983, the HKMA explicitly committed to sell Hong Kong dollar at a preannounced price (set at HK$7.75/US$), which is referred to as the strong-side convertibility undertaking. Previously, the HKMA had only committed to buy Hong Kong dollar at a preannounced rate (the weak-side convertibility undertaking introduced in September 1998) and could sell Hong Kong dollar at any price. Along with this two-way convertibility undertaking, the HKMA also introduced a symmetric trading band of 0.6 percent around a central parity of HK$7.8/US$. There are no restrictions on current or capital account transactions in Hong Kong SAR, and the Hong Kong dollar is freely convertible. The People’s Republic of China accepted the obligations under Article VIII, Sections 2, 3, and 4 of the Articles of Agreement on December 1, 1996. The exchange regime is free of restrictions and multiple currency practices.

Resident Representative

The Hong Kong SAR sub-office of the Beijing Resident Representative’s office was opened on September 23, 2000. Sally Chen is the current Resident Representative.

Statistical Issues

(As of November 25, 2019)

I. Assessment of Data Adequacy for Surveillance
General: The economic database is generally comprehensive and of high quality, and data provision is adequate for surveillance.
National Accounts: Hong Kong SAR compiles and disseminates GDP statistics under the production and expenditure approaches . The expenditure measure of GDP which is more well established, is adopted as the single measure of GDP. The production and expenditure approaches are also compiled in chained volume terms. The statistical discrepancies are explicit under to the production approach in current terms. Quarterly GDP is available by expenditure components (current values and volume) as well as by industry value added (in volume only). GDP compilation closely follows the 2008 SNA.
Price Statistics: The monthly CPI covers the “expenditure” of all households in Hong Kong SAR, excluding only: (i) marine population; (ii) households receiving public assistance; (iii) collective households such as those living in hospitals, prisons and homes for the aged; and (iv) households in the highest or lowest expenditure brackets which together accounted for some 10 percent of households. It includes 984 items. The weights are based on the Household Expenditure Surveys which is conducted once every five years. The index is disseminated with a lag no longer than 23 days after the end of the reference month. The national PPI covers the industrial sector (manufacturing industries and sewerage, waste management and remediation activities), including about 700 primary products. Weights are updated annually from the Annual Survey of Economic Activities. The index is compiled quarterly. Both price indices follow international standards.
Government Finance Statistics: Hong Kong SAR reports both cash and accrual-based annual data for the general government according to the Fund’s Government Finance Statistics Manual (GFSM 1986 and GFSM 2001, respectively). No sub-annual data are provided for publication in the IFS.
Monetary and Financial Statistics: The HKMA reports monetary data for the central bank and banking institutions to STA on a regular monthly basis, which are published in the IFS. In late 2009, the HKMA submitted quarterly monetary data (test-data) using Standardized Report Forms (SRFs) that present data consistent with the Monetary and Financial Statistics Manual. However, the SRF data for Hong Kong SAR have not been published in the IFS, which requires monthly periodicity for monetary data. The HKMA has been encouraged to compile and submit monthly monetary data using SRFs for dissemination in the IFS.
Financial Sector Surveillance: Hong Kong SAR participates in regular reporting of Financial Soundness Indicators (FSIs) to the IMF for dissemination on the FSI website. The reported data are quarterly and cover all core FSIs and 12 additional FSIs for the deposit takers sector.
External sector statistics: Hong Kong SAR publishes comprehensive balance of payments data and international investment position statistics for 2000 onwards. Hong Kong SAR disseminates the international reserves and foreign currency liquidity data template, submits quarterly external debt statistics to the Quarterly External Debt Statistics (QEDS) database, and participates in the Coordinated Portfolio Investment Survey (CPIS) and the Coordinated Direct Investment Survey (CDIS).
II. Data Standards and Quality
Hong Kong SAR subscribes to the Fund’s Special Data Dissemination Standard since 1996, and is fully compliant with its requirements.A data ROSC was disseminated in 1999
Hong Kong SAR—Table of Common Indicators Required for Surveillance(As of Nov 25, 2019)
Date of









Exchange ratesNov. 2019Nov. 2019DDD
International reserve assets and reserve liabilities of the monetary authorities1Sep. 2019Oct. 2019MMM
Reserve/base moneyOct. 2019Oct. 2019MMM
Broad moneySep. 2019Nov. 2019MMM
Central bank balance sheetSep. 2019Oct. 2019MMM
Consolidated balance sheet of the banking systemSep. 2019Nov. 2019MMM
Interest rates2Nov. 2019Nov. 2019DDD
Consumer price indexSep. 2019Oct. 2019MMM
Revenue, expenditure, balance and composition of financing3-central governmentSep. 2019Oct. 2019MMM
Stocks of central government and central government-guaranteed debt4Sep. 2019Oct. 2019MMM
External current account balanceQ2/19Nov. 2019QQQ
Exports and imports of goods and servicesQ3/19Oct. 2019QQQ
GDP/GNPQ3/19Nov. 2019QQQ
Gross external debtQ2/19Sep. 2019QQQ
International investment positionQ2/19Sep. 2019QQQ

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

Including currency and maturity composition.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

Including currency and maturity composition.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Statement by the IMF Staff Representative December 13, 2019

1. This statement contains information that has become available since the staff report was finalized on November 25, 2019. It does not alter the staffs assessment of policy issues and recommendations contained in the report or the staff appraisal.

2. Data Releases for October are broadly in line with staff projections.

  • Tourist arrivals and retail sales declined further in October by 43.7 and 24.3 percent (y/y), respectively, compared to 34.2 and 18.2 percent (y/y) in September.
  • Merchandise trade also declined further in October with exports and imports declining by 9.2 and 11.5 percent (y/y), respectively, compared to 7.3 and 10.3 percent in September.
  • House prices declined marginally in October by 0.3 percent (m/m, sa).
  • Banking sector buffers remained broadly unchanged in 2019Q3, with the Common Equity Tier 1 capital ratio at 16.3 percent and the liquidity coverage ratio at 153 percent.

3. The government announced a new fiscal stimulus of HKD 4 billion (about 0.1 percent of GDP) on December 4, mainly aimed at helping small and medium-sized enterprises.

Statement by Zhongxia Jin, Executive Director for China, Georgina Lok, Advisor to Executive Director

December 13, 2019

On behalf of the authorities of the Hong Kong Special Administrative Region (SAR), we would like to thank staff for the comprehensive and useful report. Our authorities appreciated the constructive dialogues during the mission visit, and broadly agree with staffs appraisal. The Hong Kong SAR economy is facing challenges on both external and domestic fronts. That said, the robust fundamentals and sound institutions continue to underpin the resilience of the economy, and the financial system continues to function in an orderly manner. The considerable buffers built up over the years will enable Hong Kong SAR to withstand possible shocks.

Latest economic developments and outlook

Economic activity has weakened notably as a result of both external and domestic factors. Growth has moderated since last year amid a slowing global economy and uncertainties surrounding US-China trade tensions, which have affected trade-related activities and investment globally. Local social incidents since the summer have weighed on inbound tourism and consumption. Real GDP contracted by 2.9 percent in the third quarter of 2019 from a year earlier, which moderated noticeably from the positive growth of 0.6 percent and 0.4 percent registered in the first and second quarters respectively. Considering the actual outturn of a 0.6 percent contraction in the first three quarters of 2019 and persistent downward pressures, the authorities project the economy to record -1.3 percent growth for 2019 as a whole.

Underlying consumer price inflation went up from 2.9 percent in the second quarter to 3.3 percent in the third quarter of 2019, largely due to a faster increase in pork prices. Price pressures on other major consumer price index components remained largely moderate. Looking ahead, modest global inflation and subdued economic conditions would help reduce price pressures in the rest of 2019.

Meanwhile, the financial systems in Hong Kong SAR have been holding up well. The monetary and financial markets in Hong Kong SAR continue to function in an orderly manner. The Linked Exchange Rate System operates smoothly according to its design, as it has for the past 36 years, weathering many turbulent periods. The capital and liquidity positions of banks in Hong Kong SAR remain well above international standards. The authorities will stay vigilant and closely monitor market vulnerabilities. So far, no sign of volatile capital outflows from the Hong Kong dollar or the banking system is observed. Free flow of capital will continue to be guaranteed under the Basic Law.

Hong Kong SAR’s core competitiveness as one of the best places to do business remains well in place, and is still recognized by many international institutions. It includes a transparent and simple tax system, efficient infrastructure, sound regulatory regime, rule of law, and high-quality professional services. These strengths are cornerstones of Hong Kong SAR’s success and will continue to underpin its competitiveness as an international financial center.

The authorities broadly share staffs assessment of the macroeconomic outlook. Externally, downside risks come from a soft global economic growth and uncertainties arising from US-China trade tensions, together with the related repercussions on global sentiment, trade and investment activities, and financial markets. The development of the domestic sociopolitical situation would also have a significant bearing on the economy. In the face of these challenges, the authorities will continue to monitor developments closely. Four rounds of relief measures have already been rolled out to support the economy and the authorities stand ready to do more as needed. As recognized by staff, a history of prudent macroeconomic policies has left Hong Kong SAR with strong buffers to tackle both cyclical and structural challenges.

Fiscal Policy

Thanks to prudent fiscal management over the years, the authorities have built up ample fiscal space to help the economy navigate through negative shocks while maintaining long-term sustainability. The authorities will continue to make good use of its reserves to implement timely and appropriate countercyclical fiscal measures to stimulate the economy and relieve the economic burden of citizens. As of 4 December 2019, the authorities have rolled out four rounds of relief measures amounting HK$25 billion (US$3.2 billion) to support enterprises, especially small and medium enterprises, and residents. These measures, together with the package of one-off relief measures worth HK$42.9 billion (US$5.5 billion) in the 2019/20 Budget, are estimated to have a stimulus effect on the Hong Kong SAR economy of around 2 percent of GDP. Going forward, the authorities stand ready to roll out further measures as and when necessary.

In the longer term, the authorities recognize the challenges that population aging could pose to fiscal sustainability. But given large fiscal reserves and the challenging economic outlook, the authorities have no plan to introduce new taxes in the immediate future.

Linked Exchange Rate System

The authorities welcome staffs continued support for the Linked Exchange Rate System (LERS), which has been the anchor of Hong Kong SAR’s monetary and financial stability. Despite the recent social unrest and rising global uncertainties, the LERS has continued to function smoothly, demonstrating once again its robustness and resilience. The authorities have the capability, resources, and determination to maintain the LERS and will continue to step up public communication to reinforce public confidence in the system. Meanwhile, the authorities also appreciate staffs balanced assessment of the external position of Hong Kong SAR.

Property Market

The authorities consider that the three-pronged approach—comprising macroprudential measures, demand-side management measures, and increase in housing supply—remains appropriate in containing housing market risks. The authorities share staffs view that their current macroprudential stance remains appropriate. The eight rounds of countercyclical macroprudential measures on property mortgage loans introduced by the Hong Kong Monetary Authority (HKMA) since 2009 have enhanced banks’ resilience to risks associated with the property market. Adjustments to the current stance would only be made having regard to the evolving property market cycle and financial stability risks.

The property market has softened in the last few months. That said, the level of private residential property prices remains elevated and still out of line with economic fundamentals, and the authorities do not intend to relax or withdraw any demand-side management measures at this time. The authorities will remain vigilant and closely monitor the property market developments, and act in a timely manner when needed to help ensure the healthy development of the property market and to safeguard broader economic and financial stability.

The authorities remain committed to increasing land and housing supply to address the housing supply-demand imbalance. Continuous efforts are being made to increase both public and private housing. In her 2019 Policy Address, the Chief Executive of the Hong Kong SAR has announced a number of short- and medium-term support measures, such as exploring the feasibility of redeveloping factory estates for public housing use, making more flats available for sale under the subsidized home ownership schemes, making an additional residential site available for sale in 2020 for a second “Starter Homes” pilot project, etc.

Financial Sector

The authorities share staffs assessment that Hong Kong SAR’s financial systems remain sound. The authorities will continue to strengthen regulatory and supervisory frameworks, having regard to international standards and financial stability risks. The 2019 Financial Sector Assessment Program (FSAP) on Hong Kong SAR is ongoing, and the authorities look forward to staffs detailed assessment and policy recommendations. The recently completed Mutual Evaluation by the Financial Action Task Force and the Asia-Pacific Group on Money Laundering concluded that Hong Kong SAR has a sound regime to fight money laundering and terrorist financing that is delivering good results. The authorities will closely monitor any emerging risk areas in the financial systems. As noted by staff, the authorities will continue to strike a proper balance between facilitating innovation and managing associated risks, particularly arising from the rapid adoption of technology in the financial sector.

Promoting long-term competitiveness

As noted by staff, the authorities will step up efforts in maintaining Hong Kong SAR’s competitiveness by capitalizing on the opportunities from the development of fintech, green finance, and the Greater Bay Area (GBA). On fintech, significant progress has been made recently, such as the granting of virtual bank licenses, the launch of the Faster Payment System, and cross-border collaboration. Earlier this year, the authorities have announced a three-pronged strategy to encourage banks to take a proactive approach in managing climate-related risks, to promote responsible investment, and to build capacity in the green finance sector. On GBA, the authorities will work closely with their counterparts in Mainland China to ease the flow of capital and cross-border access of financial services within the area, including launching a wealth management connect scheme.

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