We examined Hong Kong's fiscal and monetary policies to revive its GDP growth rate and to reduce its unemployment rate following the 2008 financial crisis.

1. Hong Kong:
Macroeconomic Policy Response
in 2008 Global Financial Crisis
Tian Tian
Chisheng Li
Aili Zhou
04/11/2012

2. Country Snapshot
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)

3. Background of Hong Kong Economy
 Small Open Economy
 The world’s most laissez-faire economy
 Small government:
--low taxation
--Government consumption is below 10 percent of GDP
 Free trade
--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

4. 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

5. 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.

6. 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%.

7. Fiscal policy
 Support enterprises: HKD 100 billion with the provision of up
to 70% guarantee to participating lending institutions
granting loans to Hong Kong companies.
 Create employment:
 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
2010.

8. 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.

9. Monetary policy
Hong Kong does not have an independent monetary
policy because it pegged its currency to the US$.
Hong Kong’s interest rates are aligned with the US
federal fund rate, and decreased from 6.75% to 0.5%
in 2008.
As the US increased its foreign exchange reserves, the
Hong Kong Monetary Authority purchased the US$
and increased its monetary base.
The Hong Kong Monetary Authority also increased
its issuance of exchange fund paper.

10. Mundell-Fleming Model after the 2008 Crisis

11. Mundell-Fleming Model After the Policy Responses

12. Hong Kong GDP Annual Growth Rate

13. Hong Kong Unemployment Rate

14. Government Debt to GDP Ratio

15. Conclusion
 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
designed policies