Hong Kong’s economic performance has been excellent, with the EPI score projected to be 96.2%, or an A+ level, in 2016. High economic growth rates and improved trade allowed the government to have fiscal surpluses and low unemployment levels.

Hong Kong’s economy is characterized by its low taxation, almost free port trade and well-established international financial markets. The economy is highly dependent on international trade and finance, with the value of trade close to four times country’s GDP. Hong Kong is strongly integrated with China through trade, tourism, and financial links, leaving it vulnerable to renewed global financial market volatility or a slowdown in the Chinese economy. The government is promoting the Special Administrative Region (SAR) as the site for Chinese renminbi (RMB) internationalization.

GDP growth rate is projected to be 2.7% in 2016, due to increased investment and trade with China. Hong Kong has also had an abundant supply of labor from nearby regions but high demand for labor has been keeping the unemployment rate close to 3%.  A skilled labor force coupled with the adoption of modern Western business methods ensured that opportunities for external trade and investment were maximized. Inflation is projected to be 3% in 2016, as low global inflation will likely limit external price pressures and local cost increases will likely be restrained.

The government maintains the policy of low government spending by having no armed forces, minimal outlays for foreign affairs and modest recurrent social welfare spending, all of which allowed the accumulation of large reserves with minimal foreign debt. The budget surplus is projected to be 2.7% in 2016.

The 5-Minute Economist projects Hong Kong’s EPI score to improve to above 100% by 2020, driven by improved GDP growth and continued fiscal surpluses.