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National Income

Gross Domestic Product (GDP) and Gross National Income (GNI) are core statistics in National Accounts.  They are both important economic indicators and useful for analysing the overall economic situation of an economy, with the former particularly useful for reflecting the level of production, and the latter for aggregate income of residents.

The compilation framework of GDP and GNI accords essentially with the international standards as stipulated in the System of National Accounts 2008 (2008 SNA).  Statistics on GDP are compiled as from the reference year of 1961 while those on GNI as from the reference year of 1993.

In Hong Kong, the first released GDP statistics in respect of a period are called “preliminary figures”.  When more data become available, the preliminary figures will be revised.  This routine revision is in accordance with the international practice to compile and release GDP figures at the earliest possible time by using only partial data.  All those figures published subsequently, on revision, are called “revised figures”.  In general, the figures are finalised when data from all regular sources are incorporated.

In addition to this, it is an established practice of the Census and Statistics Department to undertake non-routine technical revision exercises from time to time to enhance the quality of Hong Kong's GDP statistics by incorporating new data sources, improved estimation methods, and changes in international standards, definitions and classifications where applicable, which are results of continuous research and development on the GDP compilation framework.  This is in line with the international practice to improve the quality and reliability of GDP statistics on a continuous basis.  In a non-routine revision exercise, the entire series of GDP and its components may be subject to revision in accordance with the scope of the exercise concerned.


Gross Domestic Product

GDP is a measure of the total value of production of all resident producing units of an economy in a specific period (typically a year or a quarter), before deducting the consumption of fixed capital.

Per capita GDP of an economy is obtained by dividing the total GDP in a year by the population of that economy in the same year.

GDP can be measured using different approaches.  For Hong Kong, GDP is compiled using the "expenditure approach" and the "production approach".

GDP by expenditure component
Under the expenditure approach, GDP is compiled as the total final expenditures on goods and services (including private consumption expenditure, government consumption expenditure, gross domestic fixed capital formation, changes in inventories and exports of goods and services), less imports of goods and services.  Details of the expenditure components are described below :

(1) Private consumption expenditure :
This refers to the total value of final consumption expenditure on goods and services by households and private non-profit institutions serving households.  It is calculated as the sum of consumption expenditure on goods and services in the domestic market and the expenditure of residents abroad, less the expenditure of non-residents in the domestic market.

Compiled from a wide range of data sources, private consumption expenditure is a comprehensive measure of household overall spending on consumption goods (purchased from various channels including the conventional retail outlets) and services purchased locally or outside Hong Kong.

PCE is distinguished from retail sales statistics in that:
(i)  retail sales statistics, primarily intended to measure the sales receipts of goods sold by local retail establishments for gauging the short-term business performance of the local retail sector, refer to consumer spending on goods purchased from local retail establishments but do not cover those consumer spending on electricity, gas and water and on various services (such as housing, transportation, education, medical and health care, recreation, entertainment);
(ii) visitors' spending in Hong Kong is included in the retail sales figure but not in PCE; and
(iii) Hong Kong residents' consumption expenditure abroad is covered in PCE but such spending outside Hong Kong is outside the coverage of retail sales statistics.

(2) Government consumption expenditure :
This refers to the expenditure on consumption goods and services by government departments which are not engaged in market activities and quasi-government non-profit institutions.  It is calculated as the sum of compensation of employees and purchases of goods and services, less receipts from sales of goods and services.  Government units engaged in market activities are not covered.  They are distinguished from other government departments in that they are engaged in the production of goods and services principally for sale to the public.
  
(3) Gross domestic fixed capital formation :
This covers the gross value of investment expenditure on building and construction as well as machinery, equipment and intellectual property products (including computer software, databases and research and development); and costs of ownership transfer.
  
(4) Changes in inventories :
This refers to the value of physical change in the inventories of work-in-progress, raw materials and all kinds of goods held by business enterprises, mainly manufacturers and distributors.
  
(5) Exports and imports of goods :
Exports of goods include domestic exports and re-exports of goods recorded on free-on-board (f.o.b.) basis.  Imports of goods are also valued on f.o.b. basis.  Exports and imports of non-monetary gold are also included.  Figures on exports and imports of goods are compiled based on the change of ownership principle in recording goods sent abroad for processing and merchanting under the standards stipulated in the 2008 SNA.
 
(6) Exports and imports of services :
These represent transactions between residents and non-residents of an economy.  Figures are compiled based on the change of ownership principle under the standards stipulated in the 2008 SNA.  The service components include transport, travel and other services.  Other services cover a wide variety of services including manufacturing services; financial services; insurance and pension services; trade-related services; business and professional services.

GDP by expenditure component at current market prices and in volume terms are compiled.

Changes in "volume measure of GDP" (also referred to as changes in real terms) reflect changes in the volumes of goods and services produced or purchased from one period to another.

Conceptually, changes over time in the GDP at current prices can be factored into two components, reflecting (i) changes in the prices of goods and services produced or purchased, and (ii) changes in their volumes.  In order to measure the volume growth of GDP and its components, the effect of price changes has to be eliminated.  The year-on-year change in the volume measure of GDP gives a measure of the "real" growth of an economy.

The rate of change in the implicit price deflator of GDP (or GDP deflator in short) can be used as a broad measure of overall inflation in an economy.  It takes account of all price changes relating to consumption, investment, exports and imports.

To compile the volume measures of GDP and its components, the annually re-weighted chain linking approach is adopted.  For a particular year, the volume estimates of major components of GDP revalued at preceding year prices are first derived by "deflating" the current price values of sub-components by the relevant price indices (or in some cases by revaluing the current period quantities at preceding year prices) at the most disaggregated levels.  The volume estimate of GDP is then obtained by aggregating the volume estimates of GDP major components revalued at preceding year prices.  With the effect of price changes eliminated, the volume estimate reflects the real growth of GDP.  The preceding-year weighted volume measures of GDP and its components are chain linked to a selected reference year in order to obtain a continuous time series of the chain volume measures of GDP and its components.

The implicit price deflators of GDP and its expenditure components are obtained by dividing the respective current price values by the corresponding volume measures and then multiplying by 100.  Hence as it stands, the implicit price deflators of GDP and its expenditure components are not used as inputs for compiling the corresponding volume measures.

In the seasonally adjusted GDP series, since seasonal effects have been removed statistically, figures for consecutive quarters can be compared more meaningfully. When the year-on-year changes for the quarterly figures in the original GDP series and the quarter-to-quarter changes for the quarterly figures in the seasonally adjusted GDP series are analysed together, the trend of the GDP can be more clearly discerned.

Seasonal adjustment of GDP and its components is performed using the X-12 ARIMA method which is a standard method used for removing seasonal effects from data series statistically.  Seasonally adjusted series may be revised as more data become available.

Gross Domestic Product (GDP) by economic activity
Under the production approach, GDP is an aggregate measure of the total value of net output of all resident producing units.  Net output is measured by value added, which is defined as the value of gross output less the value of intermediate consumption (that is the value of goods and services used up in the course of production).  Each producing unit works to "add value".  Summation of the value added of all resident producing units gives an aggregate measure of the total output of the economy which is free of double counting.

GDP compiled by the expenditure approach is selected as the single measure of GDP.  In presenting GDP by economic activity at current prices, the sum of value added of respective economic activities at basic price plus taxes on products plus statistical discrepancy is equal to GDP by expenditure component.  Statistical discrepancy refers to the difference in values of current price GDP compiled using the expenditure and production approaches, as a result of the adoption of different data sources and estimation methods in the compilation processes.

GDP by economic activity at current prices and in volume terms are compiled.  The annual series at current prices and quarterly series in volume terms can be traced back to 1980 and the first quarter of 2000 respectively.

Statistics on GDP by economic activity are compiled by adopting the Hong Kong Standard Industrial Classification (HSIC) Version 2.0 in classifying economic activities.  The valuation of value added is at basic prices.  Value added at basic prices is defined as the value of gross output at basic prices less intermediate consumption valued at purchasers’ prices.  Basic price is the amount receivable by a producer for a unit of good or service provided, which excludes any taxes on the products concerned, but includes subsidies on the products.  Value added at basic prices can better reflect the prices actually paid and received by producers.

GDP by economic activity provides data to support sectoral analyses from various perspectives.  First, annual current price GDP by economic activity provides data for analysing the longer-term trend in the relative importance of various economic sectors.  This helps depict changes in the underlying economic structure.  Second, the year-on-year percentage change of volume measures of GDP by economic activity provides data for assessing the relative performance of different economic sectors.  Third, volume measures of GDP by economic activity provide data for analysing the contribution of different economic sectors to overall economic growth.  This facilitates analysis of the source of growth of an economy.

Economic activities covered by GDP by economic activity are as follows : agriculture, fishing, mining and quarrying; manufacturing; electricity, gas and water supply, and waste management; construction; import and export, wholesale and retail trades, accommodation and food services; transportation, storage, postal and courier services; information and communications; financing and insurance; real estate, professional and business services; and public administration, social and personal services.  Under the framework of national accounts, an additional activity entitled ownership of premises is also covered.

Ownership of premises is treated as an economic activity in national accounts.  This activity covers (a) the leasing services assumed to be provided by residential owner-occupiers to themselves; and (b) the leasing services provided to tenants by owners of premises in individual capacity.

Gross National Income
GNI is a measure of the total income earned by residents of an economy from engaging in various economic activities, irrespective of whether the economic activities are carried out within the economic territory of the economy or outside.  In other words, in compiling GNI, income earned by residents from engaging in various economic activities within or outside the economic territory are included, whereas income earned by non-residents from engaging in economic activities within the economic territory are excluded.

GNI is computed as follows:
GNI = GDP + Net external primary income flows 
      = GDP + Primary income earned by residents from outside the economic territory
         - Primary income earned by non-residents from within the economic territory

Per capita GNI of an economy is obtained by dividing GNI in a year by the population of that economy in the same year.

Primary income comprises investment income and compensation of employees (CE).  Investment income includes direct investment income (DII), portfolio investment income (PII) and other investment income (OII) as well as income on reserve assets (RA).

DII refers to earnings of residents of an economy from their direct investment outside the economic territory of the economy, and earnings of non-residents from their direct investment within the economic territory, in which direct investors acquire a lasting interest and a significant degree of influence or an effective voice in the management of the enterprises concerned.  These earnings are in the form of receipts of distributed dividends, share of undistributed profits, net interest receipts from inter-company debts and gross rentals.

PII refers to earnings of residents from investment in non-resident equity securities and debt securities (e.g. bonds and notes, money market instruments), and earnings of non-residents from investment in resident equity securities and debt securities. Compared with direct investors, portfolio investors of an economy holding equity securities and debt securities of non-resident enterprises have no lasting interest or influence in the management of the enterprises concerned.

OII refers to interest inflow and outflow arising from other financial claims on and liabilities to non-residents that are not classified as DII, PII or income on RA.  Other investment includes non-marketable loans, currency and deposits, trade credits and advances, and other assets/liabilities.  Interest income receivable and payable should be net of financial intermediation services.

Income on RA refers to investment earnings of the monetary authority of an economy from reserve assets. Examples of such investment earnings include equity securities earnings, debt securities earnings and interest earned from foreign currency deposits.

CE refers to labour income earned by non-residents from their employment within the economic territory of an economy, and labour income earned by residents from their employment outside the economic territory. It comprises wages, salaries and other remuneration whether paid in cash or in kind.

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Glossary of Terms

Term
Definition
Changes in inventories
Changes in inventories refer to the value of physical change in the inventories of work-in-progress, raw materials and all kinds of goods held by business enterprises, mainly manufacturers and distributors.
Compensation of employees (CE)
Compensation of employees (CE) refers to labour income earned by non-residents from their employment within the economic territory of an economy, and labour income earned by residents from their employment outside the economic territory.  It comprises wages, salaries and other remuneration whether paid in cash or in kind.
Direct investment income (DII)
Direct investment income (DII) refers to earnings of residents of an economy from their direct investment outside the economic territory of the economy, and earnings of non-residents from their direct investment within the economic territory, in which direct investors acquire a lasting interest and a significant degree of influence or an effective voice in the management of the enterprises concerned.  These earnings are in the form of receipts of distributed dividends, share of undistributed profits, net interest receipts from inter-company debts and gross rentals.
Exports and imports of goods
Exports of goods include domestic exports and re-exports of goods recorded on f.o.b. basis.  Imports of goods are also valued on f.o.b. basis.  Exports and imports of non-monetary gold are also included.   Figures on exports and imports of goods are compiled based on the change of ownership principle in recording goods sent abroad for processing and merchanting under the standards stipulated in the 2008 SNA.
Exports and imports of services
Exports and imports of services represent transactions between residents and non-residents of an economy.  Figures are compiled based on the change of ownership principle under the standards stipulated in the 2008 SNA.  The service components include transport, travel and other services.  Other services cover a wide variety of services including manufacturing services; financial services; insurance and pension services; trade-related services; business and professional services.
GDP by expenditure component
Under the expenditure approach, GDP is compiled as the total final expenditures on goods and services (including private consumption expenditure, government consumption expenditure, gross domestic fixed capital formation, changes in inventories and exports of goods and services), less imports of goods and services.
Government consumption expenditure
Government consumption expenditure refers to the expenditure on consumption goods and services by government departments which are not engaged in market activities and quasi-government non-profit institutions.  It is calculated as the sum of compensation of employees and purchases of goods and services, less receipts from sales of goods and services. Government units engaged in market activities are not covered. They are distinguished from other government departments in that they are engaged in the production of goods and services principally for sale to the public.
Gross domestic fixed capital formation
Gross domestic fixed capital formation covers the gross value of expenditure on building and construction as well as machinery, equipment and intellectual property products(including computer software, databases and research and development); and costs of ownership transfer.
Gross Domestic Product (GDP)
GDP is a measure of the total value of production of all resident producing units of an economy in a specified period (typically a year or a quarter), before deducting the consumption of fixed capital.
Gross Domestic Product (GDP) at Basic Prices
The production measure of GDP can be valued either at market prices or at basic prices.  At market prices it is valued at market or imputed prices and is thus inclusive of taxes on production and taxes on products such as customs and excise duties.  At basic prices it is valued at the cost of production and thus includes taxes on production only.  Hence they differ by the amount of taxes on products.
Gross Domestic Product (GDP) by Economic Activity
Under the production approach, GDP is an aggregate measure of the total value of net output of all resident producing units of an economy in a specific period.  Net output is measured by value added, which is defined as the value of gross output less the value of intermediate consumption (that is the value of goods and services used up in the course of production).  Each producing unit works to “add value”.  Summation of the value added of all resident producing units gives an aggregate measure of the total output of the economy which is free of double counting.  GDP by economic activity provides data to support sectoral analyses from various perspectives.
Gross National Income (GNI)
Gross National Income (GNI) is a measure of the total income earned by residents of an economy from engaging in various economic activities, irrespective of whether the economic activities are carried out within the economic territory of the economy or outside.  In other words, in compiling GNI, income earned by residents from engaging in various economic activities within or outside the economic territory are included, whereas income earned by non-residents from engaging in economic activities within the economic territory are excluded.

GNI is computed as follows :

GNI = GDP + Net external primary income flows

       = GDP + Primary income earned by residents from outside the economic territory
       - Primary income earned by non-residents from within the economic territory
Implicit price deflator (IPD) of GDP
The rate of change in the implicit price deflator of GDP can be used as a broad measure of overall inflation in an economy.  It takes account of all price changes relating to consumption, investment, exports and imports.  The IPD of GDP is obtained by dividing GDP at current market prices by the volume measure of GDP and then multiplying by 100.
Income on reserve assets (RA)
Income on reserve assets (RA) refers to investment earnings of the monetary authority of an economy from reserve assets. Examples of such investment earnings include equity securities earnings, debt securities earnings and interest earned from foreign currency deposits.
Other investment income (OII)
Other investment income (OII) refers to interest inflow and outflow arising from other financial claims on and liabilities to non-residents that are not classified as DII, PII or income on RA.  Other investment includes non-marketable loans, currency and deposits, trade credits and advances, and other assets/liabilities.  Interest income receivable and payable should be net of financial intermediation services.
Per capita GDP
Per capita GDP of an economy is obtained by dividing the total GDP in a year by the population of that economy in the same year.
Per capita GNI
Per capita GNI of an economy is obtained by dividing GNI in a year by the population of that economy in the same year.
Per capita RGNI
Per capita RGNI of an economy is obtained by dividing RGNI in a year by the population of that economy in the same year.
Portfolio investment income (PII)
Portfolio investment income (PII) refers to earnings of residents from investment in non-resident equity securities and debt securities (e.g. bonds and notes, money market instruments), and earnings of non-residents from investment in resident equity securities and debt securities.  Compared with direct investors, portfolio investors of an economy holding equity securities and debt securities of non-resident enterprises have no lasting interest or influence in the management of the enterprises concerned.
Primary income
Primary income comprises investment income and compensation of employees (CE).  Investment income includes direct investment income (DII), portfolio investment income (PII) and other investment income (OII) as well as income on reserve assets (RA).
Private consumption expenditure
Private consumption expenditure refers to the total value of final consumption expenditure on goods and services by households and private non-profit institutions serving households.  It is calculated as the sum of consumption expenditure on goods and services in the domestic market and the expenditure of residents abroad, less the expenditure of non-residents in the domestic market.
Real Gross National Income (RGNI)
Real Gross National Income (RGNI) measures the real purchasing power of the total income earned by residents of an economy, taking into account the relative changes in import and export prices.

RGNI is computed as follows:

RGNI = Real Gross Domestic Income (RGDI) + Real net EPIF

         = Real Gross Domestic Product + Terms of trade adjustment + Real net EPIF

The chained dollar estimate of RGNI for a particular year is obtained by multiplying the chain volume index for that year by the current price value for the reference year.

In compiling the continuous time series of the chain volume indices of RGNI, the annually re-weighted chain linking approach is adopted.
Resident producing units
A producing unit is considered as resident in an economy if it maintains a centre of predominant economic interest in the economic territory of that economy.  For individuals, residents refer to those who normally stay in the economic territory of the economy, irrespective of their nationality.  If an individual has stayed in the economy for at least 12 months or intends to do so, he / she is considered as normally staying in that economy. For organisations, residents refer to those which ordinarily operate in the economic territory of the economy.  The economic territory is the geographic territory under the effective control of the government of that economy.