政府統計處 census and statistics department 1 seminar on balance of payments for secondary...

1政府統計處Census and Statistics Department

Seminar on Balance of Payments for

Secondary Economics Teachers(Part I)

20 May 2011


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


Definition of the

Balance of Payments Account


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).


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 (non-residents).


What is the meaning of “economic transactions”?• involve

– goods, services, factor income– financial claims / liabilities– transfers (offsetting entries to balance one-sided

transactions)




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


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 state-owned 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


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.


Residence – More Examples

Mainland women giving birth in HK

Mainland people purchase property in HK under the previous Capital Investment Entrant Scheme


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


Goodsgeneral merchandisegoods for processing ( in new standard)goods procured in ports by carriersrepairs 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




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


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. domestic export of goodsB. re-export of goodsC. export of servicesD. import of services



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.



Factor Income • earnings receivable or payable for the provision of

factors of production = investment income + compensation of employees

Factors of Production ReturnLand RentalCapital Interest or dividendEntrepreneur Profit (as dividend or retained profit)Labour Compensation of employee



BoC (HK) employed a worker from BoC (China) to work in HK for a 6-month RMB insurance development project.



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



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.



Hong Kong’s donations to Sichuan earthquake victims.What are the uses of these donations? food and clothes, re-building of schools?



• 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. (1) and (2) onlyB. (1) and (3) onlyC. (2) and (3) onlyD. (1), (2) and (3)



The Capital Account cover external transactions in1) Capital transfers 2) Non-produced, non-financial assets e.g. : land, patents, cop

yrights, licenses



The Financial Account • covers all transactions in the external financial assets and liabilitiesExternal 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 HKMAExternal 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



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 )



Reserve Assets (RA) ( 儲備資產 )• external assets (foreign currency assets and mo

netary 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



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 ↑


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


Credit Debit(貸方 ) (借方 )

Current account(經常帳 )

Goods exports imports(貨物 ) (出口 ) (進口 )Services exports imports(服務 ) (輸出 ) (輸入 )Income receivable payable(收益 ) (收取 ) (支付 )Current Transfers from abroad to abroad(經常轉移 ) (從外地來的 ) (往外地的)

Gross recording principle




Capital and Financial Account

• Net recording principle• Either net credit (+) or net debit (-) for each

component

Assets Liabilitiesnet credit (+) net↓ net ↑

net debit (-) net↑ net ↓


Goods 10

Appropriate financialaccount item 10

Credit Debit

HK$ million

Double-entry Accounting System - Example

• Hong Kong imported HK$ 10 million of goods from Japan.

Decrease in financial asset /Increase in financial liabilities


In principle

sum of allcredit entries

sum of alldebit entries

≡

net balance of all entries in the BoP account = 0



the accounts frequently do not balance

different BoP components are measured independently from different data sources

net errors and omissions

= residual amount (reversed sign)

In

practice



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



For a reference period,

in external transactions,= Overall net inflow of funds from the rest of the world

BoP surplus. Otherwise, it’s a BoP deficit

Receivesforeign currencies

Paysforeign currencies

＞

39政府統計處Census and Statistics Department 39


Hong Kong BoP account 2008 2009 2010

Current account 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

Current Transfers -25, 855 -24,625 -26,174

Capital and Financial Account (Non-reserves)

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)

(HK$ Mn)

263,869


Country Comparison


Country Comparison

BoP account (2010) Hong Kong China United States

Current account 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


-8.5 226.0 236.9

Reserve Assets


-9.2

3.8

-471.7

-59.7

-1.8

235.1

Overall BoP 9.2

(surplus)

471.7

(surplus)

1.8

(surplus)

(US$ Bn)


Country Comparison

BoP account (2010) Hong Kong China United States

Current account 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

Current Transfers -1.5 0.7 -0.9


-3.8 3.8 1.6

Reserve Assets


-4.1

1.7

-8.0

-1.0

**

1.6

Overall BoP 4.1 8.0 **

(as a ratio to GDP, %)

Note : ** Less than ± 0.05 percentage point.


Thank you!

政府統計處 census and statistics department 1 seminar on balance of payments for secondary...

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