Seminar on
Balance of Payments for
Secondary Economics Teachers
(Part I)
20 May 2011
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Census and Statistics Department
1
Today’s rundown
• How to Interpret Balance of Payments Statistics
–
–
–
–
–
Definition of the Balance of Payments Account
Structure and Main Components
Double-entry Accounting System
Overall Balance of Payments
Country Comparison
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2
Definition of the
Balance of Payments Account
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Census and Statistics Department
3
International Standards
• The Balance of Payments (BoP) account of Hong
Kong is compiled in accordance with international
standards stipulated in the Fifth Edition of the
Balance of Payments Manual (BPM5) released in
1993 by the International Monetary Fund (IMF).
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4
Definition of the Balance of Payments Account
• What is the BoP account?
The balance of payments account is a statistical
statement that systematically summarizes, for a
specific time period, the economic transactions of an
economy (residents) with the rest of the world (nonresidents).
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Definition of the Balance of Payments Account
What is the meaning of “economic transactions”?
• involve
– goods, services, factor income
– financial claims / liabilities
– transfers (offsetting entries to balance one-sided
transactions)
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Definition of the Balance of Payments Account
What is the meaning of “residents”?
• Centre of economic interest
– For individuals:
• normally stay in the economic territory of the economy
• One year rule
• irrespective of their nationality
– For organisations:
• ordinarily operate in the economic territory of the
economy
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Residence – Example (1)
•
A US engineer is working in Hong Kong. Which of
the following amounts should be included in the
calculation of the balance of Hong Kong’s current
account?
A. the part of her salary earnings that she deposits with a
bank in Hong Kong
B. the part of her salary earnings that she remits to her
family in the US
C. the money she pays to buy shares in Chinese stateowned enterprises quoted on the Hong Kong Stock
Exchange
D. the money she spends on buying clothes and toys in
Hong Kong which are sent to her children in the US
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Residence – Example (2)
•
Being a Hong Kong resident, Mr Wong earns a
living in Hong Kong. He gets married to Mei-ling
who lives in Mainland China. Which of the
following events will NOT affect the balance of
payments of Hong Kong?
A. He buys a wedding ring in Hong Kong and takes it to
her by himself.
B. He remits a sum of money as the betrothal gifts
through a bank to Mei-ling’s parents.
C. He pays for the honeymoon trip to Thailand.
D. He rents a residential apartment for her in Shenzhen.
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Residence – More Examples

Mainland women giving birth in HK

Mainland people purchase property in HK under the
previous Capital Investment Entrant Scheme
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Structure and Main Components
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Structure and Main Components
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Structure and Main Components
The Current Account measures
• Flows of real resources including:
•
•
•
•
Exports and imports of goods (visible trade a/c)
Exports and imports of services (invisible trade a/c)
Factor income receivable from and payable to abroad
Current transfers from and to abroad
• Exports and imports of goods and services in BoP
correspond to those of GDP
• Factor income in BoP corresponds to that in GNP
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Structure and Main Components
Goods
general merchandise
goods for processing ( in new standard)
goods procured in ports by carriers
repairs on goods ( in new standard)
non-monetary gold
• Goods (visible trade) a/c balance
= Total Exports – Imports
= (Re-exports + Domestic Exports) - Imports
if > 0 surplus, < 0 deficit
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Structure and Main Components
Services
transportation
travel (goods and services acquired by travelers)
financial services
insurance services
other services
• Services (invisible trade) a/c balance
= Exports – Imports
if > 0 surplus, < 0 deficit
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Structure and Main Components – Example 1
•
Many tourists from Mainland China buy souvenirs
at HK Disneyland. Suppose these souvenirs are
made in Mainland China. Then the tourist spending
mentioned above is a/an _____ to Hong Kong.
A.
B.
C.
D.
domestic export of goods
re-export of goods
export of services
import of services
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Structure and Main Components – Example 2
Recently, especially after the launch of the
Individual Visit Scheme (IVS), many Mainland
tourists come to Hong Kong to purchase daily
necessity e.g. baby milk powder, diapers, handbags,
etc. Shall these be included under goods or services?


HK customs regulations state that personal baggage
valued over $4,000 are required to lodge import/export
declaration.
Under the new international standard, travelers’ goods
exceeding customs thresholds should be included under
general merchandise not travel.
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Structure and Main Components
Factor Income
• earnings receivable or payable for the provision of
factors of production
= investment income + compensation of employees
Factors of Production
Land
Capital
Entrepreneur
Labour
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Return
Rental
Interest or dividend
Profit (as dividend or retained profit)
Compensation of employee
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Structure and Main Components – Example 3
BoC (HK) employed a worker from BoC (China) to work in HK for a 6month RMB insurance development project.
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Structure and Main Components – Example 4
HK residents purchased H-shares and subsequently received dividends
distributed by these state-owned enterprises.
* this example refers to two transactions happening at different time points
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Structure and Main Components
Current Transfers
• residents of an economy provide/receive real or
financial resources to/from non-residents without the
receipt/provision of equivalent economic values in
return.
• likely to be consumed immediately or shortly
(≠ capital transfers)
• offsetting entries for one-sided transactions
• e.g. donations, workers’ remittances, official
assistance, pensions, etc.
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Structure and Main Components – Example 5
Hong Kong’s donations to Sichuan earthquake victims.
What are the uses of these donations? food and clothes, re-building of
schools?
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Structure and Main Components – Example 6
•
Last year, a film crew came to Hong Kong to make
a Batman movie. The shooting of the film in Hong
Kong would
(1) improve the visible trade balance of Hong Kong
(2) improve the invisible trade balance of Hong Kong
(3) increase the GDP of Hong Kong.
A.
B.
C.
D.
(1) and (2) only
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
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Structure and Main Components
The Capital Account cover external transactions in
1) Capital transfers
2) Non-produced, non-financial assets e.g. : land, patents,
copyrights, licenses
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Structure and Main Components
The Financial Account
• covers all transactions in the external financial assets and liabilities
External financial assets of HK residents
claims on non-residents, e.g.
– HK residents purchase US Treasury Bills
– HK companies establish a subsidiary in Canada
holdings of monetary gold (貨幣黃金) by HKMA
External liabilities of HK residents
indebtedness to non-residents, e.g.
– A US resident bank purchases shares of HK company
– A UK resident purchase an option issued by a HK investment bank
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Structure and Main Components
Direct Investment (DI) (直接投資 )
Portfolio Investment (PI) (有價證券投資)
Financial Derivatives (FD) (金融衍生工具)
Other Investment (OI) (其他投資)
Reserve Assets (RA) (儲備資產)
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Structure and Main Components
Reserve Assets (RA) (儲備資產)
• external assets (foreign currency assets and
monetary gold) that are
– readily available to, and
– controlled by the HKMA
• for
– directly financing payment imbalances
– indirect financing through foreign exchange
market
– other action/influence
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Structure and Main Components – Example 7
The strong-side convertibility undertaking has been triggered
many times in end 2008 and 2009.
 Large capital inflow into HK after the financial tsunami in end
2008.
 HK received more foreign currencies than she paid in
international transactions
 Abundant foreign currencies and high demand for HKD
 HKD exchange rate ↑
 HKMA purchased foreign currencies with HKD under the
Currency Board System
 Reserve Assets ↑
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Double-entry
Accounting System
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Double-entry Accounting System
Every recorded transaction is represented by two entries
with equal values but in opposite sign
• credit (+) 貸方
• debit (-) 借方
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Double-entry Accounting System
Current account
(經常帳)
Goods
(貨物)
Services
(服務)
Income
(收益)
Current Transfers
(經常轉移)
Credit
(貸方)
Debit
(借方)
exports
(出口)
exports
(輸出)
receivable
(收取)
from abroad
(從外地來的)
imports
(進口)
imports
(輸入)
payable
(支付)
to abroad
(往外地的)
Gross recording principle
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Double-entry Accounting System
Capital and Financial Account
• Net recording principle
• Either net credit (+) or net debit (-) for each
component
Assets
net credit (+) net↓
net debit (-)
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net↑
Liabilities
net ↑
net ↓
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Double-entry Accounting System - Example
• Hong Kong imported HK$ 10 million of goods from
Japan.
HK$ million
Credit
Goods
Appropriate financial
account item
Debit
10
10
Decrease in financial asset /
Increase in financial liabilities
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Double-entry Accounting System
In
principle
sum of all
credit entries
≡
sum of all
debit entries
 net balance of all entries in the BoP
account = 0
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Double-entry Accounting System
In
practice
the accounts frequently do not balance
 different BoP components are measured
independently from different data sources
 net errors and omissions
= residual amount (reversed sign)
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Overall Balance of Payments
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Overall Balance of Payments
• The sum of all market transactions with the rest of the
world, excluding transactions of the central bank
= current a/c balance + capital and financial a/c balance –
net change in reserve assets
or simply
= current a/c balance + capital and financial non-reserve
assets
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Overall Balance of Payments
For a reference period,
Receives
Pays
＞
foreign currencies
foreign currencies
in external transactions,
= Overall net inflow of funds from the rest of the world
 BoP surplus. Otherwise, it’s a BoP deficit
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Overall Balance of Payments
Hong Kong BoP account
(HK$ Mn)
2008
2009
2010
229,506
139,249
108,244
Goods
-180,091
-208,220
-333,805
Services
352,146
329,228
431,655
Income
83,306
42,866
36,568
-25, 855
-24,625
-26,174
32,707
393,891
-66,324
Reserve Assets
Net errors and omissions
-263,869
1,656
-549,262
16,122
-71,086
29,166
Overall BoP
263,869
(surplus)
549,262
(surplus)
71,086
(surplus)
Current account
Current Transfers
Capital and Financial
Account (Non-reserves)
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263,869
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Country Comparison
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Country Comparison
BoP account (2010)
(US$ Bn)
Hong Kong
China
United States
13.9
305.4
-470.2
Goods
-43.0
254.2
-647.1
Services
55.6
-22.1
151.3
Income
4.7
30.4
163.0
Current Transfers
-3.4
42.9
-137.5
Capital and Financial
Account (Non-reserves)
-8.5
226.0
236.9
Reserve Assets
Net errors and omissions
-9.2
3.8
-471.7
-59.7
-1.8
235.1
Current account
Overall BoP
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9.2
(surplus)
471.7
(surplus)
1.8
(surplus)
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Country Comparison
BoP account (2010)
(as a ratio to GDP, %)
Hong Kong
China
United States
6.2
5.2
-3.2
Goods
-19.1
4.3
-4.4
Services
24.8
-0.4
1.0
Income
2.1
0.5
1.1
-1.5
0.7
-0.9
Capital and Financial
Account (Non-reserves)
-3.8
3.8
1.6
Reserve Assets
Net errors and omissions
-4.1
1.7
-8.0
-1.0
**
1.6
Overall BoP
4.1
8.0
**
Current account
Current Transfers
Note : ** Less than ± 0.05 percentage point.
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Thank you!
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