Hong Kong's Balance of Payments Statistics for the Second Quarter of 2003

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Contents of the press release

The Census and Statistics Department today (September 29) released the preliminary Balance of Payments (BoP) account and External Debt (ED) statistics for the second quarter of 2003.

I. Balance of Payments Account

A BoP account is an integrated statistical statement of an economy's external transactions with the rest of the world. The BoP account released here contains detailed breakdowns for both the current account and the capital and financial account.

Overall Situation

Hong Kong recorded a deficit amounting to $21.7 billion in its BoP account (at 7.6% of GDP) in the second quarter of 2003, after a surplus of $10.4 billion (at 3.5% of GDP) in the first quarter of 2003. Reserve assets correspondingly fell by the same amount in the second quarter of 2003.

Of the major BoP components, there was a current account surplus of $19.7 billion (at 6.9% of GDP) in the second quarter of 2003, smaller than that of $36.5 billion (at 12.3% of GDP) in the first quarter of 2003. At the same time, a net outflow of financial non-reserve assets amounting to $25.2 billion (at 8.8% of GDP) was recorded in the second quarter of 2003, smaller than that of $26.0 billion (at 8.7% of GDP) in the first quarter of 2003.

Current Account

The current account recorded a surplus of $19.7 billion in the second quarter of 2003, slightly smaller than that of $19.9 billion in the second quarter of 2002. Compared with the same quarter in 2002, the current account surplus in the second quarter of 2003 was characterised by a decrease in visible trade deficit, a decrease in invisible trade surplus, a continued net inflow of external factor income, and a continued net outflow of current transfers.

With exports of goods increasing faster than imports of goods, the visible trade deficit decreased to $9.8 billion in the second quarter of 2003, from $16.4 billion in the same quarter in 2002. The invisible trade surplus decreased to $31.5 billion in the second quarter of 2003, from $37.8 billion in the same quarter in 2002, with exports of services decreasing more than imports of services. Overall, a combined visible and invisible trade surplus of $21.7 billion was recorded in the second quarter of 2003, slightly larger than that of $21.4 billion in the same quarter in 2002.

On factor income flows, external factor income inflow and outflow amounted to $75.7 billion and $74.2 billion respectively in the second quarter of 2003, thus yielding a net inflow of $1.5 billion in the second quarter of 2003, smaller than that of $2.1 billion in the same quarter in 2002.

A current transfer outflow of $4.6 billion and an inflow of $1.2 billion were recorded in the second quarter of 2003, resulting in a net outflow of $3.5 billion in that quarter, smaller than that of $3.6 billion in the same quarter in 2002.

Comparing the second quarter of 2003 with the first quarter of 2003, and bearing in mind that this comparison for the main current account components may be affected by seasonal factors, the visible trade deficit decreased from $16.0 billion to $9.8 billion, as exports of goods remained robust, while import for local use was cut back distinctly amidst the spread of Severe Acute Respiratory Syndrome (SARS). The invisible trade surplus was markedly reduced, from $40.7 billion to $31.5 billion, as the spread of SARS resulted in an abrupt fall-off in exports of services. Concurrently, the net inflow of external factor income decreased from $15.9 billion to $1.5 billion, while the net outflow of current transfers decreased from $4.1 billion to $3.5 billion.

Capital and Financial Account

In the second quarter of 2003, net outflow of capital transfers was estimated at $2.8 billion, larger than that of $1.9 billion in the first quarter of 2003.

An overall net outflow of financial non-reserve assets amounting to $25.2 billion was recorded in the second quarter of 2003, smaller than that of $26.0 billion in the first quarter of 2003. The overall net outflow of financial non-reserve assets in the second quarter of 2003 was the combined result of a net inflow of direct investment, a net outflow of portfolio investment, a net inflow due to cash settlement of financial derivatives, and a net outflow of other investment.

On direct investment (DI) flows, Hong Kong's DI abroad decreased by $18.0 billion and foreign DI in Hong Kong increased by $16.9 billion during the second quarter of 2003, resulting in a net DI inflow of $34.8 billion, as against a net DI inflow of $3.0 billion in the first quarter of 2003.

On portfolio investment (PI) flows, assets increased by $17.2 billion and liabilities decreased by $8.7 billion in the second quarter of 2003. Taken together, there was a net PI outflow amounting to $25.9 billion in the second quarter of 2003, as compared to a net outflow of $54.8 billion in the first quarter of 2003. The rise in PI assets was due to increased holdings of non-resident debt securities by Hong Kong residents, partially offset by reduced holdings of non-resident equity securities by Hong Kong residents. On the other hand, the drop in PI liabilities was mainly attributable to decreased holdings of resident debt securities by non-residents, partially offset by increased holdings of resident equity securities by non-residents.

On financial derivatives (FD) flows, a net inflow of $22.0 billion due to cash settlement of FD was recorded in the second quarter of 2003, compared with a net inflow of $12.1 billion in the first quarter of 2003.

On other investment (OI) flows, assets increased by $6.5 billion and liabilities decreased by $49.7 billion during the second quarter of 2003. Taken together, there was a net OI outflow of $56.2 billion in the second quarter of 2003, as against the net inflow of $13.6 billion in the first quarter of 2003. The increase in OI assets was mainly due to an increase in currency and deposits assets of the non-banking sector. Concurrently, the decrease in OI liabilities was mainly attributable to a reduction in currency and deposit liabilities of the banking sector and a drop in loan liabilities of the banking and non-banking sectors.

Change in reserve assets in the BoP account reflects the net change in Hong Kong's foreign currency reserve assets, which come under the management of the Hong Kong Monetary Authority (HKMA). In the second quarter of 2003, reserve assets decreased by $21.7 billion, as against an increase of $10.4 billion in the first quarter of 2003. The reduction of reserve assets was partly attributable to a decrease in the outstanding amount of repurchase agreements.

Table 1 (text version) gives the BoP account by standard component. Table 2 (text version) gives the detailed current account analysed by sub-account component, while Table 3 (text version) gives the detailed capital and financial account analysed by sub-account component.

II. External Debt Statistics

Gross ED, at any point in time, is the outstanding amount of those actual current, and not contingent, liabilities that require payment(s) of principal and/or interest by the debtor at some point(s) in time in the future and that are owed to non-residents by residents of an economy.

According to this international definition, apart from borrowing from abroad, ED of Hong Kong can also arise through normal trading and banking businesses. For instance, a trade credit extended by an exporter of the United States to an importer in Hong Kong is part of Hong Kong's ED. Likewise, deposits placed by non-residents in a bank in Hong Kong constitute ED of Hong Kong's banking sector.

Overall Situation

At end-June 2003, Hong Kong's gross ED, measuring the total outstanding gross external liabilities other than equity liabilities, amounted to $2,663.7 billion, equivalent to 215% of GDP. Compared with end-March 2003, gross ED decreased by $66.9 billion. This was mainly attributable to the decreases in ED of banks, other sectors and the HKMA.

Sectoral Analysis

At end-June 2003, ED of the General Government remained zero, reflecting the fact that the Government of the Hong Kong Special Administrative Region is debt free. A major proportion of Hong Kong's ED was due to transactions of the banking sector, accounting for 62.1% of the total. Other ED consisted of debt liabilities to affiliated enterprises and direct investors under DI (with a share of 29.6%), ED of other sectors (8.0%), and ED of the HKMA (0.2%).

ED of Hong Kong's banking sector, as the largest component of Hong Kong's ED, decreased to $1,654.8 billion at end-June 2003 (at 133% to GDP), from $1,687.5 billion at end-March 2003 (at 134% to GDP). Of this, 97.0% ($1,605.1 billion) were short-term liabilities, among which 95.8% ($1,538.1 billion) were held in the form of currency and deposits. This was mainly attributable to inter-bank placements from non-resident banks.

DI debt liabilities (inter-company lending), constituting the second largest component of Hong Kong's ED, decreased to $789.7 billion at end-June 2003, from $792.4 billion at end-March 2003. Within this, 68.6% ($541.5 billion) were debt liabilities to direct investors.

ED of other sectors amounted to $214.3 billion at end-June 2003, smaller than that of $238.2 billion at end-March 2003. It was mainly attributable to decreases in loans (including both short-term and long-term loans), from $128.4 billion at end-March 2003 to $106.4 billion at end-June 2003, and in money market instruments, bonds and notes, from $47.0 billion at end-March 2003 to $41.6 billion at end-June 2003. Such loans took up 49.7% of the ED of other sectors, while money market instruments, bonds and notes accounted for another 19.4%.

ED of the HKMA stood at $5.0 billion at end-June 2003. This was smaller than that of $12.5 billion at end-March 2003. The decrease was mainly due to a significant decrease in short-term borrowings under the repurchase agreements and securities lending arrangements, which took up a share of 97.0% ($4.8 billion) of ED of the HKMA.

Table 4 (text version) gives the ED statistics by standard component.

Commentary

A Government Secretariat spokesman noted that Hong Kong's overall balance of payments account, having reverted to surplus in the first quarter of 2003, switched back to deficit in the second quarter. This was largely due to a markedly reduced current account surplus, as the spread of SARS in the second quarter resulted in a distinct setback in inbound tourism and related service exports, and hence a shrinkage in invisible trade surplus, and as net external factor income inflow also contracted considerably. The much dwindled current account surplus was unable to offset the net outflow of funds in the financial and capital account, which was mainly led by a sharp reversal from net inflow to net outflow in the banking sector as net other investment outflow, outrunning the strong surge in net direct investment inflow and the significantly moderated net portfolio investment outflow.

As to Hong Kong's external debt position, it remained sound, with a predominant share of the external debt being associated with normal operations of the banking sector and with inward direct investment. Also, the Government had no external debt.

Further information

For enquiries on the BoP and ED statistics, please call the Balance of Payments Section of the Census and Statistics Department (Tel.: 2116 8660).

The present BoP and ED statistics for the second quarter of 2003 are only preliminary, and are subject to revision upon the availability of more data.

In compiling and presenting the BoP account of Hong Kong, the international standards prescribed in the Fifth Edition of the Balance of Payments Manual of the International Monetary Fund (IMF) are adopted. As for ED statistics, the international standards prescribed in the External Debt Statistics: Guide for Compilers and Users published by the Inter-Agency Task Force on Finance Statistics chaired by the IMF are adopted. These are also in compliance with the Special Data Dissemination Standard of the IMF, to which Hong Kong has subscribed.

More details on the estimates of BoP and ED are published in the publication Balance of Payments Statistics of Hong Kong, Second Quarter 2003. This publication is now available, in both hardcopy and softcopy (in PDF format), for sale at HK$27. It can be purchased online at the "Statistical Bookstore, Hong Kong" (http://www.statisticalbookstore.gov.hk) or by returning a completed order form which can be downloaded from the C&SD's website (http://www.info.gov.hk/censtatd/eng/prod_serv/forms_index.html). Purchase in person can be made at the Publications Unit of the C&SD (Address: 19/F, Wanchai Tower, 12 Harbour Road, Wan Chai; Tel.: 2582 3025).

End/Monday, September 29, 2003

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