Front Matter Page
IMF Country Report No. 19/20
PEOPLE’S REPUBLIC OF CHINA—HONG KONG SPECIAL ADMINISTRATIVE REGION
2018 ARTICLE IV CONSULTATION—PRESS RELEASE AND STAFF REPORT
January 2019
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2018 Article IV consultation with the People’s Republic of China—Hong Kong Special Administrative Region, the following documents have been released and are included in this package:
A Press Release.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on a lapse-of-time basis. It is based on information available at the time it was completed on December 20, 2018.
An Informational Annex prepared by the IMF staff.
The document listed below has been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623–7430 • Fax: (202) 623–7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
© 2019 International Monetary Fund
Front Matter Page
PEOPLE’S REPUBLIC OF CHINA—HONG KONG SPECIAL ADMINISTRATIVE REGION
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION DISCUSSIONS
December 20, 2018
Key Issues
Overview. Hong Kong SAR’s economy benefitted from a strong cyclical upswing through the first half of 2018, supported by the continued global recovery, buoyant domestic sentiment, and the booming property market. However, near-term risks have significantly increased – including those from trade tensions, tighter global financial conditions, and capital outflows from emerging markets. Also, long-term challenges, including from aging, elevated inequality, and the persistent housing shortage, need to be tackled. Prudent macroeconomic policies and ample buffers are in place to help smoothen the transition and ensure continued stability.
Policies. While macroeconomic and financial policies have generally been appropriate and allowed for building of buffers, fiscal policy could have been more countercyclical. Going forward, the recommended policy strategy includes:
Financial sector. The robust regulatory and supervisory framework should continue to be strengthened to limit buildup of risks. Recent increases of household loans merit close monitoring. Fintech developments should also be carefully evaluated to balance efficiency gains against potential risks.
Housing market. The three-pronged strategy, comprised of macroprudential measures, stamp duties, and measures to boost housing supply, remains appropriate and should continue in place, and be adjusted as financial stability risks evolve. However, ultimately resolving the imbalances in the housing market requires expanding supply and further efforts are needed in this area.
Exchange rate. The Linked Exchange Rate Regime remains the appropriate arrangement for Hong Kong SAR and should remain as an anchor of economic and financial stability.
Fiscal. Fiscal stimulus does not appear necessary in the short-term given the economy’s cyclical strength, and while higher spending on social welfare and education is warranted given elevated income inequality, tax cuts should be reversed, and other expenditure carefully evaluated. In the long term, revenues will need to be raised to cope with aging-related fiscal pressures.
Long-term growth. Increasing labor force participation of women and older workers could help stem labor force declines. Further regional integration, including in the context of the Greater Bay Area, could create growth opportunities.
Approved By
Kenneth Kang and Petya Koeva Brooks
Discussions took place in Hong Kong SAR during October 29 – November 9, 2018. The team comprised Sonali Jain-Chandra (head), Emilia Jurzyk, Rui Mano (all APD), and Sally Chen (Resident Representative, MCM). Markus Rodlauer (APD) joined the concluding meetings. The mission met Financial Secretary Paul Chan, HKMA Chief Executive Norman Chan, and other senior officials. Zhongxia Jin, Sun Ping, and Georgina Lok (OED) joined the official meetings. Ananya Shukla, Gabriel Alvim (all APD), Daisy Wong (COM), Atis Lee, and Kevin Chow (Resident Representative Office) provided support to the mission.
Contents
CONTEXT: STRONG REBOUND AMID GROWING RISKS
DEVELOPMENTS: THE ECONOMY OPERATING AT FULL EMPLOYMENT
MANY RISKS SURROUND THE BASELINE
A. Rising Trade Tensions
B. Sharper-Than-Expected Tightening of Global Financial Conditions
C. Sharp Slowdown in the Property Market
D. Slowdown in Mainland China
E. Amplification of Risks Scenario
SIGNIFICANT BUFFERS IN PLACE
POLICY CHALLENGES
A. Ensuring Continued Financial Stability
B. Containing the Housing Market Boom
C. Preserving the Exchange Rate Arrangement
D. Ensuring Fiscal Sustainability
E. Bolstering Long-Term Growth Prospects
STAFF APPRAISAL
BOXES
1. Amplication of Risks Scenario for Hong Kong SAR
2. Financial Conditions and Growth at Risk
3. Greater Bay Area: Opportunities and Challenges
FIGURES
1. Strong Rebound in Growth
2. Strong Fiscal Position but Spending Pressures Loom in the Medium-Term
3. Housing Boom Continues Despite Tight Macroprudential Settings
4. The Linked Exchange Rate System Has Operated Smoothly
5. Debt Vulnerabilities
6. Exposures of Hong Kong SAR
TABLES
1. Selected Economic and Financial Indicators, 2015–23
2. Balance of Payments, 2015–23
3. Consolidated Government Account, 2015–2023
4. Monetary Survey, 2013–19
5. Vulnerability Indicators, 2013–18
APPENDICES
I. Risk Assessment Matrix
II. Debt Sustainability Analysis
III. External Sector Assessment
IV. Implementation of the 2014 FSAP Recommendations
V. Summary of Macroprudential Measures Introduce Since 2009
VI. Main Recommendations of the 2016 Article IV Consultation
Front Matter Page
PEOPLE’S REPUBLIC OF CHINA—HONG KONG SPECIAL ADMINISTRATIVE REGION
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION DISCUSSIONS—INFORMATIONAL ANNEX
December 20, 2018
Prepared By
Asia and Pacific Department (in consultation with other departments)
Contents
FUND RELATIONS
STATISTICAL ISSUES
Front Matter Page
Press Release No. 19/11 FOR
IMMEDIATE RELEASE
January 25, 2019
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
