Sovereign Credit Risk Report Hong Kong SAR of the People’s Republic of China
2010-10-26   作者:  來源:經(jīng)濟(jì)參考網(wǎng)
 

Analyst
Mingyan Du
dumingyan@dagongcredit.com

                                                   
Sovereign Credit Rating
 
Local currency/outlook AAA/stable

Foreign currency/outlook AAA/stable
Rating time October 2010

Rationale
Dagong assigns “AAA” on both local currency and foreign currency long term sovereign credit ratings for Hong Kong Special Administrative Region (“Hong Kong”),which is based on such factors as the increasingly reinforcing governance capacity, strong economic strength, fiscal strength and foreign currency strength, sound and advanced financial system.

Hong Kong government holds tiny and gradually decreasing debt, so it has no need for financing generally. Long-term fiscal surplus makes Hong Kong government accumulate immense fiscal reserves. By the end of 2009, the debt outstanding of Hong Kong government decreased from 1.5% of GDP to 1.0%, among which, foreign currency denominated debt shrank from 0.9% of GDP in 2005 to 0.7%. For the aim of consolidating economic recovery and elevating competitiveness further, Hong Kong government continues its moderate expansionary fiscal policy in 2010-11 fiscal year. We estimate it would be possible to emerge a fiscal deficit of about 1.0% of GDP, which can be covered by the fiscal reserves easily.

Hong Kong government holds the super capability of debt redemption. The Main reasons are as follows:

On the basis of rule of law and excellent executive branch, through gradual adaptation to the new political regime after the sovereign resumption by the People’s Republic of China, Hong Kong government has primarily formed effective mechanism to operate under the Basic Law. The methods for selecting the chief executive and for forming the legislative council in 2012 will enlarge greatly the supporting foundation to Hong Kong government.

Economic structure has changed towards high-level service industries successfully. The economic strategy with the high value-added services as its major development orientation takes full account of its own characteristics in the economic integration with mainland China, which enables the economy to have the potential of sustained growth. Recently the recovery momentum is rather opportunistic due to the high-speed growth in mainland China and other Asian countries. We forecast the economic growth rate will reach 5.8% in 2010.

The financial system is quite advanced and sound. However, under the circumstances of low interest rate for a long time, precautions should be taken against a possibly new round of asset price bubble .

Pursuing the expenditure limitation policy historically enables Hong Kong government to accumulate ample fiscal reserves. At the same time, three other elements also assure Hong Kong’s foreign currency strength forcefully, which are continued current account surplus, high-level foreign reserves and net international financial assets.

Outlook

The discussion about election reform has clamed down because the methods have been adopted by the Standing Committee of National People’s Congress of the People’s Republic of China, which enables the government to pay more attention to the question of economic development and improving people’s livelihood. The enhanced cooperation between Hong Kong and Guangdong Province has integrated the economy of Hong Kong with that of the Pearl River Delta. During this process, Hong Kong chooses the high-end service industries as main direction in order to shape benign complementary economic structure with Guangdong and other provinces along the south-east coast of China. China’s strong economic growth trend and the bright prospective of becoming RMB offshore center provide Hong Kong’s financial system with continuous power. Although the fiscal reserves will be reduced a little because of the possible fiscal deficits in the coming 2-3 years, there will still be  the effective security to fiscal strength. Furthermore, the ample foreign reserves and net international financial assets will be maintained. Therefore, Dagong keeps the stable outlook for Hong Kong’s local and foreign currency sovereign credit rating in the next 1-2 years.

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