The market value of Hong Kong' inward direct investment surged 12.9% from 2002 to $2.96 trillion last year, with the ratio to GDP at 243%.

Outward direct investment also rose 9.3% to $2.64 trillion at market value, with the ratio to GDP at 216%.

Direct investment inflow stood at $106.3 billion while outflow at $42.9 billion, resulting in a net inflow of $63.4 billion.

The market value of the stocks of inward and outward direct investment went up significantly along with a distinct rebound in equity prices in the local stock market after SARS and in the overseas stock markets after the war on Iraq last year.

The stocks of inward and outward direct investment in Hong Kong both remained sizeable, each amounting to more than two times the size of Hong Kong's GDP. This reflected the importance of Hong Kong as a regional headquarters and regional business hub on the one hand, and as an international financial centre on the other.

HK a gateway to the Mainland

The Mainland featured highly as a destination for Hong Kong's outward direct investment and as a source of the city's inward direct investment, well commensurate with the role of Hong Kong as a spring-board for conducting business between the Mainland and the rest of the world.

This conduit role should have been further enhanced following implementation of the Closer Economic Partnership Arrangement as from the beginning of this year.

According to the Hong Kong's external direct investment statistics for 2003 released by the Census & Statistics Department, the British Virgin Islands accounted for 31.6% of the total stock of inward direct investment, while Bermuda took up another 8.6%.

Mainland a key source of direct investment

The Mainland was the most important source of inward direct investment here, accounting for 26% 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 6.3% of the total.

Investment covers real estate, business services

Analysed by economic activity, those engaged in investment holding, real estate and various business services attracted 55.6% 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.

Banks and deposit-taking companies also represented a major recipient sector, with a share of 14% of the total. Wholesale, retail and import/export trades took up another 13.8%.

On outward direct investment, the British Virgin Islands remained the most popular tax haven economy for indirect channelling of direct investment funds, accounting for 48.2% of the total stock.

Guangdong a popular location for HK investment

The Mainland was the most important destination for Hong Kong's outward direct investment, with a share of 35.3% of the total stock. Guangdong remained a popular location for Hong Kong's investment in the Mainland, accounting for nearly half or $442.5 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; investment holding, real estate and various business services; and manufacturing.

Analysed by economic activity, those engaged in investment holding, real estate and various business services took up the largest share, at 61.6% of the total stock. This was followed by wholesale, retail and import/export trades (with a share of 11.5%), and manufacturing (5.2%).

Direct investment inflow up, outflow down

Direct investment inflow increased significantly from $75.5 billion in 2002 to $106.3 billion last year. The Mainland was the most important supplier, amounting to $38 billion. The Netherlands came next, at $24.7 billion. Analysed by economic activity, those engaged in wholesale, retail and import/export trades took up the largest share, at $45.2 billion.

Direct investment outflow plunged from $136.2 billion in 2002 to $42.9 billion last year. This was mainly attributable to substantial negative direct investment outflows in inter-company debt transactions arising from repayment of debts by non-resident affiliates of some local enterprises.

The Mainland accounted for a predominant part of Hong Kong's direct investment outflow, at $59.9 billion. Analysed by economic activity, those engaged in investment holding, real estate and various business services was the most important supplier, amounting to $40.8 billion.

Balancing direct investment inflow and outflow, there was a net inflow of $63.4 billion.