A diverse set of human resource management (HRM) practices became institutionalized during Hong Kong's industrialization from the 1950s through the 1970s within the context of an open economy, a government disinclined to intervene in business decisions or the labour market and a weak trade union movement. Economic restructuring, labour market changes and rising labour costs during the 1980s and 1990s pressured employers to find more effective ways of using their human resources. We focus on how the economic downturn following the Asian Financial Crisis has impacted on employment practices including employment security, compensation, skill formation, work reorganization and employment relations. We discuss changes in the public as well as private sector and argue that reforms in the former are loosening the rigidities of its highly structured internal labour market system. Public sector employment practices are thus likely to converge increasingly with the 'best practices' of private sector and overseas government HRM systems. Copyright © 2003 Taylor & Francis.