Front Matter Page

© 2001 International Monetary Fund

August 2001

IMF Country Report No. 01/146

People’s Republic of China—Hong Kong Special Administrative Region: Selected Issues and Statistical Appendix

This Selected Issues and Statistical Appendix report on People’s Republic of China—Hong Kong Special Administrative Region was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on January 25, 2001. The views expressed in this document are those of the staff team and do not necessary reflect the views of the government of People’s Republic of China—Hong Kong Special Administrative Region or the Executive Board of the IMF.

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Front Matter Page

INTERNATIONAL MONETARY FUND

PEOPLE’S REPUBLIC OF CHINA-HONG KONG SPECIAL ADMINISTRATIVE REGION¹

Selected Issues and Statistical Appendix

Prepared by Jahangir Aziz, Jeanne Gobat, Dora Iakova, William Lee (all APD), and Peter Breuer (RES)

Approved by the Asia and Pacific Department

January 25, 2001

Contents

• I. Long-Run Fiscal Policy in Hong Kong SAR

  • A. Introduction

  • B. Structure of Hong Kong SAR’s Public Finances

  • C. Factors Affecting Long-Term Fiscal Development

  • D. Long-Term Baseline Fiscal Projection

  • E. Policy Analysis

  • F. Conclusion

• Boxes

• I.1. Fiscal Constraints on the Hong Kong SAR Government

• I.2. Key Characteristics of Hong Kong SAR’s Tax System

• Charts

• I.1. Hong Kong SAR—Fiscal Developments, 1985/86-1999/2000

• I.2. Hong Kong SAR—Population and Labor Force, 1990-2020

• Tables

• I.1. Revenue Model

• I.2. Expenditure Model

• Appendix

• I. Regression Results

• II. How Hong Kong SAR Banks Survived the Asian Crisis

  • A. Introduction

  • B. Pre-Crisis Similarities and Post-Crisis Divergence

  • C. Surviving the Crisis: Good Policies, Good Banking, or Good Luck?

  • D. Concluding Remarks

  • References

• Boxes

• II.1. Structure of the Banking Sector

• II.2. Summary of Bank Regulations

• Charts

• II.1. Corporate Leverage Indicators, 1997

• Tables

• II.1. Early Warning Indicators of Banking Crisis

• II.2. Severity of the Crisis

• II.3. Hong Kong SAR—Performance Ratios of the Banking Sector

• II.4. Comparison of Prudential Norms Across Asia (Required and Actual Practices) Using the CAMELOT Framework

• III. Hong Kong SAR’s Debt Market

  • A. Introduction

  • B. Financial Markets in Hong Kong SAR

  • C. Factors Holding Back Debt Market Growth

  • D. Some Policy Options to Support Debt-Market Development

• IV. Extracting Market Beliefs Around the August 1998 Intervention

  • A. Introduction

  • B. Extracting the Risk-Neutral Exchange Rate Probability Distribution

  • C. The Volatility Risk Premium

  • D. Adjusting for Risk Aversion

  • E. Conclusion

• Boxes

• IV.1. Extracting the Risk-Neutral Probability Distribution from Currency Options

• IV.2. Risk Neutrality

• Charts

• IV.1. Impact of August 14 Intervention on Market Beliefs

• IV.2. Impact of August 28 Intervention on Market Beliefs

• Tables

• IV.1. Forecasting Realized Volatility

• IV.2. Factors Affecting Volatility Risk Premium

• IV.3. Effects of Risk Aversion on Realized Volatility

• Statistical Appendix Tables

• 1. Gross Domestic Product by Expenditure Component at Current Market Prices, 1996-2000 Q3

• 2. Gross Domestic Product by Economic Activity at Current Prices, 1995-99

• 3. Gross Fixed Capital Formation, 1996-2000 Q3

• 4. Estimates of External Factor Income Flows by Income Component and by Business Sector, 1995-99

• 5. Selected Price Indicators, 1995-2000 Q3

• 6. Labor Force, Employment, and Unemployment, 1995-2000 Q3

• 7. Wages, Labor Productivity, and Unit Labor Costs, 1995-2000 Q3

• 8. Property Market Developments, 1995-2000 Q3

• 9. Consolidated Government Account, 1995/96-2000/01

• 10. Revenue (General Revenue Account), 1995/96-2000/01

• 11. Government Expenditure Under the General Revenue Account, 1995/96-2000/01

• 12. Public Expenditure by Function, 1997/98-2000/01

• 13. Exchange Fund Balance Sheet, 1995-2000

• 14. Monetary Indicators, 1995-2000

• 15. Loans for Use in Hong Kong SAR, 1995-2000 Q3

• 16. Loans and Advances by Type, November 2000

• 17. Equity Price Developments, 1996-2000

• 18. Balance Sheet of All Authorized Institutions, November 2000