Hong Kong's international investment position

inSight

27 Jun 2002

Hong Kong's international investment position

Newly published figures show that Hong Kong is in an enviably healthy financial position.

The Census and Statistics Department has just published, for the first time, a set of very interesting figures on Hong Kong's international investment position, external debt and portfolio investment. Figures on these topics, in additional to the more traditional data on the public finances, and on the monetary and banking systems, are very important for making a comprehensive assessment on the financial health of an economy. They are particularly important for an open economy and international financial centre like Hong Kong where there are no exchange controls and where international financial flows tend to be large relative to the size of the economy.

One lesson learned from the successive financial crises of the last decade or so, mainly in emerging markets, was the inability of both international financial institutions and national authorities to identify and manage financial risks, particularly those of a systemic nature, before they become unmanageable. To a significant extent, this can be attributed to the lack of key and reliable information on the international financial position of an economy, for example, the amount of external debt of the non-bank private sector. Often, the true extent of the indebtedness of an economy, especially external indebtedness, is not established until after there is a sudden realisation, triggered by one event or another, in international financial markets that it has grown to a level beyond the ability of the economy to service or repay.

Comprehensive, up-to-date and reliable information on the international financial position of an economy will assist international investors and creditors in making informed decisions. This will help limit volatility in international financial flows and enhance long term financial stability, particularly for economies with a high degree of dependence or involvement in international finance.

The figures for Hong Kong, just published by the Census and Statistics Department, show that Hong Kong has far more external assets than liabilities. Furthermore, Hong Kong's net external assets, at US$272 billion at the end of last year, were equivalent to 168% of gross domestic product (137% at the end of 2000). This is, by far, the highest among economies with similar figures available. There are admittedly not many economies with these type of figures published, but among those that have, including all the G-7 economies, and Australia and Thailand, only Japan has a significantly positive figure of 36%. As more and more economies produce these figures, in compliance with IMF standards, we will be able to make better international comparisons. I suspect that, with no official external debt and very substantial foreign reserves, Singapore's figures will also look very healthy.

Back to the newly published figures for Hong Kong: we also see an estimate of external debt of the non-bank private sector of only US$31 billion at the end of March 2002 (and only 33% in the form of short-term debt), compared with external assets of US$202 billion at the end of 2001. And with the Government having no external debt, very clearly the likelihood of a debt crisis in Hong Kong, of the type that has occurred recently in various emerging markets, is extremely low. This also explains why the non-bank private sector of Hong Kong managed to cope well with the sudden and quite severe credit squeeze at the time of the Asian financial crisis. The substantial external assets it held comfortably provided the buffer. The balance of payments statistics indeed suggested that local corporations had liquidated US$19 billion of overseas assets in 1998 to meet their funding needs.

Another interesting finding is that, in terms of direct investment, Hong Kong has received more (US$429 billion at the end of 2001) from overseas than it has invested overseas (US$360 billion). But in terms of portfolio investment, the amount invested overseas (US$210 billion at the end of 2001) was about double the amount invested in Hong Kong by overseas investors, not even counting the US$100 billion of foreign portfolio investment of the Exchange Fund.

Notwithstanding the current economic difficulties and the imbalance in the public finances, Hong Kong is financially very sound indeed.

 

Joseph Yam

27 June 2002

 

Related Press Releases issued by the Census and Statistic Department:

 

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Last revision date : 27 June 2002