HK's Direct Investment Figures Confirm China's Importance

by Mary Swire, Tax-News.com, Hong Kong

13 December 2012

The statistics for 2011 released by Hong Kong’s Census and Statistics Department, show that the Chinese Mainland continued to feature prominently in Hong Kong's external direct investment (DI), both as a source and a destination, covering a wide range of economic activities.

At the end of 2011, the stock of Hong Kong's inward DI had increased marginally by 0.9% from a year earlier to a market value of almost HKD8.38 trillion (USD1.08 trillion); with a ratio to gross domestic product (GDP) of 433%.

Analyzed by the immediate source of investment, the Mainland accounted for the largest share of the total stock at end 2011, at 36.3%, reflecting the importance of investment from the Mainland to Hong Kong. Chinese investment covered a wide range of economic activities, including investment and holding, real estate, professional and business services, import/export, wholesale and retail trades, and banking.

Other major immediate sources of the total stock of Hong Kong's inward DI investment included the British Virgin Islands (BVI) and Bermuda, accounting for 31.1% and 7.1% respectively by end-2011.

Analyzed by the major economic activity of Hong Kong enterprise groups having received inward DI, those engaged in investment and holding, real estate, and professional and business services took up the largest share, at 66.9% of the total stock at the end of last year. This was followed by banking, at 11.3%, and import/export, wholesale and retail trades, at 9.5%.

On the other hand, at the end of 2011, the total stock of Hong Kong's outward DI had increased by 8.3% from a year earlier to reach a market value of HKD7.95 trillion, with a ratio to GDP of 411%.

Analyzed by the immediate destination of investment, the Mainland was the most important destination for Hong Kong's outward DI, with a share of 42.1% of the total stock by end-2011. China’s Guangdong Province remained a popular location for Hong Kong's investment in the Mainland, accounting for 32.9% of the total stock of Hong Kong's outward DI to the Mainland. The most common economic activities undertaken by Hong Kong's direct investment enterprises in the Mainland were information and communications, investment and holding, real estate, professional and business services, and manufacturing.

The BVI was again the second largest, accounting for 41.8% of the total stock of Hong Kong's outward DI at end-2011.

It was ascertained that, in 2011, Hong’s total DI inflow increased to HKD751.8bn, larger than that of HKD548.0bn in 2010. DI inflows from China amounted to HKD318.1bn in 2011, with the BVI next, at HKD151.5bn.

In the other direction, Hong Kong’s total DI outflow in 2011 amounted to HKD749.9bn, larger than that of HKD670.1bn in 2010. Outflows to mainland China in 2011 were HKD393.1bn.

A government spokesman said that the increase in the stocks of both inward and outward DI by end-2011, notwithstanding the more difficult global economic environment during the year, was "a continued manifestation of Hong Kong's competitive strength as an international financial centre and a regional business hub."

The spokesman noted that the Mainland continued to feature prominently in Hong Kong's external direct investment, both as a source and a destination, and, "looking ahead, investment activities between the Mainland and Hong Kong should continue to strengthen with the ever-growing economic ties between the two places and the further development of offshore RMB business in Hong Kong. The government will also foster economic linkages with other parts of the world, particularly the emerging markets."