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Hong Kong's external direct investment (DI) statistics for 2004 are released today (December 20) by the Census and Statistics Department.
Stock of Inward Direct Investment
At the end of 2004, the stock of Hong Kong's inward DI was up by 19.0% from a year earlier to $3,521.9 billion at market value. Its ratio to GDP stood at 273% in 2004. The increase in the stock of inward DI was attributable to a rise in market value of Hong Kong affiliates of foreign enterprises and an increase of DI inflow to these Hong Kong affiliates.
Analysed by immediate source of investment, the British Virgin Islands (BVI) accounted for 29.2% of the total stock of inward DI at end-2004, while Bermuda took up another 7.7%. This mirrored partly the common practice of Hong Kong enterprises in setting up non-operating companies in offshore financial centres (commonly known as tax haven economies) for re-channelling DI funds back to Hong Kong, and partly the means by which foreign enterprises channelled their funds to Hong Kong.
Apart from tax haven economies, the mainland of China (the Mainland) was the most important source of inward DI in Hong Kong, accounting for 29.0% of the total stock at end-2004. This reflected the importance of investment from the Mainland in Hong Kong. The Mainland's investment in Hong Kong covered a wide range of economic activities, including investment holding, real estate, and various business services; wholesale, retail and import/export trades; and transport and related services. Other major investor countries/territories included the Netherlands and the United States of America, accounting for 8.7% and 6.9% respectively of the total.
Analysed by economic activity of Hong Kong enterprise groups (HKEGs) having received inward DI, those engaged in investment holding, real estate and various business services attracted the largest share of 56.4% of the total stock at end-2004. A significant proportion of such investment was related to funds originated from Hong Kong and re-channelled through tax haven economies back to Hong Kong. Wholesale, retail and import/export trades also represented a major recipient sector of inward DI, with a share of 14.7% of the total. Banks and deposit-taking companies took up another 13.7%.
Stock of Outward Direct Investment
At the end of 2004, the stock of Hong Kong's outward DI rose by 18.8% from a year earlier to $3,133.6 billion at market value. Its ratio to GDP was 243% in 2004. The increase in the stock of outward DI was due to an increase of DI outflow to foreign affiliates of Hong Kong enterprises and a rise in market value of these foreign affiliates.
Analysed by immediate destination of investment, the BVI remained the most popular tax haven economy for indirect channelling of DI funds, accounting for 44.7% of the total stock of Hong Kong's outward DI at end-2004.
Apart from tax haven economies, the Mainland was the most important destination for Hong Kong's outward DI, with a share of 38.7% of the total stock at end-2004. Guangdong Province remained a popular location for Hong Kong's investment in the Mainland, accounting for nearly half (or $561.7 billion) of the total stock of outward DI to the Mainland. The most common economic activities undertaken by Hong Kong's direct investment enterprises in the Mainland were communications; manufacturing; and investment holding, real estate and various business services.
Analysed by economic activity of HKEGs having made outward DI, those engaged in investment holding, real estate and various business services took up the largest share, at 61.4% of the total stock at end-2004. This was followed by wholesale, retail and import/export trades (with a share of 12.1%), and manufacturing (5.1%).
Flows of Inward and Outward DI
DI inflow to Hong Kong increased significantly from $106.3 billion in 2003 to $265.1 billion in 2004. The BVI was the most important supplier of Hong Kong's DI inflow in 2004, amounting to $62.7 billion. The Mainland came next, at $62.0 billion. Analysed by economic activity of HKEGs receiving DI inflow, those engaged in investment holding, real estate and various business services took up the largest share of the total DI inflow in 2004, at $105.1 billion.
On the other hand, DI outflow from Hong Kong increased sharply from $42.9 billion in 2003 to $356.1 billion in 2004. The Mainland accounted for a predominant part of Hong Kong's DI outflow in 2004, at $144.8 billion. Analysed by economic activity of HKEGs making DI outflow, those engaged in investment holding, real estate and various business services was the most prominent supplier, amounting to $96.1 billion.
Balancing DI inflow and outflow, there was a net outflow of $91.0 billion in 2004.
Commentary
A Government Secretariat spokesman noted that Hong Kong's inflow and outflow of direct investment rose markedly in 2004 as compared with 2003, reflecting the improvement in investment environment in Hong Kong as well as in other markets during 2004. The market value of the stocks of inward and outward direct investment in Hong Kong both went up markedly further in 2004, in tandem with the generally buoyant performance in equity markets around the world and the much higher investment flows during 2004 amidst the global economic boom last year. Also, the stocks of inward and outward direct investment in Hong Kong both remained sizeable in 2004, each amounting to more than two times the size of Hong Kong's GDP. This reflected the importance of Hong Kong as a regional headquarter, a regional business hub, as well as an international financial centre.
The spokesman further pointed out that the Mainland continued to feature distinctly in Hong Kong's external direct investment, both as a source and as a destination. This reflects Hong Kong's unique position as a gateway to the vast Mainland markets as well as a platform for the Mainland enterprises to access the global markets. This important strategic role has become more entrenched along with the further expansion of CEPA and strengthening of economic co-operation within the Pan-Pearl River Delta region.
Further Information
DI represents investment which allows investors in one economy, on a long-term basis, to influence or have an effective voice in the management of an enterprise in another economy. For operational purpose, an effective voice is taken as equivalent to a holding of 10% or more of the equity of an enterprise.
Hong Kong compiles DI statistics in conformity with the prescriptions in the Fifth Edition of the Balance of Payments Manual of the International Monetary Fund (IMF). The DI statistics are compiled on the basis of data obtained from the Survey of External Claims, Liabilities and Income (SECLI), supplemented by data from other sources.
Tables 1 and 2 show the stock and flow of inward DI in Hong Kong for 2003 and 2004, with breakdowns by major country/territory and by economic activity of HKEGs respectively. Similar statistics on outward DI from Hong Kong for 2003 and 2004 are presented in Tables 3 and 4.
Further details of DI statistics for 2004 will be published in a report entitled "External Direct Investment Statistics of Hong Kong 2004" shortly.
Enquiries about the DI statistics may be directed to the Balance of Payments Branch (2) of the Census and Statistics Department at 2116 5150.
Ends/Tuesday, December 20, 2005
Issued at HKT 16:18
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