Hong Kong's inflow and outflow of direct investment rose markedly last year as compared with 2003, reflecting the improvement in investment environment in Hong Kong as well as in other markets.

The market value of the stocks of inward and outward direct investment in Hong Kong rose markedly further, in tandem with the generally buoyant performance in equity markets around the world and the much higher investment flows amidst the global economic boom last year.

The Mainland continued to feature distinctly in Hong Kong's external direct investment, both as a source and as a destination. This reflects the city's unique position as a gateway to the vast Mainland markets as well as a platform for Mainland enterprises to access global markets.

This important strategic role has become more entrenched along with the expansion of the Closer Economic Partnership Arrangement and strengthening of economic co-operation within the Pan-Pearl River Delta region.

According to Hong Kong's external direct investment statistics for 2004, released by the Census & Statistics Department, the British Virgin Islands accounted for 29.2% of the total stock of inward direct investment, while Bermuda took up another 7.7%.

The Mainland was the most important source of inward direct investment here, accounting for 29% of the total stock, reflecting the importance of investment from the Mainland in Hong Kong.

The Mainland's investment in Hong Kong covered a range of economic activities, including investment holding, real estate, and various business services; wholesale, retail and import-export trades; and transport and related services.

Other major investor countries and territories included the Netherlands and the US, accounting for 8.7% and 6.9% of the total.

Analysed by economic activity, those engaged in investment holding, real estate and various business services attracted 56.4% of the total stock. A significant proportion of such investment was related to funds originated from Hong Kong and re-channelled through tax haven economies back to Hong Kong.

Wholesale, retail and import-export trades also represented a major recipient sector, with a share of 14.7% of the total. Banks and deposit-taking companies took up another 13.7%.

On outward direct investment, the British Virgin Islands remained the most popular tax haven economy for indirect channelling of direct investment funds, accounting for 44.7% of the total stock.

The Mainland was the most important destination for Hong Kong's outward direct investment, with a share of 38.7% of the total stock. Guangdong remained a popular location, accounting for nearly half or $561.7 billion of the total stock of outward direct investment to the Mainland.

The most common economic activities undertaken by Hong Kong's direct investment enterprises in the Mainland were communications; manufacturing; and investment holding, real estate and various business services.

Analysed by economic activity, those engaged in investment holding, real estate and various business services took up the largest share, at 61.4% of the total stock. This was followed by wholesale, retail and import-export trades (with a share of 12.1%), and manufacturing (5.1%).

Direct investment inflow increased significantly from $106.3 billion in 2003 to $265.1 billion last year. The British Virgin Islands was the most important supplier, amounting to $62.7 billion. The Mainland came next, at $62 billion. Analysed by economic activity, those engaged in investment holding, real estate and various business services took up the largest share, at $105.1 billion.

Direct investment outflow rose sharply from $42.9 billion in 2003 to $356.1 billion last year.

The Mainland accounted for a predominant part of Hong Kong's direct investment outflow, at $144.8 billion. Analysed by economic activity, those engaged in investment holding, real estate and various business services was the most important supplier, amounting to $96.1 billion.

Balancing direct investment inflow and outflow, there was a net outflow of $91 billion.