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In 1997, Hong Kong's GNP was estimated at $1,353.4 billion at current market prices, representing an increase of 13.5% over 1996. The difference of $7.5 billion from the Gross Domestic Product (GDP) for the same year (estimated at $1,345.9 billion) represents a net factor income inflow to Hong Kong.

The preliminary estimates of Hong Kong's Gross National Product (GNP) and external factor income flows (EFIF) for 1997 are released today (Friday) by the Census and Statistics Department.

Discounting price changes, Hong Kong's GNP increased by 5.9% in real terms in 1997. After adjustment for change in the terms of trade, the real Gross National Income (RGNI) also grew by 5.9% in 1997. Both were somewhat faster than the 5.3% growth in real terms in GDP in that year.

Taking account of the population size and measured at current market prices, per capita GNP reached $208,145 in 1997, representing an increase of 10.2% over 1996. This compared with the corresponding increase of 9.6% in per capita GDP in the same year.

The total factor income inflow into Hong Kong increased strongly in 1997, by 17.3% to $460.6 billion. The total factor income outflow also rose markedly, by 15.4% to $453.1 billion. These inflow and outflow were equivalent to 34.2% and 33.7% respectively of GDP in the year.

Within the total factor income inflow, direct investment income (DII) surged by 48.5% in 1997, partly on account of the strong growth in income from investment in the Mainland.

The increasing tendency of companies in Hong Kong to set up holding companies in tax haven locations also boosted the DII inflow. Portfolio investment income (PII) increased significantly, by 13.2%, mainly due to robust return from the associated investments in North America and Europe.

But other investment income (OII) fell by 2.5% in 1997, largely due to the contraction in Euroyen activity by Japanese banks in Hong Kong, the fall in interest rates in Japan, and the depreciation of the yen during the year.

Within the total factor income outflow, DII rose strongly by 19.1% in 1997, reflecting good return from inward direct investment in Hong Kong. PII surged even more, by 43.0%, largely reflecting the highly bullish performance of Hong Kong's stock market during most of the year. OII increased by 6.0% in 1997, due to an increase in offshore borrowing and a rise in interest rates charged during the year.

Analysed by country/territory, British Virgin Islands was the largest source of Hong Kong's external factor income inflow, accounting for 20.5% of the total in 1997. This was followed by Japan (14.3%), the Mainland (11.2%), and the United Kingdom (7.4%).

British Virgin Islands also topped the list of destinations for factor income outflow from Hong Kong, accounting for 17.3% of the total outflow.

This was followed by Japan (14.7%), the United Kingdom (9.8%), the United States (9.5%), and the Mainland (8.9%).

The significance of the British Virgin Islands in both external factor income inflow and outflow reflects the increasingly common practice of companies in Hong Kong setting up holding companies in tax haven locations.

A Government Secretariat spokesman noted that the external factor income flows were sizeable in 1997, reflecting the continued huge volume of external flows and transactions in line with the highly externally oriented nature of the Hong Kong economy.

With income earned by Hong Kong residents abroad in 1997 slightly exceeding the income earned by non-residents from within Hong Kong, GNP put up a strong growth of 5.9% in real terms in 1997, faster than the 5.3% growth in real terms in GDP.

The spokesman further noted the robust increases in both DII inflow and outflow in 1997, which reflected the good returns from Hong Kong's outward direct investment and from inward direct investment into Hong Kong.

As to PII, the spokesman explained that the surge in outflow in 1997 was mainly due to the very strong performance of Hong Kong's stock market for most of the year, whereas the growth in inflow was affected to some extent by the marked correction in some of the markets in the region after the outbreak of the Asian financial turmoil.

GDP and GNP are closely-related measures of economic performance. GDP is the total value of production of all producing units within the territory. GNP denotes the total income earned by residents of a particular territory, regardless of the place in which the economic activities giving the income are undertaken.

In other words, the estimate for GNP is obtained by making the following adjustments to the estimate for GDP: adding factor income earned by residents from outside the territory and deducting factor income earned by non-residents from within the territory.

The above EFIF estimates are compiled based on data obtained from the Survey of External Factor Income Flows (SEFIF), supplemented by data from other sources including statistics on foreign direct investment of the mainland of China.

Along with release of the preliminary estimates of GNP and EFIF for 1997, GNP and EFIF estimates for 1993 to 1996 have also been revised to incorporate the supplementary data mentioned above.

Estimates of GNP and EFIF for 1993 to 1997 analysed by income component are presented in Table A, while the country/territory breakdown of EFIF for 1997 is presented in Table B.

The estimates of GNP and EFIF for 1997 are preliminary figures. They are subject to revisions when more data are available.

Enquiries about GNP and EFIF statistics may be directed to the National Income Branch (2) of the Census and Statistics Department at 2332 7486.

End/Friday, February 26, 1999

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