Hong Kong macroecomic policy responses to 2008 financial crisis
Macroeconomic Policy Response
in 2008 Global Financial Crisis
Small Land Mass: 426 sq mi (smaller than D.C.)
7.07 millions population
GDP: $224.46 billion (2012 est.)
GDP per capita: $49,300 (10th
highest in the world)
Background of Hong Kong Economy
Small Open Economy
The world’s most laissez-faire economy
--Government consumption is below 10 percent of GDP
--Highly dependent on international trade and finance left it
exposed to the external fluctuations
Fixed Exchange Rate
Hong Kong Dollar has been pegged to the United States dollar since
1983, restricting the exchange rate to within 7.75 to 7.85 Hong Kong
dollars (HK$) to each United States dollar.
Economic integration with Mainland China
1997 Asian Financial Crisis
2008 Global Financial Crisis
Overview: Hong Kong’s Economic Slowdown
GDP growth rate: 2.5% in 2008 (1.7% in the third
quarter, -2.5% in the fourth quarter), down from
6.4% in 2007
Unemployment rate:5% for the period ending Feb
2009,compared to 3.3% a year earlier
Main Attributes of the Economic Slowdown
A deepening global economic downturn reduced the external
demand for Hong Kong exports: Total export of goods in
2008 grew by 2% in real terms, a notable drop from the 7%
increase in 2007, registering a year-on-year decrease of 4.9%
in the fourth quarter . Exports of services rose by 5.6% over
the year 2008, much slower than the 14.1% in 2007. In the last
quarter of 2008, exports of services declined by 0.2%
Domestic demand shrunk with weaker consumer :Private
consumption grew by 1.8% in real terms for 2008 as a whole,
down from a robust 8.5% rise in 2007
Due to the cooling down of the local property market from
the second half of 2008 and the tighter credit market, overall
investment remained sluggish and registered a marginal
decline of 0.3% for the year.
Main Attributes of the Economic Slowdown (cont.)
Of the -2.5% GDP contraction in the last quarter of 2008, net export
contributed 3.7%, government spending 0.2% while investment -4.5%
and private consumption -1.9%.
Support enterprises: HKD 100 billion with the provision of up
to 70% guarantee to participating lending institutions
granting loans to Hong Kong companies.
More than 60,000 employment opportunities in 2009 through
expediting projects, recruiting civil servants and creating
temporary and other posts.
HKD 1.6 billion to create 62,000 jobs over three year; HKD
36,000/HKD 24,000 annual internship subsidy to employers
who hire university graduated for jobs in the mainland/ Hong
Kong; 14,000 jobs in the next two year with subsidies for
building maintenance and culture events.
Boost consumption: an one-off rebate of 50% of salary tax
paid up to a maximum of HKD 6,000, an exemption of
property rates for two quarters for 2009/10, capped at HKD
1,500 and to freeze government fees and charges until March
Fiscal policy (cont.)
Develop the cooperation with Mainland: Long-term
projects including the 29 km Hong Kong-Zhuhai-Macau
Bridge to commence construction by 2010 and complete
in 2016, and the Guangzhou-Shenzhen-Hong Kong
Express Rail Link to start in end 2009.
These infrastructure projects will boost investment, offer
job opportunities, stimulate both public and private
consumption in the short run and foster closer economic
integration with the Mainland in the long run.
Hong Kong does not have an independent monetary
policy because it pegged its currency to the US$.
Hong Kong’s interest rates are aligned with the US
federal fund rate, and decreased from 6.75% to 0.5%
As the US increased its foreign exchange reserves, the
Hong Kong Monetary Authority purchased the US$
and increased its monetary base.
The Hong Kong Monetary Authority also increased
its issuance of exchange fund paper.
Hong Kong maintains favorable position as a financial
center because of its strategic location for foreign
companies to establish business with China and other
Asian countries, openness to capital flows, stable society
and transparent governance system.
Hong Kong’s banking sector weathered through the 2008
global financial crisis and remained well-capitalized.
We believe Hong Kong has achieved effective recovery
from the 2008 financial crisis as a result of its prudently