Previous Quarterly Editions
Expropriation Risk: HK: 38 51 51 51 ► T: 38 40 40 40 ►Political Violence Risk:HK:48 48 48 48 ► T: 35 48 48 48 ►Terrorism Risk:HK:15 12 12 10 ► T: 15 12 12 10 ►Exchange Transfer and Trade Sanction Risk: HK:13 13 13 13 ► T: 13 13 13 13 ►Sovereign Default Risk:HK:15 15 15 15 ► T: 15 26 26 26 ►
TREND ►
Protest intensity to date* 2022 2023 Low Low Unrest risk in 2024**Cost of living: MediumAnti-austerity: High
Protest intensity to date* 2022 2023 Very-High Very-High Unrest risk in 2024**Cost of living: -Anti-austerity: -
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Neither Taiwan nor Hong Kong is at risk of a debt crisis. Taiwan’s public debt sits around 30% of GDP, well below the country's statutory 50% limit. Public debt has decreased as a percentage of GDP every year since its all-time high of 39.2% in 2012, falling to 29.7% in December 2022. External debt has fallen from a high of 33.2% of GDP in 2014 to 26.5% in 2022.
The major risk facing Taiwan's economy at present is weak demand for its exports, which equal around 70% of GDP. Exports fell for a 12th consecutive month in August 2023, and the government forecasts a decrease in exports of 9.5% for 2023 as a whole. GDP growth resumed in the second quarter after a technical recession,
but the government forecasts just 1.6% GDP growth for 2023 overall, which would be the slowest in eight years.
Further ahead, Taiwan's role as the world's leading manufacturer of advanced semiconductors positions it to benefit from export demand related to the expansion of 5G telecommunications and artificial intelligence.
Hong Kong has almost no public debt, and the Hong Kong dollar is fully backed by foreign exchange reserves under a currency board system; however, Beijing’s strong intervention in the city's political affairs since 2020 puts Hong Kong's status as an international city at risk. Along with greater economic integration with China, Hong Kong has less-diversified business linkages with other countries and will not be able to counterbalance the negative impact from China’s slowing economy.
Services are critical to Hong Kong's economy, accounting in 2021 for 94% and 89% of GDP and employment, respectively. Travel, transport and financial services are the pillars of Hong Kong's service trade. All three face difficulties. Tension between Hongkongers and mainland Chinese discourages tourist visits from mainland China. Demand for transport services is reduced by mainland China's falling trade figures and competition from major ports elsewhere in China.
Hong Kong benefits from increased listings by Chinese firms, but foreign firms are moving their regional headquarters elsewhere. Meanwhile, human capital is draining out as tens of thousands of Hongkongers relocate to the United Kingdom and elsewhere to escape the repressive political regime introduced in 2020. Hong Kong's population shrank by 1.6% (around 116,000 people) between the end of 2019 and mid-2023.
Nothing suggests a significant risk of Taiwan’s government expropriating foreign assets. Taiwan is a politically stable liberal democracy with robust rule of law. Moreover, Taipei courts foreign investment and has long hoped to make Taiwan attractive to foreign businesses and entrepreneurs.
For its part, Hong Kong's government recognizes that foreign business is central to the city’s economy and would not want to alarm investors by expropriating foreign property. There were initially fears that the Anti-Foreign Sanctions Law passed in mainland China would be extended to Hong Kong. The law authorizes the government to seize assets of individuals and organizations that participate in sanctions against China.
However, China did not impose the law on Hong Kong and does not appear poised to do so. A risk remains, however, that China’s increasing assertiveness regarding the West will erode confidence in Hong Kong as a gateway to the China market and the rest of East Asia.
The protest movement that disrupted business, transport and air travel in Hong Kong for much of 2019 has been crushed, and its leaders and most extreme members have been arrested. Many of the less-committed protesters will be deterred from further activism. Another round of protests at some point cannot be ruled out, but they are unlikely to approach the same level of disruption and destruction. Indeed, many pro-democracy activists have moved overseas.
Taiwan, meanwhile, is a stable liberal democracy, as noted above. Political engagement is high, however, and protest rallies about various issues are not uncommon. It is possible that a controversial issue, probably relating to China, could galvanize another mass movement, but it would most likely be localized, brief and largely peaceful.
Taiwan has no known terrorist threat, either indigenous or from overseas. Were tensions with China to reach a crisis level, sabotage by Chinese operatives is likely.
In Hong Kong, the authorities have dismantled the organizational structures that have mobilized and channelled political opposition to the government. This could make some activists more susceptible to radicalization.
There is a small risk of lone-wolf or small-scale, organized attacks. These would probably be unsophisticated, given the perpetrators’ likely inexperience. Government facilities and personnel would be the preferred targets, but more accessible infrastructure and businesses perceived as pro-China are possibilities.
The Biden administration in Washington has maintained its predecessor’s revocation of Hong Kong’s special trade status and expanded targeted sanctions on senior officials. Hong Kong’s economy depends on international trade and on the financial sector, which in turn depends on the free capital flow. This, along with its small size, means Hong Kong’s government is not in a strong position to impose sanctions or capital controls on a large scale. If mainland China's Anti-Foreign Sanctions Law is extended to Hong Kong, tit-for-tat targeted sanctions would be possible.
The sanctions risk in Taiwan, meanwhile, relates entirely to China. Political tension poses an ever-present threat to cross-Strait trade. Beijing has a record of using undeclared, de facto trade sanctions to try to coerce other governments, including Taiwan’s, and can implement them quickly and without warning.
Taiwan’s fiscal position is strong, with public debt around 30% of GDP and falling. Foreign exchange reserves are among the highest in the world and are now (August 2023) US$565.5 billion, marginally down from their all-time high of US$566.5 billion the previous month. Hong Kong, meanwhile, has almost no public debt, and its currency is fully backed by foreign exchange reserves under its currency board system.
Nothing suggests that government entities in Taiwan would, nor easily could, withhold payment from creditors for political reasons. Hong Kong might plausibly do so if it eventually adopts mainland China’s Anti-Foreign Sanctions Law. Such countersanctions are likely to be employed conservatively, if at all, and imposed in a tit-for-tat rather than escalatory manner.
Return to contents Next Chapter
