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National Income and Balance of Payments

National Income and Balance of Payments


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.

Apart from statistics on GDP and GNI, Balance of Payments (BoP), International Investment Position (IIP) and External Debt (ED) statistics are important macroeconomic aggregates that summarise the external transactions and positions of an economy with the rest of the world.  They are important for monetary and financial monitoring and policy deliberations in both the domestic and international contexts.

The concept of "resident" is crucial to the compilation of GDP, GNI, BoP and related statistics.  Practically, residents of an economy include individuals and organisations.  According to international standards, 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.  Conceptually, the residence status of individuals and organisations depends on their centre of predominant economic interest.

Transactions and positions in assets and liabilities vis-à-vis the mainland of China are treated as international transactions and external positions respectively. Examples of international transactions are trade in goods, trade in services and external primary income flows.  Examples of external positions are the positions of inward and outward direct investment.

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        The conventional approach of converting the values of Gross Domestic Product (GDP) and other expenditure aggregates into a common currency by means of market exchange rates does not produce statistics suitable for comparisons across economies. This is because market exchange rates may over- or under-estimate ...

Glossary of Terms

Term
Definition
Balance of Payments (BoP)
Balance of Payments (BoP) is a statistical statement that systematically summarises, for a specific time period (typically a year or a quarter), the economic transactions of an economy with the rest of the world (i.e. between residents and non-residents).
BoP surplus/deficit
For a reference period, if an economy receives more foreign currencies than it pays in its external transactions in goods, services, income and investment, it has a BoP surplus. In other words, a BoP surplus reflects an overall net inflow of funds to an economy from the rest of the world. Conversely, there will be a BoP deficit which is equal to its overall net outflow of funds.
Capital account
The capital account measures external transactions in capital transfers, and the acquisition and disposal of non-produced, non-financial assets (such as trademarks and brand names). Examples of capital transfers include forgiveness of debts by creditors, and cash transfers involving the acquisition or disposal of fixed assets.
Capital and financial account
The capital account measures external transactions in capital transfers, and the acquisition and disposal of non-produced, non-financial assets (such as trademarks and brand names). The financial account records transactions in financial assets and liabilities between residents and non-residents. It shows how an economy’s external transactions are financed. Transactions in the financial account are classified by function (i.e. the purpose of the investment) into direct investment, portfolio investment, financial derivatives, other investment and reserve assets.
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.
Current account
The current account measures the flows of goods, services, primary income and secondary income between residents and non-residents.
DI inflow
DI inflow refers to the additions/withdrawals of investment received from abroad of Hong Kong residents during a period.
DI outflow
DI outflow refers to the additions/withdrawals of investment abroad of Hong Kong residents during a period.
Direct investment (DI)
Direct investment (DI) refers to external investment in which an investor of an economy acquires a lasting interest and a significant degree of influence or an effective voice in the management of an enterprise located in another economy. For statistical purpose, an effective voice is taken as being equivalent to a holding of 10% or more of the voting power in an enterprise.
DI comprises equity and investment fund shares and debt instruments. Equity and investment fund shares include equity in branches, shares in subsidiaries and associates, investment fund shares and reinvestment of earnings (which refers to the investors’ share of earnings not distributed by branches, subsidiaries, associates or investment funds). Debt instruments mainly involve inter-company debt transactions. These include short-term and long-term borrowing and lending of funds between parent companies and their branches, subsidiaries and associates.
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.
Financial account
The financial account records transactions in financial assets and liabilities between residents and non-residents. It shows how an economy’s external transactions are financed. Transactions in the financial account are classified by function (i.e. the purpose of the investment) into direct investment, portfolio investment, financial derivatives, other investment and reserve assets.
Financial derivatives
Financial derivatives are financial instruments that are linked to a specific financial instrument or indicator or commodity, and through which specific financial risks can be traded in financial markets in their own right. Financial derivatives include option-type contracts (e.g. warrants and options) and forward-type contracts (e.g. futures, interest rate swaps, currency swaps, forward rate agreements, forward foreign exchange contracts).
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.
Goods
Goods under the BoP current account mainly cover general merchandise, net exports of goods under merchanting and non-monetary gold.
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 External Debt (ED)
Gross External Debt (ED), at a particular time point, is the outstanding amount of those actual current, and not contingent, liabilities that are owed to non-residents by residents of an economy and that require payment of principals and / or interests by the debtors at some time points in the future.
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.
International Investment Position (IIP)
International Investment Position (IIP) is a balance sheet showing the stock of external financial assets and liabilities of an economy at a particular time point. The difference between the external financial assets and liabilities is the net IIP of the economy, which represents either its net claim on or net liability to the rest of the world.
DI liabilities
DI liabilities refer to DI claims by a non-Hong Kong resident on a Hong Kong resident enterprise. Typical examples of DI liabilities are multinational corporations' branches and subsidiaries operating in Hong Kong.
Long-term debt
Long-term debt is defined as debt with a maturity of more than 1 year or with no stated maturity.
Net change in financial non-reserve assets
The net change in financial non-reserve assets refer to transactions in external investment other than reserve assets.
Other investment
Other investment refers to other financial claims on and liabilities to non-residents that are not classified as direct investment, portfolio investment, financial derivatives or reserve assets. Other investment includes non-marketable loans, currency and deposits, trade credits and advances, and other assets / liabilities.
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.
DI assets
DI assets refer to DI claims by a Hong Kong resident on a non-resident enterprise.
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
Portfolio investment refers to investment in non-resident equity securities and debt securities (e.g. bonds and notes, money market instruments), other than that included in direct investment or reserve assets. Compared with direct investors, portfolio investors in equity securities and debt securities of non-resident enterprises have no lasting interest or influence in the management of the enterprises concerned. A holding of less than 10% of the voting power in an enterprise is regarded as portfolio investment.
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.
Position of inward DI
Position of inward DI refers to the value of investment received from abroad of Hong Kong residents at a specified date.
Position of outward DI
Position of outward DI refers to the value of investment abroad of Hong Kong residents at a specified date.
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.
Reserve assets
Reserve assets are external assets that are readily available to and controlled by the monetary authority of an economy (which refers to the Hong Kong Monetary Authority in the case of Hong Kong) for meeting balance of payments financing needs, for intervention in exchange markets to regulate the currency exchange rate of that economy, and for other related purposes (such as maintaining confidence in the currency and the economy, and serving as a basis for foreign borrowing).
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.
Secondary income
The secondary income account records current transfers between residents and non-residents. Current transfers are transactions in which real or financial resources that are likely to be consumed immediately or shortly are provided without the receipt of equivalent economic values in return. Current transfers are unilateral in nature and are offsetting entries in the BoP account for one-sided transactions. Examples include workers' remittances, donations, official assistance and pensions.
Services
Services under the BoP current account mainly cover transport, travel, insurance and pension services, financial services, manufacturing services and other services.
Short-term debt
Short-term debt is debt payable on demand or with a maturity of 1 year or less.