Press Release - December 20, 2001


Hong Kong's external direct investment (DI) statistics for 2000 are released today (December 20) by the Census and Statistics Department of the Hong Kong Special Administrative Region Government.

Stock of Inward Direct Investment

At the end of 2000, the stock of Hong Kong's inward DI amounted to HK$3,551.3 billion (C$710.26 billion) at market value, 12.7% higher than at end-1999. Its ratio to GDP in that year was 280%.

Analysed by the immediate source of investment, British Virgin Islands (BVI) accounted for 31.9% of the total stock of inward DI at end-2000. Bermuda and Cayman Islands took up another 9.6% and 2.5% respectively. This reflected in part the common practice of Hong Kong enterprises in setting up non-operating companies in offshore financial centres (commonly known as tax haven economies) for channelling DI funds back to Hong Kong, and in part the means by which foreign enterprises channel their funds to Hong Kong.

Apart from the tax haven economies, the mainland of China (the Mainland) was the most important source of inward DI in Hong Kong, accounting for 31.3% of the total stock at end-2000. 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 banking. Other major sources of inward DI included the Netherlands and the United States, accounting for 6.3% and 4.5% respectively of the total.

Analysed by economic activity of the Hong Kong enterprise groups, investment holding, real estate and various business services attracted 60.4% of the total inward DI at end-2000, with a significant proportion of the investment being related to funds originated from Hong Kong and indirectly channelled through the tax haven economies back to Hong Kong. The wholesale, retail and import/export trades sector was also a major recipient of inward DI, with a share of 10.6% of the total. Banks and deposit-taking companies accounted for another 9.2%, followed by financial institutions other than banks and deposit-taking companies, at 3.7%.

Stock of Outward Direct Investment

At the end of 2000, the stock of Hong Kong's outward DI increased by 21.1% over a year earlier to HK$3,027.9 billion (C$605.58 billion) at market value, corresponding to 239% of GDP in that year.

Indirect channelling of investment through the tax haven economies was also a distinct feature of the stock of outward DI at end-2000, with BVI accounting for 51.8% of the total. Bermuda and Cayman Islands took up another 2.9% and 2.3% respectively.

Apart from the tax-haven economies, the Mainland was the most important destination for Hong Kong's outward DI, accounting for 33.4% of the total stock at end-2000. Guangdong Province remained a popular location for outward DI in the Mainland, accounting for 38.5% (or HK$389.1 billion or C$77.82 billion) of the total for the Mainland. Outward DI to places outside Guangdong in the Mainland was also growing in importance. The most common economic activities undertaken by direct investment enterprises in the Mainland were communications; manufacturing; and investment holding, real estate and various business services.

Analysed by economic activity of the Hong Kong enterprises making the outward DI, those engaged in investment holding, real estate and various business services took up the largest share, at 64.9% of the total stock at end-2000. This was followed by those engaged in the wholesale, retail and import/export trades, at 9.2%; manufacturing, at 5.7%; financial institutions other than banks and deposit-taking companies, at 3.0%; and transport and related activities, at 2.7%.

Flows of Inward and Outward DI

In 2000, DI inflow surged by 152.8% over 1999 to HK$482.2 billion (C$96.44 billion), and DI outflow by 208.3% to HK$462.5 billion (C$92.5 billion). The substantial increases were partly attributable to some major merger and acquisition activities in the telecommunications sector. Taking such investment apart, the DI inflow and outflow would have amounted to HK$312.9 billion (C$62.58 billion) and HK$206.5 billion (C$41.3 billion) respectively, representing increases of 64.1% and 37.6% over 1999. The still pronounced increase in DI inflow was due in large part to a substantial amount of operating profits of Hong Kong enterprises that was not distributed to direct investors, including foreign investors, but was retained as reinvested earnings. The also sizeable increase in DI outflow mainly reflected the establishment of new business entities abroad by some prominent Hong Kong enterprises.

BVI accounted for about half of Hong Kong's total DI inflow in 2000. The Mainland and Singapore took up another 23.0% and 12.5% respectively. Analysed by economic activity of the Hong Kong enterprise groups, investment holding, real estate and various business services accounted for the largest share of the total DI inflow in 2000, at 67.8%.

The Mainland remained the most important destination for Hong Kong's DI outflow, accounting for 78.1% of the total outflow in 2000. BVI came second, with a share of 15.2%. Analysed by economic activity of Hong Kong enterprises making the DI outflow, investment holding, real estate and various business services also took up the largest share of the total DI outflow in 2000, at 71.3%.

Commentary

A spokesman for the Hong Kong Economic and Trade Office (Canada) noted
that both inward direct investment into and outward direct investment from Hong Kong attained considerable growth in 2000, adding to the already substantial stock of external direct investment for Hong Kong. This was a clear indication of the prominence of Hong Kong as a major business hub in the region. Apart from the boost by several major merger and acquisition activities, the surge in inward direct investment into Hong Kong in 2000 was also underpinned by the robust economic growth in that year. Thus, even with a marked increase in outward direct investment from Hong Kong in 2000, there was still a sizeable net inflow of external direct investment into Hong Kong, thereby adding to overall investment in the economy.

The spokesman further noted the prominence of the Mainland both as a destination for Hong Kong's outward direct investment and as a source of Hong Kong's inward direct investment. The intimate investment links between the two places would expand further after China's accession to the World Trade Organisation, with Hong Kong continuing to act as an important foothold and conduit for business between the Mainland and the rest of the world.