Hong Kong's gross national product (GNP) in the fourth quarter stood at $341.5 billion, up 1.7% over a year earlier, and 6.8% in real terms after netting out the effect of price changes.

This exceeded the 5% year-on-year increase in real terms in gross domestic product (GDP) in the same quarter. The GDP, estimated at $330.5 billion, was about the same level as a year earlier.

Compared with GDP, the value of GNP was larger by $11.1 billion, representing a net external factor income inflow of the same amount, and equivalent to 3.3% of GDP in that quarter.

Income inflow makes GNP grow faster than GDP

As the external factor income inflow increased to a much larger extent than the corresponding outflow, GNP grew at a faster pace in real terms than GDP.

Total factor income inflow into Hong Kong was $90.7 billion and equivalent to 27.5% of GDP in that quarter, up 14.4% over a year earlier. At the same time, total factor income outflow was $79.7 billion and equivalent to 24.1% of GDP in that quarter, representing a smaller increase at 7.8% over a year earlier.

Taking the inflow and outflow together, a net external factor income inflow of $11.1 billion was recorded.

The rebound was primarily propelled by a distinct surge in direct investment income both from local and overseas, amidst robust recovery in the local economy and improved performance of the global economy since the middle of last year.

Direct investment income surges

Within total factor income inflow, direct investment income inflow rose significantly by 25.5% over a year earlier, mainly due to increased earnings of some prominent local enterprises from investment abroad. Portfolio investment income inflow also increased substantially by 20.4%, mainly attributable to an increase in dividend payouts by some prominent non-resident publicly listed companies during the period.

But other investment income inflow dropped considerably by 28%, mainly on account of lesser interest income from offshore loans and deposits, due to lower interest rates.

Within total factor income outflow, direct investment income outflow went up 16.6% over a year earlier, largely due to increased earnings of some prominent multinational enterprises from investment here. Portfolio investment income outflow recorded a drop of 18.5%, mainly attributable to decreases in dividend payouts by a number of resident publicly listed companies. Other investment income outflow continued to plummet, by 30.7%, on account of lower interest rates.

British Virgin Islands the largest source of income

Analysed by country/territory, the British Virgin Islands was the largest source of Hong Kong's external factor income inflow, accounting for 30.9% of the total inflow, reflecting continued investment income inflow from this tax haven economy where Hong Kong companies had set up a considerable number of holding companies.

This was followed by the Mainland at 21.1%, and the US at 8.8%. Other major source countries/territories included the UK and Bermuda, with respective shares of 6.6% and 6.5%.

The US and the Mainland were the most important destinations for Hong Kong's external factor income outflow, accounting for 15% and 14.5% respectively of the total outflow in that quarter. Other major destination countries/territories included the British Virgin Islands at 13.1%, and the Netherlands at 12.8%.

For 2003 as a whole, Hong Kong's GNP dipped slightly by 0.6% over a year earlier to $1,269 billion at current market prices. The difference of $34.1 billion from GDP for the same year (estimated at $1,235 billion) represented a net factor income inflow equivalent to 2.8% of GDP in the year.

GNP up 4.8% in real terms over 2002

After netting out the effect of price changes, Hong Kong's GNP rose 4.8% in real terms in 2003 over 2002.

The income inflow and outflow remained sizeable, both accounting for around one-fourth of Hong Kong's GDP. The total factor income inflow was estimated at $328.5 billion, or 26.6% of GDP, and the corresponding outflow at $294.4 billion, or 23.8% of GDP.

This reflected the highly externally oriented nature of our economy, and was commensurate with its position as an international financial centre in facilitating external investment activities.