Economic Analysis - To Be Surpassed By Shenzhen, But Financial Dominance To Continue - APR 2018

BMI View: Hong Kong will likely be taken over by Shenzhen in terms of economic size in 2018 as the Special Administrative Region's strength in financial services is unlikely to offset its falling trade fortunes, while the Tier 1 Chinese city continues to grow robustly due to its growing competitive advantage in technology and innovation. The GDP per capita gap between the two cities will therefore continue to narrow over the coming years.

We expect Hong Kong's economy to be surpassed in size by neighbouring Shenzhen in 2018, and the gap is set to widen over the coming years. The Special Administrative Region (SAR)'s growth rate will continue to lag behind Shenzhen due to Hong Kong's already high level of development and mature status while Shenzhen focuses on the faster growing information technology (IT) sector. According to data from Wind, since Hong Kong's handover to the mainland in 1997, its real GDP growth averaged 3.4% up to 2017, while Shenzhen's economy expanded by an average of 13.2% over the same period.

Both Hong Kong and Shenzhen benefitted from the mainland's export-driven growth model, but the latter was starting from a much lower base, and it recorded a higher pace of expansion due to cheap labour as a result of strong population growth due to migrants entering into the city. In addition, Shenzhen saw unprecedented investment growth in infrastructure (in highways and rails) and property as a result of urban planning.

Hong Kong Set To Overtaken By Shenzhen
Hong Kong, China - Hong Kong And Shenzhen Nominal GDP, USDbn
Source: BMI, Wind

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