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Hong Kong's external direct investment (DI) statistics for 2005 are released today (December 14) by the Census and Statistics Department (C&SD).
Stock of Inward Direct Investment
At the end of 2005, the stock of Hong Kong's inward DI was up by 15.2% from a year earlier to $4,056.3 billion at market value. Its ratio to GDP stood at 293% in 2005. 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 mainland of China (the Mainland) accounted for the largest share of the total stock at end-2005, at 31.4%, reflecting 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.
British Virgin Islands (BVI) and Bermuda took up another 31.3% and 6.7% respectively of the total stock of inward DI at end-2005. 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. Other major investor countries/territories included the Netherlands and the United States of America, accounting for 8.1% and 5.1% 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 59.4% of the total stock at end-2005. 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 13.7% of the total. Banks and deposit-taking companies took up another 12.6%.
Stock of Outward Direct Investment
At the end of 2005, the stock of Hong Kong's outward DI rose by 16.6% from a year earlier to $3,653.9 billion at market value. Its ratio to GDP was 264% in 2005. The increase in the stock of outward DI was due to a rise in market value of foreign affiliates of Hong Kong enterprises and an increase of DI outflow to 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 44.0% of the total stock of Hong Kong's outward DI at end-2005.
Apart from tax haven economies, the Mainland was the most important destination for Hong Kong's outward DI, with a share of 40.4% of the total stock at end-2005. Guangdong Province remained a popular location for Hong Kong's investment in the Mainland, accounting for 37.1% (or $548.1 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; investment holding, real estate and various business services; and manufacturing.
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 69.0% of the total stock at end-2005. This was followed by wholesale, retail and import/export trades (with a share of 10.9%), and manufacturing (4.5%).
Flows of Inward and Outward DI
DI inflow to Hong Kong decreased slightly from $265.1 billion in 2004 to $261.5 billion in 2005. The Mainland was the most important supplier of Hong Kong's DI inflow in 2005, amounting to $72.9 billion. The BVI came next, at $47.0 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 2005, at $113.9 billion.
On the other hand, DI outflow from Hong Kong decreased significantly from $356.1 billion in 2004 to $211.5 billion in 2005. This was mainly attributable to substantial negative DI outflows in inter-company debt transactions arising from repayment of debts by non-resident affiliates of some Hong Kong enterprises. The Mainland accounted for a predominant part of Hong Kong's DI outflow in 2005, at $130.3 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 $127.2 billion.
Taking DI inflow and outflow together, there was a net inflow of $50.0 billion in 2005.
Commentary
A Government spokesman noted that both the market value of the stocks of inward and outward direct investment in Hong Kong rose markedly in 2005, in tandem with the generally buoyant economic performance around the world. Also, the stocks of inward and outward direct investment remained sizable in Hong Kong, each amounting to more than 2.5 times the size of Hong Kong's GDP. These underlined Hong Kong's status as a hub for regional headquarters and businesses, as well as an international financial centre.
The Government spokesman also noted 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 strengthening of CEPA and economic co-operation within the Pan-Pearl River Delta region.
Further Information
DI represents investment which allows investors in one economy to have a lasting interest and a significant degree of influence or an effective voice in the management of an enterprise in another economy. For statistical purpose, an effective voice is taken as equivalent to a holding of 10% or more of the equity in 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 2004 and 2005, with breakdowns by major country/territory and by economic activity of HKEGs respectively. Similar statistics on outward DI from Hong Kong for 2004 and 2005 are presented in Tables 3 and 4.
Further details of DI statistics for 2005 will be published in a report entitled "External Direct Investment Statistics of Hong Kong 2005" shortly.
Enquiries about the DI statistics may be directed to the Balance of Payments Branch (2) of the C&SD at 2116 5150.
Ends/Thursday, December 14, 2006
Issued at HKT 16:15
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