Outlook for 2011-15

• Healthy economic growth will contribute to political stability, but opposition parties will continue to maintain pressure for democratic reform as well as healthcare reform, stronger environmental policy and anti-poverty measures.
• Elections for a new chief executive and the Legislative Council (Legco, the territory's parliament) will be held in 2012. The pro-democracy camp is expected to strengthen its presence in the legislature.
• The territory posted real GDP growth of 6.8% in 2010. Growth will slow to an annual average of 4.7% in 2011-15, amid a more subdued outlook for exports.
• Hong Kong's fiscal position remains strong. The Economist Intelligence Unit forecasts that the budget will stay in surplus throughout 2011-15, at an average of 2.4% of GDP.
• In spite of a relatively weak external environment, Hong Kong will post large current account surpluses in the forecast period, with a widening goods trade deficit being offset by steady growth in the surplus on traded services.

Monthly review

• The government has proposed doing away with Legco by-elections, in an effort to prevent a repeat of the tactic used last year by opposition parties in which they triggered by-elections to protest against government policies.
• The government has awarded the MTR Corporation (the railway company managing two large rail projects) the property-development rights to two sites as a way of subsidising the projects.
• The Hong Kong Monetary Authority fears a liquidity squeeze as a result of a growing share of renminbi-denominated deposits in the local banking system and a reversal of capital inflows when US interest rates rise.
• Hong Kong took joint first place with the US in the 2011 World Competitiveness Rankings, a survey of 59 economies compiled by the Swiss-based International Institute for Management Development.
• The Hong Kong economy reported real GDP growth of 7.2% year on year in the first quarter of 2011, following an expansion of 6.8% in 2010
• Visitor arrivals have continued to boom. Arrivals in the territory were up by 13.9% year on year in March, to 3.2m, boosted by a 21.6% increase in arrivals from mainland China.

Hong Kong's Legislative Council (Legco, the territory's parliament) will gain more directly elected seats in 2012, following approval of an amendment in June 2010 by the same body. This approval came after the central Chinese government had accepted the amendment. The agreement on political reform should help to reduce the risk of street protests over the next couple of years and take some of the pressure off the chief executive, Donald Tsang, whose popularity has suffered in recent months. Supporters of democracy will nevertheless continue to push for both the chief executive and the whole of the legislature to be chosen by popular vote. There may be a renewed intensification of the debate on electoral reform in 2012 as both the Chinese government and Hong Kong's pro-democracy camp prepare for elections for the chief executive and Legco in that year. Healthy economic growth in the forecast period will aid political stability, but the government's poll ratings remain low.

Hong Kong's largest pro-democracy party, the Democratic Party (DP), supported the political reforms in Legco, reflecting a more nuanced approach to its calls for political reform, rather than persisting with its vocal campaign for full democracy. The adoption by the DP of a more pragmatic stance to political reform might thus win the party extra votes. But this strategic departure could yet threaten the cohesion of the pro-democracy movement; critics have interpreted the electoral reforms as legitimising the undemocratic aspects of the territory's political system, and divisions within the pro-democracy camp could become wider.

Key political battlegrounds include reform of healthcare financing, environmental policy and efforts to tackle poverty-all areas in which the democratic camp will seek to hold Hong Kong's administration to account. However, opinion polls have indicated that the public favours a practical approach, notably on issues that affect relations with the mainland government.

The next legislative election will take place in 2012. As a result of recent reforms, at the poll the number of seats in Legco will rise to 70, from 60 at present. Currently, 30 of the chamber's 60 members are directly elected, while the others represent "functional" constituencies, being elected indirectly by social and business interest groups. However, the ten new members to be added in 2012 will in effect be elected by universal suffrage, and so for the first time the majority of legislators will be chosen by popular vote. This should benefit the DP and other pro-democracy groups, which tend to win more seats among the broad electorate, but the democratic camp is still likely to lack a majority. The trend towards universal suffrage will increase pressure on all parties to adopt policies with broader popular appeal. A partial erosion of Hong Kong's laisser-faire model of capitalism, which has been protected in the past by the business elites of the functional constituencies, may be more apparent from 2012. The most recent example of increased populism is a major government policy reversal in relation to the budget for fiscal year 2011/12 (April-March), after the administration was forced to announce a series of tax rebates. The government had originally opposed tax cuts in the budget on the grounds that this could be inflationary.

Reforms passed last year increased from 800 to 1,200 members the size of the committee that selects the chief executive. However, it is likely that the mainland government will still essentially make the decision as to whom the committee should choose. Hong Kong's chief secretary for administration, Henry Tang, is an early front-runner to succeed Mr Tsang, but other candidates are also likely to come to the fore in the next few months. Mr Tsang's successor will face calls for legislation to introduce full democracy at the Legco election in 2016, or at least for the chief executive poll scheduled for 2017, but the Chinese government has an effective veto on any such move.

Under Hong Kong's mini-constitution, the Basic Law, defence and foreign affairs are the preserve of the central Chinese government. The Hong Kong government has authority over domestic matters and external issues relating to trade, such as the territory's membership in its own right of the World Trade Organisation. Hong Kong would be affected adversely by any deterioration in China's relations with other countries-a significant heightening of Sino-US trade tensions, for example, could hurt market sentiment in Hong Kong and also affect external trade. Foreign governments have generally been reluctant to interfere in Hong Kong's internal affairs, although the US and the UK publish regular reports on subjects such as freedom of speech and progress towards democracy in the territory.

Hong Kong is enjoying strong economic growth, but care will need to be taken to limit asset price bubbles and unsound lending practices in the banking sector. Property prices rose sharply in 2009-10, and domestic monetary conditions will remain very loose for most of 2011-12 as a consequence of the Hong Kong dollar's peg to the US dollar. The fiscal position will remain healthy: Hong Kong is expected to record a budget surplus throughout the forecast period. Revenue growth is set to expand steadily in 2011-15, and there will thus be scope for increases in spending on social programmes, reflecting growing pressure from voters to address the relatively high rates of poverty and income inequality that exist in the territory. A desire to alleviate these problems also lies behind the government's decision to introduce a minimum wage, which came into effect on May 1st. Some business leaders have argued that the minimum pay rate will cost jobs, but the fact that it has been set at the low hourly rate of HK$28 (US$3.60) suggests that its impact on employment is likely to be modest.

The Chinese government will continue to grant Hong Kong preferential access to mainland markets in terms of trade and investment, notably under the Closer Economic Partnership Arrangement (CEPA). As the territory's laisser-faire approach to economic policy is eroded in the forecast period, the Hong Kong government will adopt an increasingly active industrial policy to support priority sectors (including health, education, testing and certification, and environmental, cultural and innovation services). Support is most likely to come in the form of preferential access to certain resources, notably land. There is, however, a risk that such measures may prove ill judged or could serve mainly to benefit well-connected property developers.

The Hong Kong government recorded a budget surplus estimated at 3.5% of GDP in 2010/11. This impressive result, achieved as the territory emerged from a deep economic recession, largely reflected strong revenue inflows associated with land sales and a healthy return on the government's investment holdings, the latter boosted by the strong performance of the local stockmarket in 2010. In the forecast period fiscal inflows may be volatile. This will reflect the crucial role of revenue from stamp duty (which varies with the performance of the local securities markets) and land sales. In line with recent government commitments to provide land for the construction of more housing, the Economist Intelligence Unit expects a steady stream of land auctions to boost revenue in 2011-12, before such sales diminish in frequency in 2013-15. The government will persist with a tight fiscal policy, underpinned by only modest expenditure rises in the next five years. Pressure will build gradually for greater spending on social welfare, but growth in infrastructure expenditure is likely to slow towards the end of the period as a number of major public projects approach completion. The government will post large surpluses in 2011-15, equivalent to 2.4% of GDP on average, and Hong Kong will be a substantial net creditor, as its debts will be offset by larger holdings of assets.

As a consequence of the fixed exchange rate between the Hong Kong dollar and the US dollar, local policy interest rates are determined largely by the Federal Reserve (the US central bank) rather than the Hong Kong Monetary Authority (HKMA, which performs many of the functions of a central bank). This will cause problems in 2011, as interest rates will be very low despite rapid economic growth. There are fears that low rates could lead to a surge in money supply and credit issuance, which in turn might mean that asset prices continue to rise (notably in the stockmarket and the property sector) or might lead to broader inflationary pressures. The authorities may take steps to mitigate this threat; for example, the HKMA could make prudential standards for financial institutions more exacting, as a means of "shadow" monetary tightening. US interest rates are expected to rise rapidly from late 2012, and, given that the HKMA has already voiced concern about the risk of outflows, this is likely to mean that rates in Hong Kong will follow suit. We expect this, combined with tighter monetary conditions in mainland China (where inflation is already perceived as a major problem), will lead to a contraction in local credit issuance in 2012-13. Monetary policy on the mainland will have an increasing impact on Hong Kong, given the growing role of China's renminbi in the Hong Kong financial system.

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Real GDP growth reached 6.8% in 2010, its fastest rate since 2006, as the economy rebounded following the 2008-09 global financial crisis. Growth will decelerate to 5.3% in 2011 and an average of 4.6% a year in 2012-15. The main contribution to growth in the forecast period will continue to come from private consumption. This largely reflects the continued bright outlook for jobs, which in turn is supported by our forecast of rapid growth in exports throughout 2011-15: brisk growth in overseas sales will create employment in sectors such as shipping and logistics, catering, retailing, tourism and professional services. Gross fixed investment will continue to be supported by a recovery in business investment and property development as companies take further advantage of loose credit conditions, as well as by major public infrastructure projects, such as the Hong Kong-Macau-Zhuhai bridge.

A continued positive contribution from net exports will also boost growth directly in 2011-15. Our expectation of strong external demand is based largely on the rosy outlook for exports to China (particularly on the services side, which includes tourism earnings), as well as to other emerging markets. Strong demand from these markets will help to compensate for any weakness in demand in Hong Kong's traditional markets in the developed world. Imports will grow strongly, in line with trends in domestic demand, as Hong Kong produces few of the raw materials or manufactured goods that it consumes. We forecast that both exports and imports of goods and services will expand by 7-8% a year on average in the forecast period.

There are several risks to our forecast, the largest of which relates to the uncertain global outlook. Although the world economy is recovering, an earthquake that struck Japan in March (and the ongoing crises at several nuclear reactors that were damaged by the natural disaster) have highlighted the vulnerability of major economies to unexpected events. Financial volatility poses further threats to international economic stability. Hong Kong's economic growth is closely correlated with global trade expansion, and exports (as well as the wider economy) would be hit hard should the developed world suffer another recession. The territory's economic outlook is also closely linked to that of China: there is a positive correlation between growth on the mainland and in Hong Kong.

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Consumer price inflation is emerging as a significant worry in Hong Kong. Inflation started to accelerate in the final quarter of 2010, and in April 2011 it reached 4.6% year on year. The main cause of rising inflation has been higher food prices. Hong Kong imports most of its food from China, and food prices are expected to remain elevated in 2011. Another important inflationary influence, especially in 2011-13, is likely to be a rise in rents-the largest element in the basket of goods and services making up Hong Kong's consumer price index. Movements in rents tend to track housing prices with a lag, and rapid increases in property prices during the past couple of years are therefore expected to lead to a sharp rise in rents.

Upside risks to our inflation forecast are posed by the danger of a shock to food prices, possibly arising from higher global fuel prices or from weather-related factors that affect food production in China. Should inflation continue to accelerate, Hong Kong's government would be likely to provide fiscal help to restrain price rises, for example by waiving rent payments for public-housing residents or by subsidising utility bills. Overall, consumer price inflation is expected to be high by local standards in 2011, averaging 4.2%. However, inflation is then expected to decelerate, to average 3.2% in 2012-15. Producer prices are forecast to increase by an average of 4.2% a year in the forecast period.

The HKMA has repeatedly reaffirmed its commitment to maintaining the Hong Kong dollar's peg to the US dollar, and no change to this policy is expected in 2011-15. Our central assumption is that Hong Kong's large foreign-exchange reserves, supplemented by its substantial fiscal reserves and its current-account surplus, will enable the HKMA to resist pressure to alter its exchange-rate policy. Given the potential for volatility in world financial and foreign-exchange markets in the next two years, the currency peg will remain an important source of economic stability in Hong Kong. There will nevertheless be increasing discussion of the options for moving away from the US dollar peg and towards a closer link to China's renminbi, perhaps via a peg to a basket of currencies, as is used in Singapore. The timing of such a move (which will not occur during the forecast period) will depend partly on how quickly China opens its capital account.

The current-account surplus will remain large in 2011-15, at the equivalent of almost 10% of GDP on average. Merchandise exports rebounded strongly in 2010, following their slump in 2009. However, persistently weak economic growth in important OECD markets will hold back export expansion in 2011-15 compared with the rates of growth in overseas sales that were achieved in the pre-crisis period. Combined with strong import growth, stoked by domestic demand, this makes it likely that the merchandise trade deficit will widen significantly in the forecast period. But in balance-of-payments terms this will be offset by the surging services surplus-a consequence of Hong Kong's role as a financial services entrepôt to mainland China, and of the large number of tourists who visit the territory. The rising volume of merchandise trade will also push up exports of port and logistics services. The income account will stay in surplus during the forecast period, reflecting earnings from the territory's foreign-exchange reserves and the large stock of overseas investments held by local residents. Repatriation of earnings by expatriates resident in the territory will mean that the transfers account remains slightly in deficit.

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The government announced a proposal in May to scrap by-elections for the Legislative Council (Legco, Hong Kong's legislature), arguing that the resignation, death or disqualification of a member should lead to the second-highest placed candidate in the previous Legco election taking the seat. The proposal has been opposed by the pro-democratic parties; Emily Lau, the vice-chair of the largest of them, the Democratic Party (DP), described the idea as moving Hong Kong closer to China's non-democratic political system. Opponents of the proposal have argued that it contravenes the Basic Law (Hong Kong's mini-constitution).

Hong Kong's Legco comprises both directly elected "geographical constituency" seats (elected on the basis of proportional representation) and "functional constituency" seats elected by business and social interest groups rather than by the general public. The government clarified that by-elections would still occur when replacement members were required for functional-constituency seats, as these are not filled by proportional representation (and, in any case, tend to be occupied by broadly pro-government members).

The government has also pointed to opposition from the public to the tactics of pro-democracy parties, which triggered by-elections last year to protest against government policies. This appears to be the main driver for the proposal. The proposed change would apply to the Legco that will meet from October 2012, but would require an amendment to the Legislative Council Ordinance, which the government said would be implemented as soon as possible.

The role of the pro-democratic Civic Party in a court battle over the three-way Hong Kong-Macau-Zhuhai bridge was implicitly condemned by Hong Kong's chief executive, Donald Tsang, recently, when he argued that "a certain political party" was harming the city's interests. The dispute relates to the environmental impact of the project, which will span the Pearl river. The government argues that the court case could delay the HK$60bn (US$7.7bn) rail project and might entail an increase in infrastructure costs.

The Civic Party is believed to have helped a woman launch a judicial review of the legality of the environmental assessment report conducted for the project. The High Court upheld her suit on one of the seven grounds pleaded, ordering further studies on the impact of the bridge and forcing the government to launch an appeal, which could delay the start of construction work for six months. Both Civic Party legislators and Albert Ho, the chairman of the DP, have argued that Mr Tsang's comments undermine the rule of law by putting pressure on the judiciary.

In mid-May the government awarded the MTR Corporation, a railway company that is managing two large rail projects, the property development rights to two sites as a way of subsidising the projects. The two schemes are the South Island Line East and the Kwun Tong Line Extension, which are worth a combined HK$17.7bn and are due for completion by 2015. The move came after an independent study showed that the projects required financial backing from the government, with shortfalls of HK$9.9bn in the case of the South Island Line and HK$3.3bn for the Kwun Tong Extension. Property development on the Wong Chuk Hang and Valley Road Estate sites is expected to begin after 2015, with the sites likely to be sold off in the 2020s. The government insisted that all further risk relating to the rail projects rested with MTR. In addition to rail facilities and shopping malls, the bulk of development on the sites will consist of residential apartments.

Hong Kong's mortgage interest rates have been steadily increasing over the past year, as indicated by spreads that have risen from around 0.1% above local overnight rates in April 2010 to 1.5-2% in May 2011. Several more increases are expected in the next year; some analysts believe that these could not only combat asset price inflation but might even cause property prices in the territory to fall by 10-15%-or even by up to 25%, according to some analyses. The Hong Kong government also plans to increase land supply to combat asset price inflation.

There is the growing possibility of a liquidity squeeze in Hong Kong, forcing an upward adjustment in commercial interest rates regardless of the level of official rates. Loans for use in Hong Kong rose by 27.6% in January-March, as a consequence of increases in both mortgage loans and corporate borrowing. However, the rise in renminbi-denominated deposits to Rmb451.4bn (US$69bn) at end-March, representing 7.7% of the total in the local banking system, is likely to continue, possibly reaching more than 20% by 2013. This could reduce the pool of liquidity available for lending in Hong Kong, as expectations of further renminbi appreciation make it unlikely these funds will be lent in the territory. Although total deposits in the Hong Kong banking system grew by 3.1% in the year to March, there was a 0.3% fall in Hong Kong dollar-denominated deposits, well below the pace of credit growth. The expected further increase in trade settlement using renminbi will also push up renminbi deposits.

Hong Kong took joint first place with the US in the 2011 World Competitiveness Rankings, a survey of 59 economies compiled by the Swiss-based International Institute for Management Development. Hong Kong had come second behind Singapore in the 2010 rankings. Hong Kong scored highly for both public-sector and private-sector efficiency. Mainland China was ranked 19th, with private-sector efficiency outranking government efficiency by a wide margin.

Singapore, which is often seen as Hong Kong's closest rival in Asia, dropped to third place in the latest rankings owing to its high cost of living. However, despite Hong Kong's perceived greater competitiveness, Singapore's economy is expected to overtake that of Hong Kong in size in 2012. IMF forecasts show Singaporean GDP reaching US$254bn next year, US$10bn above that of Hong Kong. Moreover, GDP per head in Singapore is expected to rise to US$48,000, well above Hong Kong's US$34,000.

Hong Kong's economy reported a 7.2% real expansion in GDP in the first quarter of 2011 on a year-on-year basis, following growth of 6.8% in 2010 as a whole. The January-March figure was equivalent to 2.8% on a seasonally adjusted quarter-on-quarter basis, leading the government to revise up its forecast for GDP growth this year to 5-6%, from 4-5% previously. Economic output continues to be supported by private consumption, continued low unemployment, strong visitor arrivals from mainland China and growth in foreign trade.

Private consumption expenditure rose by 7.6% year on year and by 0.7% on a seasonally adjusted quarterly basis in January-March 2011. This was supported by a fall in the unemployment rate to 3.4%, bringing joblessness close to its post-handover low of 3.3% in mid-2008. The seasonally adjusted unemployment rate in February-April showed a slight increase, to 3.5%, compared with 3.4% in January-March, indicating that further reductions in unemployment will be difficult to achieve. The labour force expanded by 15,700 between the two periods, to 3.72m, but despite an increase in the number of people in work, the absolute unemployment figure rose by 7,400 to 131,900 in February-April. School leavers entering the job market over the summer, together with the implementation of a minimum wage from May 1st, may limit further falls in unemployment in the remainder of 2011. Other data point to strong private consumption, including a 26% year-on-year increase in the value of retail sales in March, to HK$31.2bn, and a rise in restaurant receipts of 5.9%, to HK$7.3bn.

In addition to rising private consumption, government consumption was up by 2.7% year on year in the quarter in real terms, and investment in large-scale infrastructure projects supported building and construction expenditure, which was up by 13.4%, despite the offsetting role of private-sector construction. By contrast, the more volatile category of machinery and equipment investment reported a 13.8% fall, leading to a 1.1% decline in overall investment spending in the quarter. As the machinery and equipment category of investment spending is volatile, the government stated that the fall in overall investment in the quarter was likely to be only temporary.

Goods exports were up by 16.8% year on year in the first quarter, underpinned by healthy economic growth in mainland China, although exports to the US and Europe were less buoyant. The figure was also a considerable improvement compared with that of 8.2% recorded in the fourth quarter of 2010. Goods exports were up by 14.4% quarter on quarter on a seasonally adjusted basis in January-March. Customs data for March show merchandise exports up by 21.5% year on year to HK$281.5bn in the month, with imports rising by 18.8% to HK$321.6bn.

Services trade is a more important contributor to GDP than trade in goods. The services subcomponent was lifted by a 9.1% year-on-year increase in services exports, with a stellar performance in the financial and business services sectors. This was down slightly from growth of 9.3% in October-December 2010, but services exports were up by 4% on a seasonally adjusted quarter-on-quarter basis in January-March. Financial and business services, which were up by 14.3%, are being underpinned by demand for crossborder financing as well as by Hong Kong's expertise with regard to the Chinese mainland. Trade-related and travel services also reported healthy growth in the first quarter, at 11.4% and 9.6% respectively, underpinned by trade with China and tourism inflows, while transport services reported paltry growth, at just 1% year on year, owing to the fact that Hong Kong's logistics services are facing increasingly stiff competition from mainland operators.

The Census and Statistics Department announced a rebasing of inflation statistics at end-April, on the basis of the 2009/10 Household Expenditure Survey, an exercise conducted every five years. The survey showed an increase in the share of expenditure devoted to accommodation (rising to 31.7% of the basket, from 29.2% in 2004/05) and food (making up 27.5% of the basket, up from 26.9% five years earlier) but a reduction in spending on transport, clothing, utilities, durable goods and tobacco.

The rebasing of the series has had the effect of reducing historical rates of inflation. Consumer price inflation rose to 3.8% year on year in the first quarter of 2011, up from 2.7% in the fourth quarter of 2010, according to the new figures, whereas using the old base it rose from 2.8% to 4%. However, data continue to show an increase in inflationary pressure.

After 4.6% consumer price inflation in April, the government now estimates that inflation in 2011 will average 5.4%, up by almost 1 percentage point from its previous estimate. Rising inflationary pressure is putting pressure on wage settlements in Hong Kong. A recent survey of 184,000 employees showed private-sector salaries rising by 6-8% a year, leading to calls in the public sector for a 4-6% pay rise.

Underpinning private consumption spending are visitor arrivals, which continue to boom. Arrivals in the territory were up by 13.9% year on year in March, to 3.2m, boosted by a 21.6% increase in arrivals from China to just over 303,000 over the course of the mainland's three-day Labour Day holiday. Mainland China accounted for 63% of visitors to Hong Kong in March, with a further 7% hailing from Taiwan and Macau, indicating that attempts to diversify the tourism sector's reliance on Greater China have not yet yielded results.

Hong Kong achieved a 91% hotel-occupancy rate in March, with the average daily room rate up by 18.7% year on year to HK$1,404 (US$180). The number of hotels rooms, at 60,730 in March, is not much higher than the figure of 59,627 at end-2009, but approved projects show an increase to 63,494 by end-2011 and 68,189 by end-2012, providing room for further tourism growth.

The small cruise-ship segment of the market is expanding, with a 4.5% year-on-year increase in cruise-passenger throughput in the first quarter, to 411,061. Another small but important segment of the market is meetings, incentives, conferences and exhibitions, which saw visitor arrivals rise by 5.1% year on year in the first quarter of 2011, to 296,156. Unsurprisingly, 40.9% (120,963) of these visitors were mainland-Chinese, up by 13.5% year on year.

The buoyancy of Hong Kong's financial services exports partly reflects the territory's success in attracting initial public offerings (IPOs), whether as sole or secondary listings. In May a Swiss-based commodities trader, Glencore, combined a primary listing on the London market in the UK with a secondary listing in Hong Kong at the same time, raising US$10bn. Further IPOs are in the pipeline. A Chinese energy company, Huaneng Renewables, which cancelled an IPO in Hong Kong in December 2010, is planning to list in June 2011, and expects to raise US$800m-1bn. A casino operator in neighbouring Macau, MGM China Holdings, is also planning an IPO in Hong Kong to raise as much as US$1.7bn. An Australian mining firm, Resourcehouse, whose IPO has been repeatedly delayed, is to make a fourth attempt to list in Hong Kong in order to raise up to US$3.6bn. Despite the high-value listings on the IPO calendar, however, Hong Kong's main stockmarket index, the Hang Seng, which closed at 23,199 on May 20th, has struggled to make headway, having drifted downwards from a closing level of 24,007 on April 26th. The market remains well below its all-time high of 31,958 recorded in October 2007.

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Please see graphic below

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Please see graphic below

Land area

1,104 sq km

Hong Kong island: 81 sq km

Kowloon: 47 sq km

New Territories & outlying islands: 976 sq km

;(reclamation since 1887: 67 sq km)

Population

7,061,000 (mid-2010 government estimate)

Main regions

Population in '000 (mid-2006):

Hong Kong island: 1,264 Kowloon: 2,070

New Territories: 3,598

Climate

Subtropical

Weather in Victoria (altitude 33 metres)

Hottest months, July and August, 26-31°C; coldest month, January, 15-19°C; driest month, January, 23 mm average rainfall; wettest month, August, 391 mm average rainfall (climatological norms)

Languages

English and Chinese (mainly Cantonese)

Measures

UK imperial system, changing to metric system. Local measures used include: 10 fan = 1 tsun (Chinese inch) = 0.037 metres; 10 tsun = 1 chek (Chinese foot) = 0.371 metres; 10 tsin = 1 leung (tael) = 37.8 g; 16 leung = 1 kan (catty) = 0.605 kg; 100 kan = 1 tam (picul) = 60.48 kg

Currency

Hong Kong dollar (HK$); HK$1 = 100 cents. Average exchange rate in 2010: HK$7.77:US$1

Fiscal year

April-March

Time

GMT plus 8 hours

Public holidays

New Year's Day, January 1st; Chinese New Year, February 3rd-5th; Ching Ming Festival, April 5th; Good Friday, April 22nd; Easter, April 25th; International Labour Day, May 2nd; Buddha's Birthday, May 10th; Dragon Boat Festival, June 6th; Hong Kong Special Administrative Region Establishment Day, July 1st; Mid-Autumn Festival, September 13th; China's National Day, October 1st; Chung Yeung Festival, October 5th; Christmas, December 26th and 27th

Official name

The Hong Kong Special Administrative Region (SAR) of the People's Republic of China

Form of state

Special administrative region of China, with its own mini-constitution (the Basic Law), guaranteeing "a high degree of autonomy" until 2047. Presided over by a chief executive, whose appointment is strongly influenced by China

The executive

The Executive Council (Exco), comprising both ex officio and non-official members, serves the chief executive in an advisory role

Head of state

Hu Jintao, president of the People's Republic of China

Legislature

Unicameral Legislative Council (Legco) with 60 members, currently comprising 30 directly elected members and 30 members elected by "functional" constituencies. In 2012 the number of Legco members will be increased to 70, of whom 40 will be directly elected

Local government

District boards were renamed district councils after the 1999 elections. Local government municipal councils (urban and regional) were abolished shortly afterwards. The powers of the municipal councils were retained by government departments, with only minor increases in the budgets of the advisory and partly appointed district councils

Legal system

Based on English law and the Basic Law (a mini-constitution underpinned by an international treaty). Foreign affairs and defence fall within the ambit of the Chinese central government; the SAR has autonomy in other matters

Elections

The most recent Legco election took place in September 2008. Donald Tsang was re-elected as chief executive for a five-year term in March 2007. The next Legco election will take place in 2012, and a new chief executive will also be elected in that year

Main political parties

The pro-government Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) is the largest party in Legco, with 13 seats. The pro-business Liberal Party (LP) has six seats. The pro-democracy camp holds 23 of Legco's 60 seats, including eight held by the Democratic Party (DP) and five by the Civic Party

Chief executive: Donald Tsang

Chief secretary for administration: Henry Tang

Financial secretary: John Tsang

Secretary for justice: Wong Yan-lung

Principal officials

Civil service: Denise Yue

Commerce & economic development: Rita Lau

Constitutional & mainland affairs: Stephen Lam

Development: Carrie Lam

Education: Michael Suen

Environment: Edward Yau

Financial services & the Treasury: Ceajer Chan

Food & health: York Chow

Home affairs: Tsang Tak-sing

Labour & welfare: Matthew Cheung

Security: Ambrose Lee

Transport & housing: Eva Cheng

Chief executive of the Hong Kong Monetary Authority

Norman Chan