Hong Kong Business Forecast Report Q4 2012

Executive Summary
Core Views
Key Risks To Outlook

Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
A Preview Of CY Leung's First Term As Chief Executive
Leung Chun-ying is likely to face a number of challenges at the start of his term as Hong Kong's next Chief Executive Boosting his
popularity with the public and consolidating support within the civil administration are likely to be his first and most important tasks
Despite his alleged close ties with the central government in Beijing, we do not envisage any adverse changes to Hong Kong's proinvestment
business climate and expect the territory's free-market philosophy to remain a mainstay of the economy
TABLE: HONG KONG POLITICAL OVERVIEW
Long-Term Political Outlook
Benign Outlook Despite Democratic Reform Uncertainty
While we believe Hong Kong will remain at or near the top of our political risk ratings table over the next decade, a number of risks
could lead to rising political instability The sluggish pace of democratic reforms will continue to cause anger among pro-democracy
supporters, and there is the potential for large-scale public protests A lack of affordable housing and rising income inequality also could
pose threats to social stability

Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Few Signs Of A Respite In Slowdown
Hong Kong's economy continues to exhibit increasing signs of weakness as trade activity maintains its downward trajectory Also,
we are seeing strong signs of a marked slowdown in the retail sector, which, coupled with corrective pressure in the property market,
means that consumption momentum should slow further going forward We consequently see fit to maintain our bearish take on the
economy and see real GDP growth coming in at 2 2% through 2012, versus consensus expectations for 3 0% expansion We expect
this economic weakness to extend into 2013 with economic growth seeing a marginal acceleration to 3 5%
Balance Of Payments
Further Trade Deterioration In Order
Hong Kong's trade weakness exhibits few signs of slowing down and we expect this to place considerable drag on the broader economy
in the months ahead The city's imports and subsequently re-exports of raw materials and intermediate goods continue to embark on
their downward trajectory, which suggests that trade activity is not yet set for a recovery With regards to the Hong Kong dollar, we
believe that concerns calling for a depeg from the US dollar are unwarranted and we do not envisage any change to the status quo in
the years ahead
Fiscal Policy
CE's Campaign Pledges Unlikely To Weigh On Fiscal Health
While we expect a visible rise in social welfare expenditure as a result of the campaign pledges of Hong Kong's new chief executive,
Leung Chun-ying, we do not expect this to have any adverse ramifications on the city's fiscal health An increase in land sales is likely to
augment the government's revenue stream, while using the city's reserves to fund the expansion in social welfare spending remains an
option
Monetary Policy
Disinflation Firmly In Motion
Consumer price inflation)in Hong Kong is falling perfectly in line with our expectations as prices maintain their disinflationary route We
expect the downtrend in price growth to continue through 2012 on the back of weakening economic activity and imported disinflation
from the mainland Our forecasts point towards inflation averaging 4 4% though 2012 and ending the year at 3 8%

Chapter 3: 10-Year Forecast
The Hong Kong Economy To 2021
Integration With Mainland Key To Growth
Hong Kong's long-term outlook remains reasonably bright While a developed economy, increased cooperation between Hong Kong
and China offers a unique opportunity for the Special Administrative Region to benefit from the mainland to further drive economic
growth We therefore expect Hong Kong to resume its strong economic expansion over the coming years and average 3 5% real GDP
growth over the next decade However, Hong Kong needs to maintain its competitive edge or risk being overshadowed by fast-rising
Chinese cities
TABLE: LONG-TERM MACROECONOMIC FORECASTS

Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: ASIA, ANNUAL FDI INFLOWS
Market Orientation
TABLE: TRADE AND INVESTMENT RATINGS
TABLE: TOP EXPORT DESTINATIONS
Operational Risk

Chapter 5: Key Sectors
Pharmaceuticals
TABLE: PHARMACEUTICAL SALES INDICATORS 2008-2016
TABLE: PRESCRIPTION DRUG SALES INDICATORS 2008-2016
TABLE: PATENTED DRUG MARKET INDICATORS 2008-2016
TABLE: OTC MEDICINE SALES INDICATORS 2008-2016
TABLE: MEDICAL DEVICES SALES INDICATORS 2008-2016
TABLE: GENERIC DRUG SALES INDICATORS 2008-2016
Telecommunications
TELECOMS SECTOR – FIXED-LINE – HISTORICAL DATA & FORECASTS, 2009-2016
TELECOMS SECTOR – INTERNET – HISTORICAL DATA & FORECASTS, 2009-2016
TELECOMS SECTOR – MOBILE – HISTORICAL DATA & FORECASTS, 2009-2016
OPERATOR ARPU (HKD), 2009-2016
Other Key Sectors
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS
TABLE: OIL AND GAS SECTOR KEY INDICATORS
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
TABLE: HONG KONG FREIGHT KEY INDICATORS

Chapter 6: BMI Global Assumptions
Global Outlook
The Cycle Has Turned
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 43