Hong Kong, S.A.R.

Business sentiment falls short of economic momentum

Hong Kong’s economy expanded by 3.5% in 2025, surpassing the government’s 2-3% forecast. This outperformance was supported by robust external trade, alongside strengthening financial services and a recovery in domestic consumption. The recovery in trade flow was primarily driven by electronics, reflecting Hong Kong’s long-standing role as re-exporting hub for high-end electronics produced in Southern China. Since these products may involve warranty liabilities, foreign buyers often prefer contracts to be governed by Hong Kong law, which they deem more aligned with international standards. In addition, there were more trans-shipment flows from the US and Europe to mainland China via Hong Kong. This is probably the result of attempts by firms to mitigate tariffs associated with direct shipments, especially for products subject to anti-dumping or anti-subsidy tariffs, such as food, dairy products and wine. Financial services also gained momentum on solid IPO activities by mainland Chinese firms and higher trading volumes driven by exposure to mainland China’s AI-related stocks with relatively low valuation. Meanwhile, consumption rebounded, led by discretionary goods and jewelry. This was supported by an increase in visitor arrivals, higher precious metal prices and wealth effects from the equity market rally.

This momentum has carried into 2026, although recent conflict in the Middle East poses growing headwinds. GDP expanded by 5.9% year-on-year in Q1 2026, marking the fastest quarterly growth in nearly five years. External trade remained the key growth driver, with exports surging by 23.8% year-on-year, supported by continued strength in electronics shipments and sustained transshipment flows. The latter also contributed to a notable increase in machinery and equipment investment, as re-routed goods often require light processing—such as assembly or packaging—to qualify for preferential tariff treatment between Hong Kong and mainland China. Together with large-scale public initiatives, notably the Northern Metropolis development, this helped lift gross fixed capital formation by 17.7% year-on-year in Q1. However, the strong Q1 performance did not fully capture the impact of Middle East tensions. On one hand, higher oil and gas prices are pushing up logistics and electricity costs. While households are partially cushioned by government relief measures—such as fuel subsidies and reduced toll fees—and the relatively small weight of energy in the CPI basket (around 3%), firms in the trading sector face margin pressure from elevated freight and insurance costs. Secondly, delayed or reduced Fed rate cuts due to USD-HKD peg also slow the rebound in housing and finance. On the upside, heightened geopolitical tensions enhance Hong Kong’s safe-haven appeal and attract capital inflows.

Despite solid economic performances, this resilience has yet to translate into a meaningful improvement in business sentiment. The business outlook diffusion index has remained below the breakeven threshold across most sectors, except for business services and real estate. Banks’ asset quality also points to lingering stresses – the non-performing loan ratio has stayed above 2%, well above pre-pandemic levels of below 1%. The deterioration in asset quality has become increasingly concentrated on non-mainland domestic borrowers, as elevated borrowing costs and still-depressed property prices continue to weigh on debt servicing capacity and erode collateral values. Although the residential property market has shown tentative signs of stabilisation, the commercial real estate segment continues to feel the strain. This has been prompted by an incomplete recovery in retail and hospitality activity, which continues to damp demand for office and retail space.

Fiscal balance returned to surplus

Hong Kong’s fiscal balance returned to a surplus of HKD11 billion (0.5% of GDP) in FY2025 (April 2025-March 2026), which was a marked improvement on the originally forecast deficit of HKD67 billion. The upside surprise was largely driven by strong stamp duty revenue which exceeded estimates by nearly 50% on back of buoyant stock market turnover. Tax receipt profits also outperformed, supported by stronger-than-expected economic growth. By contrast, land premium income continued to drag, reaching only around 80% of projections. Looking ahead, the government anticipates another modest surplus of around 0.6% of GDP in FY2026, reversing earlier expectations of continued deficits through FY2027. This outlook is underpinned by a recovery in land-related revenues, supported by a stabilising residential property market and declining unsold inventories. Additional support comes from higher stamp duties on high-value residential transactions (above HKD100 million), with rates raised from 4.25% to 6.5%. On the expenditure side, part of the funding for large-scale infrastructure projects are sourced from the Exchange Fund (EF), which is traditionally deployed to maintain currency stability. While this provides fiscal flexibility in the near term, it has also raised concerns about potentially weakening the EF’s role in safeguarding Hong Kong’s financial stability. Viewed generally, a return to sustained fiscal surpluses would help alleviate structural pressures stemming from a narrowing tax base amid population ageing and the inherent volatility of land-related revenues.

Hong Kong’s current account remained robust in 2025, recording a surplus of HKD406 billion (12.2% of GDP), albeit slightly lower than HKD419 billion (13.1% of GDP) in 2024. The moderation was primarily driven by a widening goods deficit, reflecting stronger domestic investment and consumption, alongside increased imports of intermediate goods linked to the re-export of electrical machinery and telecommunications equipment. The expansion in the goods deficit largely offset increases in the services surplus supported by stronger financing activities as well as higher primary income net inflows, particularly from portfolio investments. Despite the dip, Hong Kong’s persistent current account surplus continues to provide a solid external buffer, supporting its ability to accumulate external financial assets and reinforcing its resilience to external shocks as a global financial centre.

Tight political control

Hong Kong's political scene has profoundly changed since the National Security Act was passed and opposition lawmakers decided to resign en masse in 2020. Radical changes to the electoral system, in particular the reduction in the number of directly-elected legislators in the Legislative Council (“LegCo”), have eradicated political pluralism, thereby disempowering opposition parties that once advocated greater autonomy for Hong Kong. Under the current framework, in which only vetted “patriots” are permitted to stand for election and a mere 20 of the 90 LegCo seats are filled through direct voting, the pro-establishment (“pro?Beijing”) camp secured virtually all seats in the 2025 legislative elections. With no meaningful opposition presence in the LegCo, the policy direction of the government—led by John Lee since May 2022—is likely to face limited institutional challenge through to the next Chief Executive election in 2027. At the same time, policymaking aligns more closely with Beijing’s priorities, as reflected in Hong Kong’s first-ever formulation of a five-year plan.

Foreign reactions to these developments in Hong Kong's political landscape have been mostly negative, with G7 foreign ministers expressing "serious concerns" about the Special Administrative Region's electoral changes. Since the National Security Act, the US has deemed Hong Kong and mainland China to be one and the same customs territory and has imposed sanctions on some local officials.

2023

2025

Croissance du PIB (%)

2.6

2.8

Payment

Bank transfers are one of the most popular payment instruments for international and domestic payments in Hong Kong, thanks to the territory’s highly developed banking network.

Standby Letters of Credit also constitute reliable payment methods, as the issuing bank guarantees the debtor’s credit rating and repayment abilities. Irrevocable and confirmed documentary letters of credit are also widely used, as the debtor guarantees that a certain sum of funds will be made available to the beneficiary via a bank, once specific terms agreed by the parties are met.

Cheques and bills of exchange are also frequently used in Hong Kong.

Debt Collection

Amicable phase

During the amicable phase, the creditor sends one or more notice letters (summons) to the debtor, in an attempt to persuade them to pay the due debts. The Practice Directions on Mediation, introduced in 2010, set out voluntary processes that involve trained and impartial third party mediators. This helps both parties involved in a dispute to reach an amicable agreement for repayment. Debtors and creditors are usually urged to pursue this process before resorting to legal action.

Legal proceedings

Ordinary proceedings

The judicial system in Hong Kong comprises three distinct courts:

The Small Claims Tribunal handles relatively small cases (of up to HKD 75?000 in a fast and efficient manner. The rules of procedure are less strict than in those of other types of courts and no legal representation is permitted;

The District Court has jurisdiction over more substantial financial claims, ranging from HKD 75,100 to HKD 3,000,000;

The High Court deals with much larger legal disputes and is additionally charged with handling claims of over HKD 3,000,000. 

Hong Kong’s District court and High Court allow legal representation. Cases in these courts are initiated by issuing a Writ of Summons to the debtor, who then has 14 days to file a defence. The creditor is also required to file a notarised Statement of Claim. If the debtor responds to the Writ and requests a payment plan, the creditor has two weeks to reply. If the parties find it impossible to enter into an agreement, a hearing will be called for by the judge, during which a judgment is normally made. If the debtor does not respond, a default judgment can be rendered.

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Enforcement of a Legal Decision

A domestic judgment is enforceable once it becomes final (if no appeal is lodged within 28 days). If the debtor fails to comply with the judgment, the creditor can request an enforcement order from the court. This usually entails either a garnishee order (allowing the creditor to obtain payment of the debt from a third party which owes money to the debtor), a Fieri Facias order (which enables a bailiff to seize and sell the debtor’s tradable goods), or a charging order (for seizing and selling the debtor’s property to satisfy the debt).

Foreign judgments are enforced under the Foreign Judgments (Reciprocal Enforcement) Ordinance. Decisions issued in a country with which Hong Kong has signed a reciprocal treaty (such as France or Malaysia) only need to be registered and then become automatically enforceable. Where no such treaty is in place with a country, enforcement can be requested before the court, via an exequatur procedure.

An Arrangement on Reciprocal Recognition and Enforcement of judgments in Civil and Commercial Matters (REJA) was concluded with the People’s Republic of China in 2006. This makes judgments rendered in Mainland China or in Hong Kong automatically enforceable by the courts of the other contracting party.

Insolvency Proceedings

OUT-OF COURT PROCEEDINGS

The law does not provide for formal procedures for restructuring company debts. Restructuring proceedings therefore need to take place through informal “workouts” or a scheme of Arrangement.

FORMAL PROCEEDINGS

The main formal procedures for companies in financial difficulties in Hong Kong are as follows:

A scheme of arrangement.

Appointment of receivers.

A members’ voluntary liquidation (which is only available for a company which is still solvent) but may be used where, for example, an entity is itself solvent but is part of a wider group which is in financial difficulty.

A creditors’ voluntary liquidation.

A compulsory liquidation.

Hong Kong legislation also contains a procedure which allows the directors of a company to commence a voluntary liquidation without holding a shareholders’ meeting.

Scheme of Arrangement

A Scheme of Arrangement is a statutory, binding compromise reached between a debtor and its creditors. It must be accepted by all classes of creditors. A court reviews the plan, before sanctioning the convening of separate meetings with creditors. The scheme must be approved by the court, at least 50% of creditors in terms of number and 75% of creditors in terms of value of debts. An administrator is appointed to implement the scheme.

Appointment of receivers

An application for the appointment of a receiver by the Court is made by summons to a Judge of the High Court of Hong Kong following a procedure set out in the Rules of the High Court of Hong Kong. Note that a Master of the High Court of Hong Kong also has the power to appoint a receiver where the appointment of the receiver is made by way of equitable execution against a judgment debtor.

As regards the appointment of receivers out of Court, the procedure for appointment will normally be set out in the relevant security document. A receiver appointed under the statutory power implied into mortgages of land must be appointed in writing. In order for the appointment of a Receiver out of Court to be valid, the receiver must accept his appointment.

Liquidation

Liquidation can be voluntary or compulsory. It involves selling the debtors’ assets in order to redistribute the proceeds to creditors and dissolve the company. Voluntary liquidation can be either a member’s voluntary liquidation (MVL), or a creditors’ voluntary liquidation (CVL). In both cases, company directors lose control and a court-supervised liquidator is appointed.

Creditors can initiate a compulsory liquidation by filing a winding-up petition with the courts on the grounds of insolvency. An MVL is a solvent liquidation process whereby all creditors are to be paid in full and any surplus distributed among the company’s shareholders. CVLs are insolvent liquidations.

Last updated: June 2026