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Balance of Payments and related statistics
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.
BoP and IIP statistics of Hong Kong are compiled in accordance with international standards as stipulated in the Sixth Edition of the Balance of Payments and International Investment Position Manual released by the International Monetary Fund (IMF) in 2009. ED statistics of Hong Kong are compiled according to the 2013 External Debt Statistics: Guide for Compilers and Users published by the Inter-agency Task Force on Finance Statistics chaired by the IMF. Concepts inherent in these two international guidelines are harmonised with each other.
The annual BoP account of Hong Kong has been compiled since the reference year of 1998, while the quarterly BoP account has been compiled since the reference period of the first quarter of 1999. The annual IIP statistics have been compiled since the reference year of 2000, while the quarterly IIP statistics have been compiled since the reference period of the first quarter of 2010. The quarterly ED statistics have been compiled since the reference period of the first quarter of 2002.
BoP, IIP and ED statistics are subject to routine revision when the estimates of individual components are updated upon the availability of more data. The revision schedule for the goods and services components of the BoP account is in line with that for the Gross Domestic Product (GDP) estimates, i.e. the goods and services components for the current year and the preceding 2 years are subject to revision. For statistics pertaining to other components of BoP, IIP and ED, the quarterly and annual figures for a reference year will be revised in December of the following year.
In addition to routine revisions, 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 BoP, IIP and ED statistics by suitably incorporating new data sources, improved estimation methods, and changes in international standards, definitions and classifications which are results of continuous research and development on the BoP, IIP and ED compilation frameworks. This is in line with the international practice to improve the quality and reliability of BoP, IIP and ED statistics. In a non-routine revision exercise, the entire series of BoP, IIP and ED and their components may be subject to revision in accordance with the scope of the exercise concerned.
Implementation of the latest international standards given in the Sixth Edition of the Balance of Payments and International Investment Position Manual in the BoP compilation framework
The Census and Statistics Department completed a technical exercise in September 2012 to implement the new international standards given in the Sixth Edition of the Balance of Payments and International Investment Position Manual in the BoP compilation framework of Hong Kong. Opportunity was taken to incorporate new data sources and enhanced estimation methods in the BoP system where applicable. As a result of these statistical developments, the historical series of BoP and related statistics have been revised accordingly.For details of these latest statistical developments, please see the report entitled Balance of Payments, International Investment Position and External Debt Statistics of Hong Kong, Second Quarter 2012.
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).
A complete BoP account comprises two broad accounts: (a) the current account; and (b) the capital and financial account.
(a) Current account
The current account measures the flows of goods, services, primary income and secondary income between residents and non-residents.
The goods and services account records external transactions in goods and services. The goods account covers principally exports and imports as shown in merchandise trade statistics, but adjusted for coverage and valuation. For example, one major adjustment for coverage is the adoption of the change of ownership principle in the BoP statistical system. Following this principle, goods sent abroad for processing without a change of ownership are not covered in the goods account. On the other hand, for goods sold under merchanting, although the goods involved have never been entered into the economy where the owner resides in, they are recorded in the goods account of the owner’s economy given that there has been a change of ownership of the goods. The goods account values both exports and imports of goods on the same basis of free-on-board (f.o.b.) from the economy of export, thus providing symmetrical valuation. While the goods sent abroad for processing without a change of ownership are not covered in the goods account of an economy, the manufacturing services performed on these goods by a processor in another processing economy are covered in its services account. Other services cover a wide range of economic activities, including transport, travel, insurance and pension services, financial services, etc.
The primary income account shows the amounts receivable and payable abroad in return for providing / obtaining use of labour, financial resources or natural resources to / from non-residents. The concepts and definitions of primary income under the current account of the BoP are the same as those of the external primary income flows under GNI.
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. Examples include workers’ remittances, donations, official assistance and pensions. Current transfers are unilateral in nature and are offsetting entries in the BoP account for one-sided transactions. Credit entries in this account reflect offsetting entries to the receipt of aforesaid real and financial resources from other economies. Conversely, debit entries recorded are offsets to the provision of such real and financial resources to other economies. Secondary income, together with primary income, affects gross national disposable income which has a direct and immediate effect on an economy's pattern of consumption in a specified period.
Seasonal adjustment of current account and its major components is performed using the X-12 ARIMA method, which is a standard method used for removing seasonal effect from a data series statistically. When the quarter-to-quarter changes of the seasonally adjusted data series are analysed, the trend of current account and its components can be more clearly discerned. The seasonally adjusted current account series are subject to annual revision resulting from the re-estimation of the seasonal factors when more new data become available.
(b) 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). Examples of capital transfers include forgiveness of debts by creditors, and cash transfers involving the acquisition or disposal of fixed assets.
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.
(i) Direct investment
Direct investment 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.
(ii) 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.
(iii) 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).
(iv) 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.
(v) 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).
The overall BoP is the balance of the set of transactions in the current account and the non-reserve assets portion of the capital and financial account, plus net errors and omissions if any. It equals but in opposite sign to the value of reserve assets, thus mirrors the transaction changes in the reserve assets. A positive value for the overall BoP indicates a BoP surplus, while a negative value indicates a BoP deficit.
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.
Being fully consistent with the BoP financial account, IIP is also categorised by type of investment. Assets and liabilities are divided into direct investment, portfolio investment, financial derivatives and other investment. The asset side of IIP also includes the reserve assets.
While the BoP financial account measures transactions in external financial assets and liabilities of an economy occurred during a period, IIP reflects the level of such assets and liabilities at a particular time point. The former involves a flow concept, whilst the latter refers to a stock concept.
Transactions are economic flows during a specific time period. On the other hand, stocks are positions in, or holdings of, assets and liabilities at a particular time point. Transactions in assets and liabilities, among other factors, will affect the stock of these assets and liabilities. In addition to transactions, price changes and exchange rate variations as well as other adjustments (e.g. reclassifications, unilateral cancellation of debts) also have an impact on the value of the stock of an economy's external financial assets and liabilities when expressed in the local currency of the economy.
Price and exchange rate variations affect the valuation of components of financial assets and liabilities such as equity securities and debt securities. Price variations reflect the holding gains or losses of such securities during the reference period. In estimating the price variations of equity securities and debt securities, data on individual share prices for equity securities listed on the Hong Kong Exchanges and Clearing Limited and market indices for those listed in overseas stock and debt markets are used. Exchange rate variations are estimated based on the exchange rates of relevant currencies.
Gross 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.
Contingent liabilities are not included in ED. Contingent liabilities are commitments to undertake certain responsibilities in case some well-defined conditions are fulfilled. For a liability to be included in ED, it must be actually existing and be outstanding. Debt includes arrears of principal and interest. Any commitments to provide economic values in the future generally do not constitute claims until and unless ownership of relevant items is changed, services are rendered, or income accrues.
According to this international definition, apart from borrowing from abroad, ED of Hong Kong can also arise through normal trading and banking businesses. For instance, a trade credit extended by an exporter in the United States to an importer in Hong Kong is part of Hong Kong’s ED. Likewise, deposits placed by non-residents in a bank in Hong Kong constitute ED of Hong Kong’s banking sector.
Gross ED is the sum of the non-equity liability components in the IIP of an economy. To facilitate assessment of the external financial developments and trends in the performance of the economy from different facets, the presentation of IIP and ED statistics is different. IIP is classified by asset / liability, by type of investment, by financial instrument, and by sector. As for ED, it is classified by sector, by term of original maturity of financial instrument, and by financial instrument. Similar to IIP, ED also involves a stock concept.
Long-term debt is defined as debt with a maturity of more than 1 year or with no stated maturity. Short-term debt is debt payable on demand or with a maturity of 1 year or less.
According to the latest international statistical standards, the aggregate DI figures (including DI assets and DI liabilities) are compiled based on the “asset/liability principle”, while detailed DI figures analysed by selected major country/territory or by major economic activity of Hong Kong enterprise groups (HKEGs) are based on the “directional principle”. Owing to the adoption of different presentation principles, the aggregate DI figures are different from the overall totals of the detailed DI figures by selected major country/territory or by major economic activity of HKEGs. Nevertheless, the overall DI balance compiled from figures based on these two presentation principles respectively is the same.
DI liabilities refer to DI claims by a non-Hong Kong resident on a Hong Kong resident enterprise. Inward DI is recorded net of any reverse investment by a Hong Kong resident direct investment enterprise (affiliate) on a non-resident direct investor (parent company) and some investments between fellow enterprises. Typical examples of DI liabilities or inward DI are multinational corporations’ branches and subsidiaries operating in Hong Kong.
DI assets refer to DI claims by a Hong Kong resident on a non-resident enterprise. Outward DI is recorded net of any reverse investment by a non-resident direct investment enterprise (affiliate) on a Hong Kong resident direct investor (parent company) and some investments between fellow enterprises.
Position of DI refers to the value of investment abroad or investment received from abroad of Hong Kong residents at a specified date.
Flow of DI refers to the additions/withdrawals of investment abroad or investment received from abroad of Hong Kong residents during a period.
References on Concepts and Methods
Glossary of Terms