An

Assignment

On

“BALANCE OF PAYMENT ANALYSIS FOR THE LAST FIVE YEARS

OF INDIA, GERMANY AND HONG KONG.”

Submitted To:

Dr. Tanvi Pathak

Submitted By:

Bhavik Mandalia (201700620010083)

Brijesh Patalia (201700620010118)

Jyoti Lalani (201700620010074)

Kavisha Shah (201700620010149)

Prem Raithatha (201700620010134)

Vanessa kisku (201700620010067)

Submitted On:

11th September, 2018

N R INSTITUTE OF BUSINESS MANAGEMENT

 HISTORY
Prior to the 19th century, international transactions were denominated in gold, providing little
flexibility for countries experiencing trade deficits. Growth was low, so stimulating a trade
surplus was the primary method of strengthening a nation's financial positon. National
economies were not well integrated with each other, however, so steep trade imbalances rarely
provoked crises. The industrial revolution increased international economic integration, and
balance of payment crises began to occur more frequently.
The Great Depression led countries to abandon the gold standard and engage in competitive
devaluation of their currencies, but the Bretton Woods system that prevailed from the end of
World War II until the 1970s introduced a gold-convertible dollar with fixed exchange rates to
other currencies. As the U.S. money supply increased and its trade deficit deepened, however,
the government became unable to fully redeem foreign central banks' dollar reserves for gold,
and the system was abandoned.

Since the Nixon shock – as the end of the dollar's convertibility to gold is known – currencies
have floated freely, meaning that country experiencing a trade deficit can artificially depress
its currency (by hoarding foreign reserves, for example), making its products more attractive
and increasing its exports. Due to the increased mobility of capital across borders, balance of
payments crises sometimes occurs, causing sharp currency devaluations such as the ones
that struck in Southeast Asian countries in 1998.
 INTRODUCTION
The balance of payments, also known as balance of international payments and
abbreviated B.O.P. or BoP, of a country is the record of all economic transactions between the
residents of the country and the rest of world in a particular period of time (over a quarter of a
year or more commonly over a year). The balance of payments is a summary of all monetary
transactions between a country and rest of the world. These transactions are made by
individuals, firms and government bodies. Thus, the balance of payments includes all external
visible and non-visible transactions of a country. It is an important issue to be studied,
especially in international financial management field, for a few reasons
The balance of payments divides transactions in two accounts: the current account and

the capital account (sometimes the capital account is called the financial account, with a
separate, usually very small, capital account listed separately). The current account includes
transactions in goods, services, investment income and current transfers. The capital account,
broadly defined, includes transactions in financial instruments and central bank reserves.
Narrowly defined, it includes only transactions in financial instruments. The current account is
included in calculations of national output, while the capital account is not. (

The sum of all transactions recorded in the balance of payments must be zero, as long as the
capital account is defined broadly. The reason is that every credit appearing in the current
account has a corresponding debit in the capital account, and vice-versa. If a country exports
an item (a current account credit), it effectively imports foreign capital when that item is paid
for (a capital account debit).
If a country cannot fund its imports through exports of capital, it must do so by running down
its reserves. This situation is often referred to as a balance of payments deficit, using the
narrow definition of the capital account that excludes central bank reserves. In reality,
however, the broadly defined balance of payments must add up to zero by definition. In
practice, statistical discrepancies arise due to the difficulty of accurately counting every
transaction between an economy and the rest of the world.
 BOP ANALYSIS – INDIA

 On a quarter-over-quarter (q-o-q) basis, India’s current account deficit (CAD) narrowed

sharply to US$ 1.3 billion (0.2 per cent of GDP) in Q4 of 2014-15 from US$ 8.3 billion
(1.6 per cent of GDP) in Q3; on a year-on-year (y-o-y) basis, however, the CAD was a
shade higher (US$ 1.2 billion or 0.2 per cent of GDP in Q4 of 2013-14).
 The merchandise trade deficit (US$ 31.7 billion during Q4 2014-15) contracted sharply on
a q-o-q basis on account of a larger decline in merchandise imports (13.4 per cent) than in
merchandise exports (10.4 per cent); however, in terms of y-o-y changes, the trade deficit
in Q4 2014-15 widened marginally as exports registered a larger decline (15.4 per cent),
than imports (10.4 per cent).
 The reduction in the CAD in Q4 2014-15 was primarily on account of lower trade deficit
as net earnings through services and primary income (profit, dividend & interest) witnessed
a decline in q-o-q terms albeit secondary income recorded a marginal increase of 0.4 per
cent.
 Gross private transfer receipts, representing remittances by Indians employed overseas
amounted to US$ 17.5, witnessing a marginal increase of 0.4 per cent on q-o-q basis and
an increase of 1.2 per cent from the level a year ago.
 In the financial account, net inflows of foreign direct and portfolio investment were higher
on a q-o-q basis, though net loans availed by banks witnessed an outflow US$ 3.5 billion
mainly on account of increase in balances of foreign currency assets held abroad by banks.
 On a cumulative basis, the overall BoP during 2014-15 showed improvement over the
preceding year. Lower CAD, on the back of contraction in trade deficit and marginal
improvement in the net invisible earnings, along with a sizable increase in net financial
flows enabled a large build-up of reserves.
 India’s trade deficit narrowed to US$ 144.2 billion in 2014-15 from US$ 147.6 billion in
2013-14. With modest increase in invisibles supported by some improvement in net
services receipts, the CAD tracked the trade deficit and shrank to US$ 27.5 billion in 2014-
15 (1.3 per cent of GDP) from US$ 32.4 billion (1.7 per cent of GDP) a year ago.
 Net inflows under the capital and financial account (excluding change in foreign exchange
reserves) rose to US$ 89.5 billion during 2014-15 from US$ 48.7 billion in the previous
year.
 There was an accretion to India’s foreign exchange reserves to the tune of US$ 61.4 billion
in 2014-15 as compared with US$ 15.5 billion in 2013-14. At the end of March 2015, the
level of foreign exchange reserves stood at US$ 341.6 billion.
 India’s current account deficit (CAD) at US$ 8.2 billion (1.6 per cent of GDP) in Q2 of
2015-16 was lower than US$ 10.9 billion (2.2 per cent of GDP) in Q2 of 2014-15 but
increased from US$ 6.1 billion (1.2 per cent of GDP) in the preceding quarte .
 The contraction in CAD was primarily on account of lower trade deficit (US$ 37.4 billion)
as compared with US$ 39.7 billion in Q2 of last year though it was higher than the level in
the preceding quarter (US$ 34.2 billion).
 Although net services receipts moderated marginally on a y-o-y basis largely due to fall in
export receipts in transport, insurance and pension services, there has been some
improvement over the preceding quarter.
 Private transfer receipts, mainly representing remittances by Indians employed overseas,
amounted to US$ 16.5 billion, a marginal decline from their level in the preceding as well
as the corresponding quarter.
 After a sharp pick, up in Q1, net foreign direct investment moderated in Q2 of 2015-16.
 There has been net outflow of portfolio investment to the tune of US$ 6.5 billion as against
net inflow of US$ 9.8 billion in Q2 of last year; outflow was more evident in the equity
segment.
 Non-resident Indian (NRI) deposits, however, increased by 4.0 per cent in Q2 of 2015-16
over the level in Q2 of last year.
 Foreign exchange reserves (on BoP basis) decreased by US$ 0.9 billion in Q2 of 2015-16.
 On a cumulative basis, the CAD narrowed to 1.4 per cent of GDP in H1 of 2015-16 from
1.8 per cent in H1 of 2014-15 on the back of contraction in the trade deficit and a marginal
improvement in net invisibles.
 India’s trade deficit narrowed to US$ 71.6 billion in H1 of 2015-16 from US$ 74.7 billion
in H1 of 2014-15.
 Net invisible receipts were marginally higher with the moderation in net services earnings
and private transfer receipts being offset by a smaller net outflow of primary income (profit
interest and dividends).
 Net FDI inflows during H1 of 2015-16 rose by more than 10 per cent over the level during
the corresponding period of the previous year.
 Portfolio investment, however, recorded a net outflow US$ 9.1 billion during H1 as against
a net inflow of US$ 22.2 billion last year. The current account deficit (CAD) narrowed to
US$ 0.3 billion (0.1 per cent of GDP) in Q1 of 2016-17, significantly lower than US$ 6.1
billion (1.2 per cent of GDP) in Q1 of 2015-16.
 The contraction in the CAD was primarily on account of a lower trade deficit (US$ 23.8
billion) than in Q1 of last year (US$ 34.2 billion) and in the preceding quarter (US$ 24.8
billion).
 On a BoP basis, merchandise imports declined sharply (by 11.5 per cent) vis-à-vis
merchandise exports (which declined by 2.1 per cent), leading to a lower trade deficit in
Q1 of 2016-17.
 Net services receipts declined on a y-o-y basis, largely due to a fall in net earnings on
account of travel, financial services and other business services.
 Net payment on account of primary income (dividend, interest and profit) increased
marginally in Q1 of 2016-17 from its level a year ago.
 Private transfer receipts, mainly representing remittances by Indians employed overseas,
amounted to US$ 15.2 billion, declining from their level in the preceding quarter as well as
from a year ago.
 Net foreign direct investment moderated to US$ 4.1 billion in Q1 of 2016-17 from US$
10.0 billion in Q1 of 2015-16 and US$ 8.8 billion in the preceding quarter i.e., Q4 of 2015-
16.
 On the other hand, portfolio investment, recorded a net inflow of US$ 2.1 billion in Q1 of
2016-17 as against a marginal outflow in the corresponding period of last year and an
outflow of US$ 1.5 billion in the preceding quarter, primarily reflecting net inflow in the
equity component.
 Accretion to non-resident Indian (NRI) deposits at US$ 1.4 billion moderated in Q1 of
2016-17 from their level in Q1 last year as well as in the preceding quarter.
 Higher repayments under external commercial borrowings led to a net outflow under loans
to India in Q1 of 2016-17 as against net borrowings in the same period last year.
 Foreign exchange reserves (on a BoP basis) increased by US$ 7.0 billion in Q1 of 2016-17
as compared with an accretion of US$ 11.4 billion in Q1 of 2015-16 and US$ 3.3 billion in
the preceding quarter.
 India’s current account deficit (CAD) at US$ 7.2 billion (1.2 per cent of GDP) in Q2 of
2017-18 narrowed sharply from US$ 15.0 billion (2.5 per cent of GDP) in the preceding
 quarter, but was substantially higher than US$ 3.4 billion (0.6 per cent of GDP) in Q2 of
2016-17.
 The widening of the CAD on a year-on-year (y-o-y) basis was primarily on account of a
higher trade deficit (US$ 32.8 billion) brought about by a larger increase in merchandise
imports relative to exports.
 Net services receipts increased by 13.1 per cent on a y-o-y basis mainly on the back of a
rise in net earnings from software services and travel receipts.
 Private transfer receipts, mainly representing remittances by Indians employed overseas,
amounted to US$ 17.4 billion, increasing by 14.7 per cent from their level a year ago.
 In the financial account, net foreign direct investment at US$ 12.4 billion in Q2 of 2017-
18 moderated from its level in Q2 of 2016-17.
 Portfolio investment recorded net inflow of US$ 2.1 billion in Q2 of 2017-18, lower than
US$ 6.1 billion in Q2 last year on account of net sale in the equity market.
 Net receipts on account of non-resident deposits amounted to US$ 0.7 billion in Q2 of
2017-18, lower than US$ 2.1 billion a year ago.
 In Q2 of 2017-18, there was an accretion of US$ 9.5 billion to the foreign exchange reserves
(on BoP basis) as compared with US$ 8.5 billion in Q2 of 2016-17 and US$ 11.4 billion in
the preceding quarter.
 On a cumulative basis, the CAD increased to 1.8 per cent of GDP in H1 of 2017-18 from
0.4 per cent in H1 of 2016-17 on the back of widening of the trade deficit.
 India’s trade deficit increased to US$ 74.8 billion in H1 of 2017-18 from US$ 49.4 billion
in H1 of 2016-17.
 Net invisible receipts were higher in H1 of 2017-18 mainly due to increase in net services
earnings and private transfer receipts.
 Net FDI inflows during H1 of 2017-18 moderated by 6.3 per cent over the level during the
corresponding period of the previous year.
 Portfolio investment recorded a net inflow of US$ 14.5 billion during H1 as compared with
US$ 8.2 billion a year ago.
 In H1 of 2017-18, there was an accretion of US$ 20.9 billion to foreign exchange reserves.
 BOP ANALYSIS – GERMANY

BOP ACCOUNT OF GERMANY: (US$ - Million)

Particular 2014 2015 2016 2017

Current account 2,89,162.9 3,00,804.2 2,97,318.7 2,96,888.4
Goods and services 2,70,003.7 2,70,799.7 2,74,737.0 2,81,091.9
Credit 17,80,363.4 15,84,323.2 16,04,757.4 17,42,763.8
Debit 15,10,359.7 13,13,534.6 13,30,021.1 14,61,611.8
Goods 3,02,639.7 2,89,562.5 2,96,938.0 2,99,560.2
Credit 14,80,950.4 13,07,756.0 13,19,072.3 14,34,096.7
General merchandise: export 14,40,931.8 12,72,633.1 12,82,923.6 13,97,013.2
Net exports of goods under 28,426.4 25,212.4 24,004.5 27,365.7
merchanting
Non-monetary gold: export 11,592.5 9,910.8 12,144.1 9,716.7
Debit 11,78,310.7 10,18,193.5 10,22,134.2 11,34,535.3
General merchandise: import 11,65,273.2 10,04,557.0 10,09,222.0 11,19,698.8
Non-monetary gold: import 13,037.5 13,636.6 12,912.2 14,836.5
Services -32,635.9 -18,774.2 -22,201.7 -18,409.4
Credit 2,99,412.8 2,76,579.2 2,85,686.1 3,08,606.9
Debit 3,32,048.8 2,95,342.1 3,07,887.3 3,27,076.4
Manufacturing services on 7,491.7 6,383.7 7,079.2 7,032.5
physical inputs owned by
others, credit
Manufacturing services on 4,942.8 4,617.6 5,236.5 6,028.7
physical inputs owned by
others, debit
Maintenance and repair 7,274.7 7,921.0 8,284.1 9,376.7
services i.e., credit
Maintenance and repair 8,629.2 8,416.3 9,451.7 10,240.1
services i.e., debit
Transport, credit 61,762.2 56,408.0 54,902.2 61,920.3
Passenger 15,438.4 13,768.7 14,706.2 16,220.3
Freight 32,602.2 31,033.3 28,114.9 32,818.5
Other (including postal and 15,232.2 12,663.3 13,081.7 13,991.9
courier)
Transport, debit 70,990.8 62,243.9 61,724.1 66,506.0
Passenger 8,449.9 7,863.0 7,488.9 7,920.3
Freight 36,681.4 30,688.5 31,325.6 33,216.0
Other (including postal and 27,570.8 25,121.3 24,347.8 26,857.7
courier)
Travel, credit 43,262.8 36,882.7 37,468.6 39,953.0
Travel, debit 93,252.5 77,444.7 79,906.3 84,238.6
Business travel, debit 10,329.8 7,626.8 6,651.4 7,513.0
Personal travel, debit 82,888.1 69,853.4 73,084.9 75,970.5
Other services, credit 1,79,621.3 1,68,983.9 1,77,952.1 1,90,324.3
Construction services 2,696.7 2,084.4 1,907.0 2,070.2
Insurance and pension services 10,643.3 11,035.7 11,303.3 11,328.7
Financial services 25,751.7 23,834.4 23,613.5 23,895.8
Charges for the use of 15,428.7 15,459.3 18,151.6 20,151.1
intellectual property i.e.
Telecommunication, computer, 29,042.1 29,433.4 33,994.5 37,401.2
and information services
Other business services 89,051.3 80,342.8 82,331.5 88,001.1
Personal, cultural, and 1,681.5 1,745.0 1,824.9 3,353.0
recreational services
Government goods and 5,326.1 5,048.8 4,825.9 4,123.3
services i.e.
Other Services, debit 1,54,233.4 1,42,619.9 1,51,568.8 1,60,065.2
Construction services 2,130.3 1,793.7 1,950.5 1,824.6
Insurance and pension services 5,804.6 5,864.6 6,182.2 6,448.9
Financial services 16,466.9 13,208.8 12,735.5 11,780.6
Charges for the use of 10,726.7 10,107.4 11,318.6 12,746.5
intellectual property i.e.
Telecommunication, computer, 25,587.2 24,955.1 30,430.0 33,686.0
and information services
Other business services 89,935.3 83,080.1 85,623.0 89,881.3
Personal, cultural, and 2,217.4 2,070.4 1,933.2 1,922.3
recreational services
Government goods and 1,365.1 1,539.8 1,395.8 1,774.9
services i.e.
Primary income 73,996.3 74,557.5 66,474.3 76,610.5
Total credit 2,51,689.8 2,22,503.7 2,16,026.8 2,25,964.1
Total debit 1,77,693.6 1,47,946.1 1,49,552.4 1,49,356.9
Compensation of employees, 17,042.1 15,800.4 16,441.9 16,770.6
credit
Compensation of employees, 15,458.6 14,106.7 15,627.3 16,861.8
debit
Investment income, credit 2,27,923.3 2,01,123.1 1,93,003.6 2,02,693.0
Direct investment income 1,00,663.1 92,472.7 86,591.1 1,00,186.4
Income on equity and 91,882.3 84,455.7 78,704.9 91,741.9
investment fund shares
Dividends and withdrawals 66,721.8 65,675.3 66,494.9 64,966.6
from income of quasi-
corporations
Reinvested earnings (direct 25,160.1 18,780.3 12,209.8 26,775.3
investor in direct investment
enterprises)
Interest 8,780.8 8,016.9 7,886.3 8,444.5
Portfolio investment income 86,342.5 74,675.3 71,706.0 69,693.2
Investment income on equity 20,011.6 18,659.2 20,588.1 22,396.8
and investment fund shares
Dividends on equity excluding 11,397.2 10,941.9 12,009.0 13,669.2
investment fund shares
Investment income attributable 8,614.2 7,717.2 8,579.1 8,727.6
to investment fund
shareholders
Interest 66,330.9 56,016.1 51,117.9 47,297.6
Other investment income 40,384.5 33,455.4 33,821.0 31,687.7
Withdrawals from income of 2,902.9 3,175.4 2,833.1 4,025.3
quasi-corporations
Interest 35,084.8 27,779.3 28,405.6 25,013.5
Investment income attributable 2,396.9 2,500.7 2,582.3 2,648.9
to policyholders in insurance,
pension schemes, and
standardized guarantees
Income on reserve assets 533.6 519.7 885.6 1,123.4
Interest 533.6 519.7 885.6 1,123.4
Investment income, debit 1,56,328.4 1,27,814.4 1,26,031.8 1,24,837.9
Direct investment income 53,694.5 38,534.2 41,709.8 44,967.6
Income on equity and 31,488.4 20,779.7 26,074.8 28,717.0
investment fund shares
Dividends and withdrawals 27,009.0 22,360.8 21,711.7 18,281.2
from income of quasi-
corporations
Reinvested earnings (direct 4,479.4 -1,581.3 4,363.3 10,434.7
investor in direct investment
enterprises)
Interest 22,206.1 17,754.6 15,634.9 16,251.8
Portfolio investment income 79,724.7 69,590.6 64,697.7 57,883.2
Investment income on equity 28,347.8 31,410.9 32,283.5 30,241.7
and investment fund shares
Dividends on equity excluding 25,846.4 29,029.8 29,450.5 26,951.8
investment fund shares
Portfolio investment income 2,501.3 2,381.1 2,832.9 3,289.9
attributable to investment fund
shareholders
Interest 51,376.9 38,179.7 32,414.2 27,641.5
Other investment income 22,909.1 19,689.7 19,624.4 21,987.0
Withdrawals from income of 259.6 327.3 456.3 682.1
quasi-corporations
Interest 16,231.6 13,091.3 12,768.5 14,651.7
Income attributable to 6,417.9 6,271.3 6,399.4 6,652.0
policyholders in insurance,
pension schemes, and
standardized guarantees
Other primary income, credit 6,724.4 5,580.0 6,581.3 6,503.9
Other primary income, debit 5,906.8 6,025.1 7,893.3 7,657.2
Secondary income -54,837.3 -44,541.8 -43,891.8 -60,873.0
Credit 82,798.0 79,182.6 79,671.2 81,368.7
General government 16,507.5 17,686.7 17,432.3 17,409.8
Financial corporations, 66,290.4 61,495.9 62,238.9 63,956.5
nonfinancial corporations,
households, and NPISHs
Personal transfers 26.5 11.1 5.3 7.8
Other current transfers 66,263.9 61,484.7 62,233.6 63,951.0
Debit 1,37,635.2 1,23,724.2 1,23,563.1 1,42,240.6
General government 53,809.5 44,383.8 44,729.5 44,294.7
Financial corporations, 83,825.6 79,340.6 78,833.6 97,945.9
nonfinancial corporations,
households, and NPISHs
Personal transfers 4,619.4 3,926.6 4,662.4 5,230.6
Other current transfers 79,206.3 75,413.7 74,171.3 92,716.6
Capital account 4,000.3 623.0 3,798.3 -314.5
Gross disposals of 16,322.9 20,370.9 23,433.0 23,213.9
nonproduced, nonfinancial
assets, credit
Gross acquisitions of 12,498.0 17,752.2 19,662.6 19,774.2
nonproducer, nonfinancial
assets, debit
Capital transfers, credit 6,527.5 4,070.2 5,990.3 3,415.3
General government 4,533.8 3,383.0 5,203.8 2,284.4
Other capital transfers 4,533.8 3,383.0 5,203.8 2,284.4
Financial corporations, 1,993.4 687.1 786.4 1,130.9
nonfinancial corporations,
households, and NPISHs
Capital transfers, debit 6,352.0 6,065.6 5,962.2 7,169.4
General government 2,617.0 4,052.1 2,817.0 3,575.2
Debt forgiveness 15.4
Other capital transfers 2,604.1 4,052.1 2,817.0 3,575.2
Financial corporations, 3,735.2 2,013.5 3,145.3 3,594.1
nonfinancial corporations,
households, and NPISHs
Financial account 3,17,805.4 2,64,945.8 2,84,328.3 3,16,259.5
Direct investment 95,293.9 74,838.4 33,164.2 47,056.2
Net acquisition of financial 1,15,072.2 1,28,956.4 91,221.0 1,25,039.5
assets
Equity and investment fund 77,847.5 83,600.1 77,802.3 80,709.7
shares
Equity other than reinvestment 52,687.5 64,819.7 65,592.3 53,935.5
of earnings
Direct investor in direct 52,687.5 64,819.7 65,592.3 53,935.5
investment enterprises
Reinvestment of earnings 25,160.1 18,780.3 12,209.8 26,775.3
(direct investor in direct
investment enterprises)
Debt instruments 37,224.6 45,356.1 13,418.8 44,329.7
Direct investor in direct 20,566.3 32,599.0 1,472.0 27,198.3
investment enterprises
Direct investment enterprises 13,785.5 4,723.6 3,499.8 8,371.7
in direct investor (reverse
investment)
Between fellow enterprises 2,872.8 8,033.6 8,446.8 8,759.9
Net incurrence of liabilities 19,778.4 54,117.7 58,056.9 77,983.3
Equity and investment fund 28,025.5 11,853.5 13,267.9 27,485.0
shares
Equity other than reinvestment 23,546.5 13,434.9 8,904.5 17,050.2
of earnings
Direct investor in direct 23,546.5 13,434.9 8,904.5 17,050.2
investment enterprises
Reinvestment of earnings 4,479.4 -1,581.3 4,363.3 10,434.7
(direct investor in direct
investment enterprises)
Debt instruments -8,247.3 42,264.4 44,788.9 50,498.3
Direct investor in direct -17,620.4 10,629.1 3,590.0 5,328.9
investment enterprises
Direct investment enterprises 718.0 16,113.1 37,615.0 34,705.6
in direct investor (reverse
investment)
Between fellow enterprises 8,655.0 15,522.0 3,584.1 10,465.0
Portfolio investment 1,77,666.5 2,13,479.0 2,28,847.1 2,28,147.9
Net acquisition of financial 2,01,454.5 1,38,147.7 1,09,365.5 1,18,620.0
assets
Equity and investment fund 72,688.1 61,509.2 59,099.2 69,896.4
shares
Deposit-taking corporations, 4,402.6 -2,776.5 -8,133.3 -6,306.0
except the central bank
General government -616.0 -18,130.7 3,323.7 2,219.0
Other sectors 68,901.5 82,416.5 63,908.6 73,983.4
of which: other financial 41,095.9 49,516.8 31,508.9 31,173.9
corporations
Debt securities 1,28,766.5 76,638.6 50,266.3 48,722.4
Central bank -12,834.2 -2,038.2 4,299.0 7,854.1
Deposit-taking corporations, 21,899.6 587.2 -24,559.1 -26,566.8
except the central bank
General government -13,770.5 -5,272.6 -5,841.8 -10,974.8
Other sectors 1,33,471.4 83,362.3 76,368.1 78,411.2
of which: other financial 1,38,456.5 95,397.9 83,413.8 80,450.5
corporations
Net incurrence of liabilities 23,787.8 -75,331.1 -1,19,481.7 -1,09,527.9
Equity and investment fund 2,681.0 19,917.3 -7,571.5 -5,502.7
shares
Deposit-taking corporations, 3,373.4 2,701.6 -1,059.5 4,393.5
except the central bank
Other sectors -692.3 17,215.7 -6,512.0 -9,897.3
of which: other financial -10,114.5 7,389.0 -10,383.6 -7,344.8
corporations
Debt securities 21,106.8 -95,248.4 -1,11,910.1 -1,04,022.9
Deposit-taking corporations, -19,709.4 -18,652.1 8,394.4 -6,339.8
except the central bank
General government 21,646.1 -1,01,112.3 -1,22,806.7 -97,197.0
Other sectors 19,170.3 24,516.0 2,502.2 -486.1
of which: other financial 6,172.4 15,519.0 -836.0 6,918.0
corporations
Financial derivatives (other 43,310.1 28,957.0 35,771.7 10,288.6
than reserves) and employee
stock options
Net acquisition of financial 43,310.1 28,957.0 35,771.7 10,288.6
assets
Other investment 4,830.1 -49,905.7 -15,352.2 32,253.3
Net acquisition of financial 60,615.4 11,179.4 2,03,221.3 1,45,886.1
assets
Other equity 8,698.7 2,615.5 4,261.8 4,391.6
Debt instruments 51,916.7 8,563.9 1,98,959.5 1,41,494.5
Central bank -66,731.7 1,37,666.3 1,89,433.8 1,73,268.1
Deposit-taking corporations, 1,04,924.5 -97,678.5 21,600.5 -30,816.2
except the central bank
General government 15,100.0 -14,040.6 -2,516.4 -6,347.4
Other sectors -1,375.7 -17,383.3 -9,558.5 5,392.3
of which: other financial 7,436.1 -6,144.0 -15,222.5 -17,584.8
corporations
Net incurrence of liabilities 55,784.9 61,085.1 2,18,573.5 1,13,632.8
Other equity -9.6 -170.3 -164.7 -200.4
Special drawing rights 0.0 0.0 0.0 0.0
(allocations)
Other debt instruments 55,794.5 61,255.4 2,18,738.2 1,13,833.1
Central bank -9,117.0 93,959.4 1,22,331.5 90,424.1
Deposit-taking corporations, 47,104.8 -42,251.8 98,517.9 9,962.2
except the central bank
General Government -7,056.6 -12,109.6 -5,486.7 -7,477.3
Other sectors 24,864.1 21,657.8 3,375.7 20,922.0
of which: other financial 17,493.3 4,076.7 285.1 17,387.9
corporations
Reserve assets -3,295.3 -2,422.8 1,897.6 -1,484.2
Special drawing rights 740.1 -40.1 -296.9 80.3
Reserve position in the IMF -2,646.7 -1,820.6 1,576.8 -2,162.7
Other reserve assets -1,388.5 -562.1 617.6 598.3
Net errors and omissions 24,642.3 -36,481.4 -16,788.6 19,686.7
Germany exported goods to the value of 1,133.6 billion euros and imported goods to the value
of 916.5 billion euros in 2014. Based on provisional data, the Federal Statistical Office
(Destatis) also reports that German exports increased by 3.7% and imports by 2.0% in 2014
from a year earlier. In 2014, export and import levels were higher than the previous all-time
highs recorded in 2012. In that year, Germany exported goods to the value of 1,095.8 billion
euros and imported goods to the value of 905.9 billion euros.

The foreign trade balance showed a surplus of 217.0 billion euros in 2014, which was the
highest value ever recorded. It clearly exceeded the previous peak of 195.3 billion euros
achieved in 2007. In 2013, the surplus of the foreign trade balance was 195.0 billion euros.

According to provisional results of the Deutsche Bundesbank, the current account of the
balance of payments showed a surplus of 215.3 billion euros in 2014, which takes into account
the balances of trade in goods including supplementary trade items (+229.8 billion euros),
services (–41.7 billion euros), primary income (+68.4 billion euros) and secondary income (–
41.1 billion euros). In 2013, the German current account showed a surplus of 189.2 billion
euros.

In 2014, Germany dispatched goods to the value of 657.3 billion euros to the Member States
of the European Union (EU), while it received goods to the value of 599.9 billion euros from
those countries. Compared with 2013, dispatches to the EU countries increased by 5.4%, and
arrivals from those countries by 3.6%. Goods to the value of 414.2 billion euros (+2.7%) were
dispatched to the Euro area countries in 2014, while the value of the goods received from those
countries was 411.4 billion euros (+2.3%). In 2014, goods to the value of 243.1 billion euros
(+10.2%) were dispatched to EU countries not belonging to the Euro area, while the value of
the goods which arrived from those countries was 188.5 billion euros (+6.6%).

Exports of goods to countries outside the European Union (third countries) amounted to 476.2
billion euros in 2014, while imports from those countries totalled 316.6 billion euros.
Compared with 2013, exports to third countries increased by 1.5%, while imports from those
countries were down 0.9%.
In December 2014, Germany exported goods to the value of 90.1 billion euros (+10.0%
compared with December 2013) and imported goods to the value of 71.1 billion euros
(+4.0%).

Exports and imports showed diverging month-on-month trends on a calendar and seasonally
adjusted basis. While exports rose by 3.4% on November 2014, imports were down 0.8%.

The monthly results regarding both exports and imports were slightly revised for the period
January to October 2014.

Germany exported goods to the value of 1,195.8 billion euros and imported goods to the value
of 948.0 billion euros in 2015. Based on provisional data, the Federal Statistical Office
(Destatis) also reports that German exports increased by 6.4% and imports by 4.2% in 2015
compared with 2014. In 2015, export and import levels were higher than the previous all-time
highs recorded in 2014. That year, Germany exported goods to the value of 1,123.7 billion
euros and imported goods to the value of 910.1 billion euros.

The foreign trade balance showed a surplus of 247.8 billion euros in 2015, which was the
highest value ever recorded. It clearly exceeded the previous year's peak of 213.6 billion euros.
In 2013, the surplus of the foreign trade balance had been 197.6 billion euros.

According to provisional results of the Deutsche Bundesbank, the current account of the
balance of payments showed a surplus of 249.1 billion euros in 2015, which takes into account
the balances of trade in goods including supplementary trade items (+261.2 billion euros),
services (-37.2 billion euros), primary income (+65.2 billion euros) and secondary income (-
40.2 billion euros). In 2014, the German current account showed a surplus of 212.1 billion
euros.
In 2015, Germany dispatched goods to the value of 693.9 billion euros to the Member States
of the European Union (EU), while it received goods to the value of 621.6 billion euros from
those countries. Compared with 2014, dispatches to the EU countries increased by 7.0%, and
arrivals from those countries by 4.5%. Goods to the value of 435.0 billion euros (+5.9%) were
dispatched to the Euro area countries in 2015, while the value of the goods received from those
countries was 426.5 billion euros (+3.8%). In 2015, goods to the value of 258.9 billion euros
(+8.9%) were dispatched to EU countries not belonging to the Euro area, while the value of the
goods which arrived from those countries was 195.1 billion euros (+5.9%).

Exports of goods to countries outside the European Union (third countries) amounted to 501.9
billion euros in 2015, while imports from those countries totalled 326.5 billion euros.
Compared with 2014, exports to third countries increased by 5.6% and imports from those
countries by 3.5%.

In December 2015, Germany exported goods to the value of 91.9 billion euros (+3.2%
compared with December 2014) and imported goods to the value of 73.1 billion euros (+3.5%).
In calendar and seasonally adjusted terms, both exports and imports were down 1.6% from
November 2015.

Germany exported goods to the value of 106.8 billion euros and imported goods to the value
of 82.0 billion euros in June 2016. Based on provisional data, the Federal Statistical Office
(Destatis) also reports that German exports increased by 1.2% and imports by 0.3% in June
2016 year on year. Compared with May 2016, exports increased by a calendar and seasonally
adjusted 0.3%, and imports by 1.0%.

The foreign trade balance showed a surplus of 24.9 billion euros in June 2016. In June 2015,
the surplus amounted to 23.9 billion euros. In calendar and seasonally adjusted terms, the
foreign trade balance recorded a surplus of 21.7 billion euros in June 2016.
According to provisional results of the Deutsche Bundesbank, the current account of the
balance of payments showed a surplus of 26.3 billion euros in June 2016, which takes into
account the balances of trade in goods including supplementary trade items (+26.8 billion
euros), services (–2.7 billion euros), primary income (+4.4 billion euros) and secondary income
(–2.1 billion euros). In June 2015, the German current account showed a surplus of 25.3 billion
euros.

In June 2016, Germany exported goods to the value of 62.7 billion euros to the Member States
of the European Union (EU), while it imported goods to the value of 55.2 billion euros from
those countries. Compared with June 2015, exports to the EU countries increased by 2.3%, and
imports from those countries by 3.3%. Goods to the value of 38.9 billion euros (+0.1%) were
dispatched to the Euro area countries in June 2016, while the value of the goods received from
those countries was 38.0 billion euros (+3.0%). In June 2016, goods to the value of 23.8 billion
euros (+6.0%) were exported to EU countries not belonging to the Euro area, while the value
of the goods imported from those countries was 17.2 billion euros (+3.9%).

Exports of goods to countries outside the European Union (third countries) amounted to 44.1
billion euros in June 2016, while imports from those countries totalled 26.8 billion euros.
Compared with June 2015, exports to third countries decreased by 0.4% and imports from those
countries by 5.4%.

Germany exported goods to the value of 116.5 billion euros and imported goods to the value
of 92.8 billion euros in November 2017. Based on provisional data, the Federal Statistical
Office (Destatis) also reports that German exports increased by 8.2% and imports by 8.3% in
November 2017 on the same month a year earlier. After calendar and seasonal adjustment,
exports were up 4.1% and imports 2.3% compared with October 2017.
The foreign trade balance showed a surplus of 23.7 billion euros in November 2017. In
November 2016, the surplus amounted to 22.0 billion euros. In calendar and seasonally
adjusted terms, the foreign trade balance recorded a surplus of 22.3 billion euros in November
2017.
According to provisional results of the Deutsche Bundesbank, the current account of the
balance of payments showed a surplus of 25.4 billion euros in November 2017, which takes
into account the balances of trade in goods including supplementary trade items (+25.4 billion
euros), services (–0.6 billion euros), primary income (+5.9 billion euros) and secondary income
(–5.2 billion euros). In November 2016, the German current account showed a surplus of
24.9 billion euros.

In November 2017, Germany exported goods to the value of 67.9 billion euros to the Member
States of the European Union (EU), while it imported goods to the value of 62.1 billion euros
from those countries. Compared with November 2016, exports to the EU countries increased
by 8.0%, and imports from those countries by 9.5%. Goods to the value of 43.0 billion euros
(+9.1%) were dispatched to the Euro area countries in November 2017, while the value of the
goods received from those countries was 41.3 billion euros (+9.5%). In November 2017, goods
to the value of 24.9 billion euros (+6.2%) were exported to EU countries not belonging to the
Euro area, while the value of the goods imported from those countries was 20.8 billion euros
(+9.6%).

Exports of goods to countries outside the European Union (third countries) amounted to 48.5
billion euros in November 2017, while imports from those countries totalled 30.7 billion euros.
Compared with November 2016, exports to third countries increased by 8.4% and imports from
those countries by 5.9%.
 BOP ANALYSIS - HONG KONG

BOP ACCOUNT OF HONG KONG: (HK$ Million)

Particular 2013 2014 2015 2016 2017

Current Account 32,180 42,172 79,553 112,538 114,946

CREDIT 5,930,06 6,141,108 5,982,28 5,938,718 6,416,163

0 0

DEBIT - -6,098,936 - -5,826,180 -6,301,218

5,897,88 5,902,72
0 7

Goods -216,592 -233,693 -177,302 -136,008 -186,673

CREDIT 3,926,05 4,026,818 3,889,22 3,900,235 4,191,267

9 5

DEBIT - -4,260,511 - -4,036,243 -4,377,940

4,142,65 4,066,52
1 7

Services 229,129 234,732 234,603 186,071 210,890

CREDIT 812,345 822,367 808,948 764,035 811,396

DEBIT -583,216 -587,635 -574,345 -577,964 -600,506

Primary Income 40,519 60,774 44,376 84,113 110,734

CREDIT 1,183,56 1,283,533 1,274,45 1,264,141 1,400,657

8 7

DEBIT - -1,222,759 - -1,180,028 -1,289,923

1,143,04 1,230,08
9 0

Secondary Income -20,876 -19,642 -22,124 -21,638 -20,005

CREDIT 8,088 8,389 9,650 10,307 12,843

DEBIT -28,964 -28,031 -31,775 -31,945 -32,848

Capital and Financial -86,308 -96,437 -128,642 -122,822 -155,044
Account

Capital Account -1,609 -753 -216 -362 -646

CREDIT 4 3 256 3 4

DEBIT -1,613 -756 -472 -365 -650

Financial Account -84,699 -95,684 -128,426 -122,460 -154,397

Financial Non-Reserve -26,810 43,405 153,570 -113,605 96,111

Assets

Direct Investment -50,250 -305,870 794,800 354,466 167,473

ASSETS -646,336 -1,205,238 -608,769 -554,356 -786,084

LIABILITIES 596,086 899,368 1,403,56 908,823 953,557

8

Portfolio Investment -386,077 157,089 -970,938 -325,571 305,014

ASSETS -514,650 -37,698 -661,239 -361,131 23,160

LIABILITIES 128,573 194,787 -309,700 35,560 281,854

Financial Derivatives 54,661 103,939 99,178 28,599 39,646

ASSETS 424,894 449,577 564,185 709,388 635,854

LIABILITIES -370,232 -345,638 -465,006 -680,789 -596,208

Other Investment 354,856 88,247 230,531 -171,098 -416,022

ASSETS -639,171 -872,885 285,040 -266,876 -1,462,979

LIABILITIES 994,027 961,132 -54,510 95,777 1,046,957

Reserve Assets -57,890 -139,089 -281,996 -8,856 -250,509

Net Errors and Omissions 54,128 54,265 49,089 10,284 40,098

Overall Balance of 57,890 139,089 281,996 8,856 250,509

Payments

(surplus) (surplus) (surplus) (surplus) (surplus)

 Hong Kong recorded a BoP surplus of $73.8 billion (as a ratio of 10.7% to GDP) in the
first quarter of 2018, compared with a surplus of $73.5 billion (as a ratio of 10.2% to
GDP) in the fourth quarter of 2017. Reserve assets correspondingly increased by the
same amount ($73.8 billion) in the first quarter of 2018.
 Hong Kong recorded a BoP surplus of $76.1 billion (as a ratio of 12.1% to GDP) in the
second quarter of 2017, compared with a surplus of $45.3 billion (as a ratio of 7.2% to
GDP) in the first quarter of 2017. Reserve assets correspondingly increased by the
same amount ($76.1 billion) in the second quarter of 2017.
 Hong Kong recorded a BoP deficit of $16.1 billion (as a ratio of 2.7% to GDP) in the
second quarter of 2016, as against a surplus of $5.2 billion (as a ratio of 0.9% to GDP)
in the first quarter of 2016. Reserve assets correspondingly decreased by the same
amount ($16.1 billion) in the second quarter of 2016.
 Hong Kong recorded a BoP surplus of $76.7 billion (as a ratio of 13.5% to GDP) in the
second quarter of 2015, compared with a surplus of $36.3 billion (as a ratio of 6.3% to
GDP) in the first quarter of 2015. Reserve assets correspondingly increased by the
same amount ($76.7 billion) in the second quarter of 2015.

 Analysis of Current Account:

o Goods and Service:
 The overall balance on goods and services recorded a deficit of $2.4 billion in the first
quarter of 2018, as against a surplus of $5.3 billion in the same quarter of 2017.
 The overall balance on goods and services recorded a deficit of $29.3 billion in the
second quarter of 2017, compared with a deficit of $18.1 billion in the same quarter of
2016.
 The overall balance on goods and services recorded a deficit of $18.1 billion in the
second quarter of 2016, compared with a deficit of $24.2 billion in the same quarter of
2015.
 The overall balance on goods and services recorded a deficit of $22.8 billion in the
second quarter of 2015, compared with a deficit of $32.6 billion in the same quarter of
2014.
o Primary Income and Secondary Income:
 The primary income inflow and outflow amounted to $349.6 billion and $325.4 billion
respectively, thus yielding a net inflow of $24.2 billion in the first quarter of 2018,
compared with a net inflow of $19.8 billion in the same quarter of 2017. The secondary
income inflow and outflow amounted to $3.1 billion and $8.6 billion respectively,
resulting in a net outflow of $5.6 billion in the first quarter of 2018, compared with a
net outflow of $4.9 billion in the same quarter of 2017.
 The primary income inflow and outflow amounted to $391.4 billion and $341.0 billion
respectively, thus yielding a net inflow of $50.4 billion in the second quarter of 2017,
compared with a net inflow of $38.4 billion in the same quarter of
2016. The secondary income inflow and outflow amounted to $3.2 billion and
$7.9 billion respectively, resulting in a net outflow of $4.7 billion in the second quarter
of 2017, compared with a net outflow of $5.3 billion in the same quarter of 2016.
 The primary income inflow and outflow amounted to $366.3 billion and $327.9 billion
respectively, thus yielding a net inflow of $38.4 billion in the second quarter of 2016,
compared with a net inflow of $29.1 billion in the same quarter of 2015.
The secondary income inflow and outflow amounted to $2.6 billion and $7.9 billion
respectively, resulting in a net outflow of $5.3 billion in the second quarter of 2016,
compared with a net outflow of $4.8 billion in the second quarter of 2015.
 The primary income inflow and outflow amounted to $378.2 billion and $349.1 billion
respectively, thus yielding a net inflow of $29.1 billion in the second quarter of 2015,
compared with a net inflow of $27.8 billion in the same quarter of 2014.The secondary
income inflow and outflow amounted to $2.3 billion and $7.1 billion respectively,
resulting in a net outflow of $4.8 billion in the second quarter of 2015. The net outflow
in the same quarter of 2014 was also $4.8 billion.
o Analysis of Capital Account:
 In the first quarter of 2018, a net outflow of $0.1 billion was recorded in the capital
account, compared with a net outflow of $0.4 billion in the fourth quarter of 2017.
 In the second quarter of 2017, a net outflow of $0.1 billion was recorded in the capital
account, similar to that in the first quarter of 2017.
 In the second quarter of 2016, a small net outflow of $0.1 billion was recorded in
the capital account, similar to that in the first quarter of 2016.
 In the second quarter of 2015, a small net inflow of $0.2 billion was recorded in
the capital account, as against a small net outflow of $0.1 billion in the first quarter of
2015.

o Analysis of Financial Account:

 Year 2017-18
 Direct investment recorded a net outflow of $19.7 billion in the first quarter of 2018,
as against a net inflow of $121.8 billion in the fourth quarter of 2017.

 Portfolio investment recorded a net outflow of $245.7 billion in the first quarter of
2018, compared with a net outflow of $13.6 billion in the fourth quarter of 2017.

 Financial derivatives recorded a net outflow of $3.8 billion in the first quarter of 2018,
as against a net inflow of $19.7 billion in the fourth quarter of 2017.

 Other investment recorded a net inflow of $298.5 billion in the first quarter of 2018,
as against a net outflow of $86.0 billion in the fourth quarter of 2017.
In the first quarter of 2018, reserve assets increased by $73.8 billion, compared with
an increase of $73.5 billion in the fourth quarter of 2017.
 International Investment Position At the end of the first quarter of 2018, Hong
Kong's external financial assets and liabilities amounted to $43,623.6 billion and
$31,989.8 billion respectively. After netting out the external financial liabilities from
the external financial assets, Hong Kong was a net creditor. Hong Kong's net external
financial assets amounted to $11,633.8 billion (as a ratio of 428% to GDP) at the end
of the first quarter of 2018, compared with $10,893.7 billion (as a ratio of 409% to
GDP) at the end of the fourth quarter of 2017.

 External financial assets Within the total value of external financial assets at the end
of the first quarter of 2018, direct investment was the largest component, accounting
for 36.9% ($16,117.7 billion) of the total value. Portfolio investment ($13,871.8
billion) and other investment ($9,511.6 billion) contributed 31.8% and 21.8%
respectively.

 External financial liabilities Within the total value of external financial liabilities at
the end of the first quarter of 2018, 53.0% ($16,962.2 billion) was in the form of direct
investment. Other investment ($10,068.9 billion) and portfolio investment ($4,336.7
billion) contributed 31.5% and 13.6% respectively.

 External Debt At the end of the first quarter of 2018, Hong Kong's gross
ED (measuring total outstanding gross external liabilities other than equity liabilities)
amounted to $12,775.6 billion (as a ratio of 470% to GDP). Compared with $12,220.5
billion (as a ratio of 459% to GDP) at the end of the fourth quarter of 2017, gross ED
increased by $555.1 billion. This was mainly attributable to the increases in ED of the
banking sector, ED of other sectors and debt liabilities in direct
investment (intercompany lending).
 Year 2016-17
 Direct investment recorded a net outflow of $36.9 billion in the second quarter of
2017, as against a net inflow of $69.4 billion in the first quarter of 2017.
 Portfolio investment recorded a net inflow of $229.1 billion in the second quarter of
2017, compared with a net inflow of $103.0 billion in the first quarter of 2017
 Financial derivatives recorded a net outflow of $3.6 billion in the second quarter of
2017, as against a net inflow of $12.5 billion in the first quarter of 2017.
 Other investment recorded a net outflow of $157.9 billion in the second quarter of
2017, compared with a net outflow of $127.5 billion in the first quarter of 2017.
 International Investment Position: At the end of the second quarter of 2017, Hong
Kong's external financial assets and liabilities amounted to $39,041.2 billion and
$29,280.6 billion respectively. After netting out the external financial liabilities from
the external financial assets, Hong Kong was a net creditor. Hong Kong’s net external
financial assets amounted to $9,760.6 billion (as a ratio of 380% to GDP) at the end of
the second quarter of 2017, compared with $9,454.4 billion (as a ratio of 374% to GDP)
at the end of the first quarter of 2017.
 External financial assets Within the total value of external financial assets at the end
of the second quarter of 2017, direct investment was the largest component, accounting
for 38.0% ($14,821.2 billion) of the total value. Portfolio investment ($11,735.2
billion) and other investment ($8,690.9 billion) contributed 30.1% and 22.3%
respectively.
 External financial liabilities Within the total value of external financial liabilities at
the end of the second quarter of 2017, 53.8% ($15,747.1 billion) was in the form
of direct investment. Other investment ($9,029.7 billion) and portfolio
investment ($3,923.6 billion) contributed 30.8% and 13.4% respectively.
 External Debt At the end of the second quarter of 2017, Hong Kong's gross
ED (measuring total outstanding gross external liabilities other than equity liabilities)
amounted to $11,670.5 billion (as a ratio of 454% to GDP). Compared with $10,988.9
billion (as a ratio of 434% to GDP) at the end of the first quarter of 2017, gross ED
increased by $681.6 billion. This was mainly attributable to the increases in debt
liabilities in direct investment (intercompany lending) and ED of the banking sector
and other sectors.
 Year 2015-16
 Direct investment recorded a net inflow of $31.7 billion in the second quarter of 2016,
as against a net outflow of $7.6 billion in the first quarter of 2016.
 Portfolio investment recorded a net outflow of $18.9 billion in the second quarter of
2016, as against a net inflow of $84.7 billion in the first quarter of 2016.
 Financial derivatives recorded a net inflow of $6.7 billion in the second quarter of
2016, compared with a net inflow of $11.8 billion in the first quarter of 2016.
 Other investment recorded a net outflow of $26.7 billion in the second quarter of 2016,
compared with a net outflow of $73.4 billion in the first quarter of 2016.
In the second quarter of 2016, reserve assets decreased by $16.1 billion, as against an
increase of $5.2 billion in the first quarter of 2016.
 International Investment Position At the end of the second quarter of 2016, Hong
Kong's external financial assets and liabilities amounted to $34,269.5 billion and
$25,619.8 billion respectively. After netting out the external financial liabilities from
the external financial assets, Hong Kong was a net creditor. Hong Kong's net external
financial assets amounted to $8,649.7 billion (as a ratio of 355% to GDP) at the end of
the second quarter of 2016, compared with $8,480.9 billion (as a ratio of 351% to GDP)
at the end of the first quarter of 2016.
 External financial assets Within the total value of external financial assets at the end
of the second quarter of 2016, direct investment was the largest component, accounting
for 38.9% ($13,342.6 billion) of the total value. Portfolio investment ($9,904.5 billion)
and other investment ($7,436.5 billion) contributed 28.9% and 21.7% respectively.
 External financial liabilities Within the total value of external financial liabilities at
the end of the second quarter of 2016, 52.2% ($13,366.5 billion) was in the form
of direct investment. Other investment ($8,126.9 billion) and portfolio
investment ($3,358.6 billion) contributed 31.7% and 13.1% respectively.
 External Debt At the end of the second quarter of 2016, Hong Kong's gross
ED (measuring total outstanding gross external liabilities other than equity liabilities)
amounted to $9,928.7 billion (as a ratio of 408% to GDP). Compared with $9,806.7
billion (as a ratio of 406% to GDP) at the end of the first quarter of 2016, gross ED
increased by $122.0 billion. The increase was mainly attributable to ED of the banking
sector.
 Year 2014-15
 Direct investment recorded a net inflow of $560.5 billion in the second quarter of
2015, compared with a net inflow of $181.5 billion in the first quarter of 2015.
 Portfolio investment recorded a net outflow of $395.2 billion in the second quarter of
2015, compared with a net outflow of $282.8 billion in the first quarter of 2015.
 Financial derivatives recorded a net inflow of $33.5 billion in the second quarter of
2015, compared with a net inflow of $53.1 billion in the first quarter of 2015.
 Other investment recorded a net outflow of $151.0 billion in the second quarter of
2015, as against a net inflow of $57.0 billion in the first quarter of 2015.
In the second quarter of 2015, reserve assets increased by $76.7 billion, compared
with an increase of $36.3 billion in the first quarter of 2015.
 International Investment Position At the end of the second quarter of 2015, Hong
Kong's external financial assets and liabilities amounted to $35,130.7 billion and
$27,340.3 billion respectively. After netting out the external financial liabilities from
the external financial assets, Hong Kong was a net creditor. Hong Kong's net external
financial assets amounted to $7,790.4 billion (as a ratio of 334% to GDP) at the end of
the second quarter of 2015, compared with $6,807.2 billion (as a ratio of 297% to GDP)
at the end of the first quarter of 2015.
 External financial assets Within the total value of external financial assets at the end
of the second quarter of 2015, direct investment was the largest component, accounting
for 37.4% ($13,147.8 billion) of the total value. Portfolio investment ($10,718.8
billion) and other investment ($8,003.8 billion) contributed 30.5% and 22.8%
respectively.
 External financial liabilities Within the total value of external financial liabilities at
the end of the second quarter of 2015, 51.9% ($14,201.9 billion) was in the form
of direct investment. Other investment ($8,448.1 billion) and portfolio
investment ($4,143.7 billion) contributed 30.9% and 15.2% respectively.
 External Debt At the end of the second quarter of 2015, Hong Kong's gross
ED (measuring total outstanding gross external liabilities other than equity liabilities)
amounted to $10,436.7 billion (as a ratio of 447% to GDP). Compared with $9,973.1
billion (as a ratio of 435% to GDP) at the end of the first quarter of 2015, gross ED
increased by $463.6 billion. The increase was mainly attributable to debt liabilities
in direct investment (intercompany lending), ED of other sectors and the banking
sector.
 CURRENCY EXCHANGE RATE TABLE:

India(INR)
72
69.956
70
67.809
68 66.768

66

64 63.469
India(INR)

62 Linear (India(INR))
60.936

60

58

56
2013 2014 2015 2016 2017
India(INR) 67.809 69.956 66.768 63.469 60.936

Germany(EURO)
1.2

1 0.923 0.94 0.937

0.784 0.783
0.8

0.6

0.4

0.2

0
2013 2014 2015 2016 2017
Germany(EURO) 0.923 0.94 0.937 0.784 0.783

Germany(EURO) Linear (Germany(EURO))

 Hongkong(HKD)
8.11 8.105

8.1

8.09

8.08 8.073
8.07 8.065 8.067
8.062
8.06

8.05

8.04

8.03
2013 2014 2015 2016 2017
Hongkong 8.105 8.073 8.062 8.065 8.067

Hongkong Linear (Hongkong)

 GERMANY TRADE RELATIONSHIP WITH INDIA
India’s total trade with Germany increased from US$ 15 billion in 2007-08 to US$ 19.2 billion
in 2015-16, reaching a peak in 2011-12 at US$23 billion. Germany is currently India’s sixth
largest trading partner, with total trade standing at US$ 18.73 billion in 2016-17.

India’s exports to Germany increased from US$ 5.1 billion in 2007-08 to US$ 7.2 billion in
2016-17 (Figure 1), accounting for 17.2 per cent of India’s total exports to EU countries. Indian
exports reached a peak in 2011-12 with US$ 7.9 billion. Indian imports from Germany
increased from US$ 9.9 billion in 2007-08 to US$ 11.5 billion in 2016-17, accounting for 30.35
per cent of India’s total imports from EU countries.

India’s Trade with Germany (US$ millions)

  MAJOR EXPORTS AND IMPORTS:
India’s trade with Germany is well-diversified and composed primarily of manufactured
products.
Among India’s top imports from Germany, machinery and parts (HS Code 84) occupied the
leading position in February-April 2016-17, accounting for 30 per cent of the total. Other major
imports included electrical machinery and equipment, medical equipment and parts, vehicles
and parts, and plastic and articles. The category wise percentage shares of key imports are given
below chart.

India’s Major Imports from Germany as % of Total Indian Imports from Germany

In February-April 2016-17, the major Indian exports to Germany included machinery and parts,
followed by apparel and clothing accessories (knitted), organic chemicals, apparel and clothing
accessories (not knitted) and vehicles and parts. The category wise percentage shares of key
exports are given below chart.

India’s Major Exports to Germany as % of Total Indian Exports to Germany

  INDIA’S INVESTMENT RELATIONS WITH GERMANY

Germany is India’s 7th largest foreign direct investor in cumulative terms since 2000. FDI
inflows during April 2000-March 2017 were placed at US$ 9.7 billion. The major German
investments in India are in the sectors of transportation, electrical equipment, metallurgical
industries, services sectors, chemicals, construction activity, trading and automobiles. German
auto industry giants such as Volkswagen, BMW and Audi have entered the Indian market and
established major manufacturing plants in India. Other major German companies which have
significant operations in India include Siemens, ThyssenKrupp, Bosch, Deutsche Bank, and
Lufthansa, among many others.

At the 3rd IGC, the two sides agreed upon setting up the Make in India Mitte stand (MIIM)
Programmed for facilitating investments by German Mitte stand and family owned companies
in India.

In the last few years, Indian investments to Germany have been steadily increasing. Indian
corporate entities have invested more than US$ 6 billion in Germany as on December, 2016.
Major Indian investments are in the sectors of IT, automotive, pharma and biotech. Indian
companies such as Mahindra and Mahindra, Hex aware Technologies, Hindustan National
Glass, Graphite India Limited, and many others have penetrated the German markets and have
either acquired German companies or started their own subsidiaries.
  CII INITIATIVES:

CII is actively engaged in organizing several trade fairs, business seminars and international
business delegations for further expanding the scope of economic and industrial relationship
between the two countries.

CII organized a CEOs’ delegation to Germany, coinciding with the Hannover Messe, held
during April 2015. The fair was inaugurated by the Hon’ble Prime Minister of India, Shri
Narendra Modi and HE Ms. Angela Merkel, Chancellor of Germany. CII organized the Indo-
German Business Summit and also organized sectoral seminars and coordinated the industry
participation at the exhibition.

CII along with other business associations, organized the “India-Germany Business
Roundtable” on 5th October 2015 in New Delhi, coinciding with the visit of the German
Chancellor to India. The roundtable was attended by the German CEOs’ delegation and select
members of the Indian industry with the objective of exploring new avenues for cooperation
and discussing bilateral economic engagement issues.

Most recently, a CII CEOs’ delegation to Germany, led by Ms Shobana Kamineni, CII
President Designate, visited Berlin during January 2017. The delegation met with several
senior government officials, leaders of industry and prominent German think tanks with a view
to promoting economic and trade ties between the two countries. This was the largest CII
delegation to visit Germany since India’s participation in the Hannover Messe during 2015.
  HONG KONG TRADE RELATIONS WITH INDIA

 In 2017, India was Hong Kong's 7th largest trading partner. Reciprocally, Hong Kong
was India's 5th largest trading partner in 2017.
 Bilateral trade in goods between Hong Kong and India amounted to HK$266.0 billion
in 2017, increased by 27.0% from 2016. The average annual growth rate from 2013 to
2017 was 11.7%.
 In 2017, Hong Kong's domestic export of goods to India amounted to HK$1.5 billion.
Major domestic exports to India included non-ferrous metals; and metalliferous ores
and metal scrap.
 Reflecting Hong Kong's role as an important entrepôt for merchandise trade between
India and the Mainland of China, re-export trade between the two economies through
Hong Kong has grown by 16.0% annually since 2013 to HK$103.7 billion in 2017.
 Hong Kong's re-export of goods to India totalled HK$157.2 billion. Major re-exports
were non-metallic mineral manufactures; telecommunications and sound recording and
reproducing apparatus and equipment; and non-ferrous metals.
 In 2017, Hong Kong imported HK$107.4 billion worth of goods from India. Major
imports included non-metallic mineral manufactures; jewellery, goldsmiths' and
silversmiths' wares, and other articles of precious or semi-precious materials; and
petroleum, petroleum products and related materials.

Summary of Hong Kong's Trade with India

(in HK$ million)
2016 % Change 2017 % Change
(2016/2015) (2017/2016)
Domestic Exports 487 -11.0 1,462 +200.3
Re-exports 116,215 +14.7 157,173 +35.2
Total Exports 116,702 +14.6 158,635 +35.9
Imports 92,773 +11.9 107,412 +15.8
Total Trade 209,474 +13.4 266,047 +27.0
  MAJOR CHANGES IN BOP AFTER CHANGES IN ECONOMY
OF INDIA

India's current account deficit (CAD) worsened to USD 15.8 billion in Apr-Jun'18 (Q2 FY19),
highest in nearly five years. In terms of the share to GDP, the current account deficit stood at
2.4% of GDP, rising from 1.9% of GDP in FY18. The rise in current account deficit will surely
pose a concern as the economy struggles with the weakening rupee (hitting an all-time low of
72 against the USD) amidst global trade tensions.

The widening of CAD was led by an increase in not just oil imports (due to rising crude oil
prices) but even the non-oil-non-gold imports amidst moderate growth in exports leading to a
higher trade deficit of USD 45.7 billion in Q2 FY19, from USD 41.9 billion a year ago.

The capital and financial account surplus just improved by USD 1.1 billion in the last one year
to USD 16.6 billion in Q2 FY19, thus proving inadequate to fund the soaring CAD. The
strengthening of USD against all the emerging market currencies since the beginning of 2018,
resulted in the valuation loss of forex reserves. Consequently, India recorded a decline in the
forex reserves by USD 11.3 billion in Q2 FY19 in contrast to the addition of USD 11.4 billion
to the forex reserves pool in Q2 FY18.

The depreciating rupee is not likely to help the export pickup soon, while threats of cost-push
inflation loom as the rupee continues to depreciate and the global crude oil prices remain
elevated. The higher inflation would surely pose a headwind to the growth recovery India is
going through, expanding at a two-year high pace of 8.2% year-on-year (YoY) in Q2 FY19.

The RBI in its annual report of 2017-18 stated that the CAD is expected to be largely financed
by higher FDI inflows. However, as of now, the FDI in India stood at USD 13 billion in Q2
FY19, just USD 3 billion higher since Q2 FY18. In addition, the portfolio investments have
also been disappointing with money being pulled out both from the debt and equity market
resulting in a net outflow of USD 8.1 billion as against a net inflow of USD 12.5 billion in Q2
FY18.

We believe, the threat of rising CAD coupled with the risks of fiscal slippage (fiscal deficit at
86.5% of the budgeted estimate of FY19 in Apr-Jul'18) in the pre-election year might reinstate
the twin-deficit situation. Consequently, adding to the worsening of the macroeconomic
situation. The only respite seems to be in terms of increasing growth led by consumption and
investment demand, improvement in the manufacturing growth, and the comforting level of
forex reserves (over USD 400 billion).

At present, quick actions need to be mooted over reducing CAD in order to preserve
macroeconomic stability in the domestic economy and mitigate any further depreciation of the
rupee.
  MAJOR CHANGES IN BOP AFTER CHANGES IN ECONOMY
OF GERMANY

The German economy’s current account surplus declined further to 8% of nominal gross
domestic product (GDP) in 2017 in a continuation of the development observed in the previous
year which has now left the surplus perceptibly short of the record level of 9% seen back in
2015. In absolute terms, the surplus came in at €262½ billion, which is well down on the figures
for the two previous years but still far in excess of the 6% of GDP threshold set by the European
Commission to prevent and correct macroeconomic imbalances. Looking at the sub-accounts,
2017 was the first year since 2009 in which the goods trade surplus stopped expanding. This
was largely down to terms of trade effects relating to the increase in the cost of internationally
traded commodities as well as the continued strength of domestic demand and the resulting
high demand for imports. The rosy demand conditions worldwide meant that the slight
appreciation of the euro on an annual average was almost of no consequence. Viewed in terms
of the domestic savings and investment decisions made, last year’s decline in the current
account surplus as a share of GDP was attributable to the increase in business and household
investment activity on the back of a strongly expanding German economy.

Germany’s financial account last year was likewise influenced by the recovery in global
activity; furthermore, the persistently accommodative monetary policy in the euro area
contributed to cross-border portfolio adjustments. At €275½ billion, net capital exports were
slightly up on their 2016 level. Continued purchases of assets for monetary policy purposes
drove down the volume of German debt securities held by non-resident investors and led to
sustained domestic demand for foreign securities. The Euro system’s asset purchase operations
were likewise the driving force behind the further expansion of the Bundesbank’s TARGET2
claims, while commercial banks’ stock of external liabilities also picked up. Direct investment
flows worldwide receded, but German enterprises once again stepped up their direct investment
operations. Germany also proved to be a popular destination for inbound foreign direct
investment. In both directions, euro area countries were the main partner countries.
  MAJOR CHANGES IN BOP AFTER CHANGES IN ECONOMY
OF HONG KONG

 Factors Influencing Movements in Hong Kong’s Reserves:

Hong Kong’s reserves are held by the Exchange Fund and managed by the HKMA. There are
three main counterparts to the reserves: (i) Monetary base: this comprises Certificates of
Indebtedness (for backing banknote issuance) and coins; the aggregate clearing balance of the
banking system (Aggregate Balance); and Exchange Fund paper. (ii) Fiscal reserves: the
Treasury began to transfer fiscal reserves to the Exchange Fund in exchange for interest-
bearing debt certificates in 1976. These reserves are repaid to the Treasury as and when
required to meet the obligations of the General Revenue. (iii) Accumulated surplus: this
represents the investment earnings of the Exchange Fund.

The assets of the Exchange Fund are managed under two portfolios, namely: the backing
portfolio that holds the US dollar assets backing the monetary base; and the investment
portfolio that holds the rest of the assets. Changes in reserve assets may be brought about by
one of the following factors:5 (i) a change in private-sector liquidity demand that affects
banknotes in circulation or the Aggregate Balance;6 (ii) a change in portfolio demand for Hong
Kong dollars by the private sector that may necessitate the purchase or sale of Hong Kong
dollars by the HKMA under the currency board arrangements, which ensure exchange rate
stability; and (iii) a change in Exchange Fund holdings of foreign currency assets arising from
fiscal transfers or transaction in domestic assets (such as the acquisition of shares during the
operation of August 1998, and their subsequent disposals). We analyse below how these three
types of exogenous shocks will impact on reserves assets, financial variables, and the BoP data.
(i) Change in liquidity demand Banknotes are held mainly for transaction purposes.
Quantitative studies suggest that their demand is closely related to nominal GDP (which
reflects transactions demand) and interest rates (which reflect the opportunity cost of holding
banknotes). Suppose there is an increase in the demand for banknotes. Note-issuing banks will
submit US dollars to the HKMA in exchange for CIs. Other things being equal, reserves will
increase, and banks’ net foreign currency assets will decline.7 During the Year 2000 transition,
for instance, note issuance increased by HK$26.5 billion (around US$3.4 billion) in December
1999. In part reflecting this, the foreign currency assets of the Exchange Fund rose by US$4.2
billion during the month. Note-issuing banks may let their foreign currency assets run down
temporarily if fluctuations in the demand for banknotes are perceived to be transient. However,
should banks aim to restore their initial foreign currency positions, there will be increased
selling pressure on the Hong Kong dollar. This happened just ahead of the Chinese New Year
in 1999 and 2000, when the sale of Hong Kong dollars in connection with additional note
issuance triggered the convertibility undertaking, and drove the Aggregate Balance to a low
level. Short-term interest rates rose in response, inducing inflows of funds. In this case, then,
reserves would increase, but there would be downward pressure on the exchange rate and
upward pressure on interest rates. These movements in financial variables, of course, are the
opposite to what would be expected if the rise in reserves had been driven by an increase in
investor demand for Hong Kong dollar assets. Turning to clearing balances, an increase in
demand will exert upward pressure on interest rates. Higher interest rates, in turn, will cause
the exchange rate to appreciate. In order to limit the movement in the exchange rate, the HKMA
will generally intervene by purchasing US dollars in the market and thus expanding the supply
of Hong Kong dollar liquidity. Official reserves will increase, and a capital inflow will be
observed in the BoP data. But the capital inflow will be induced by higher interest rates, as
opposed to an exogenous shift in investor demand.

Adjustment Facility that existed at that time. In response, banks reduced their foreign currency
positions to build up Hong Kong dollar clearing balances, the aggregate level of which rose to
a record HK$42 billion. Against a decline in portfolio demand for Hong Kong dollar assets on
the back of a perceived increase in currency risk, the liquidity shock probably added to interest
rate pressures on the Hong Kong dollar. (Chart 3) (ii) Change in portfolio demand for Hong
Kong dollars by the private sector Conceptually, an exogenous increase in the demand for Hong
Kong dollar assets will lead to a strengthening of the exchange rate. As the HKMA sells Hong
Kong dollars for US dollars to offset this pressure, both the Aggregate Balance and reserves
will increase, and interest rates will fall. Conversely, if portfolio demand declines, and the
exchange rate weakens to the convertibility rate, the convertibility undertaking will be
triggered, leading to decreases in both the Aggregate Balance and reserves. Interest rates will
rise. These responses are consistent with the “traditional” interpretation of reserve movements.
The magnitude of the change in reserves is likely to be quite small, however, regardless of the
size of the shift in portfolio demand. In particular, the longer-term level of the Aggregate
Balance is largely determined by the liquidity needs of the banking system. To the extent that
the convertibility undertaking is triggered by a portfolio outflow and the Aggregate Balance is
reduced below the level consistent with banks’ liquidity demand, interest rates will respond
sharply.8 Thus, adjustments to portfolio shocks mainly work through the interest rate channel.
The sharp swing of interest rate differentials between the Hong Kong dollar and the US dollar,
from an average premium of 330 basis points (in terms of onemonth money) during the Asian
crisis (1997 Q4 - 1998 Q3) to an average discount of about 30 basis points in the first ten
months of 2000, reflects a significant shift in portfolio demand as investment sentiment sharply
turned around.9 The strong rebound in share prices, increased cross-border flows to the local
equity market, and steady increases in bank deposits provide evidence to support this view. (iii)
Change in Exchange Fund holdings of US dollar assets Portfolio decisions made by the HKMA
as the manager of the Exchange Fund will also affect the level of reserves. In practice, the
HKMA does not actively trade between currencies. However, the bulk of the long-term funds
held by the Exchange Fund are invested in foreign currency assets. When there are incoming
funds due to fiscal transfers or share disposals, decisions must be taken as to the timing of any
required switch into foreign currencies. Likewise, when the Treasury withdraws its placements
from the Exchange Fund, the HKMA must determine the timing of any necessary sale of
foreign currency assets; alternatively, the funding need may be met by Hong Kong dollar
borrowings, at least in the short term. In making the choice, the HKMA takes into account
prevailing market conditions, such that any currency switches will not exert undue pressure on
the exchange rate, liquidity conditions or interest rates. Take the case of the share disposal
programme that started in October 1999. Some of the proceeds were used to fund fiscal
drawdowns, while a considerable chunk was, over time, switched into foreign currency assets,
building up official reserves. Other things being equal, this could have exerted some downward
pressure on the exchange rate, or upward pressure on interest rates. Nevertheless, the currency
switches took place at a time when there was a significant rise in portfolio demand for Hong
Kong dollar assets by the private sector. As inferred from the negative interest rate spreads,
portfolio shifts made by the HKMA only partially offset increased demand for Hong Kong
dollar assets by the private sector.

 Balance of Payment:
Hong Kong recorded a BoP surplus of $55.6 billion (as a ratio of 8.2% to GDP) in the third
quarter of 2017, compared with a surplus of $76.1 billion (as a ratio of 12.1% to GDP) in the
second quarter of 2017. Reserve assets correspondingly increased by the same amount ($55.6
billion) in the third quarter of 2017.
 Current Account:
On a year-on-year comparison, the current account recorded a surplus of $58.0 billion (as
a ratio of 8.5% to GDP) in the third quarter of 2017, compared with a surplus of $37.5
billion (as a ratio of 5.9% to GDP) in the same quarter of 2016. The increase in the current
account surplus was mainly due to an increase in the net inflow of primary income and an
increase in the services surplus, partly offset by an increase in the goods deficit.

The goods deficit increased to $18.9 billion in the third quarter of 2017, compared with the
$11.7 billion in the same quarter of 2016. This was due to a larger increase in imports of
goods relative to that in respect of exports of goods. Over the same period, the services
surplus increased to $53.9 billion in the third quarter of 2017, compared with the $48.2
billion in the same quarter of 2016. This was due to a larger increase in exports of services
relative to that in respect of imports of services. The overall balance on goods and services
recorded a surplus of $35.0 billion in the third quarter of 2017, compared with a surplus of
$36.4 billion in the same quarter of 2016.

The primary income inflow and outflow amounted to $370.9 billion and $342.7 billion
respectively, thus yielding a net inflow of $28.2 billion in the third quarter of 2017,
compared with a net inflow of $6.1 billion in the same quarter of 2016.
The secondary income inflow and outflow amounted to $3.2 billion and $8.4 billion
respectively, resulting in a net outflow of $5.2 billion in the third quarter of 2017, compared
with a net outflow of $5.0 billion in the same quarter of 2016.

On a seasonally adjusted quarter-to-quarter comparison basis, the current account credit

and the current account debit in the third quarter of 2017 increased by 4.5% and 4.7%
respectively from the second quarter of 2017.
  Capital and Financial Account:

In the third quarter of 2017, a net outflow of $0.1 billion was recorded in the capital account,
similar to that in the second quarter of 2017.

An overall net outflow of financial non-reserve assets amounting to $33.8 billion (as a ratio of
5.0% to GDP) was recorded in the third quarter of 2017, compared with an overall net inflow
of $30.6 billion (as a ratio of 4.9% to GDP) in the second quarter of 2017. The overall net
outflow recorded in the third quarter of 2017 was the result of a net outflow of portfolio
investment and a net outflow of other investment, partly offset by a net inflow of direct
investment and a net inflow due to the cash settlement of financial derivatives.

Direct investment recorded a net inflow of $13.2 billion in the third quarter of 2017, as against
a net outflow of $36.9 billion in the second quarter of 2017. Portfolio investment recorded a
net outflow of $13.5 billion in the third quarter of 2017, as against a net inflow of $229.1 billion
in the second quarter of 2017. Financial derivatives recorded a net inflow of $11.0 billion in
the third quarter of 2017, as against a net outflow of $3.6 billion in the second quarter of 2017.
Other investment recorded a net outflow of $44.6 billion in the third quarter of 2017, compared
with a net outflow of $157.9 billion in the second quarter of 2017.

In the third quarter of 2017, reserve assets increased by $55.6 billion, compared with an
increase of $76.1 billion in the second quarter of 2017.

II. International Investment Position:

At the end of the third quarter of 2017, Hong Kong's external financial assets and liabilities
amounted to $40,681.6 billion and $30,440.4 billion respectively. After netting out the external
financial liabilities from the external financial assets, Hong Kong was a net creditor. Hong
Kong's net external financial assets amounted to $10,241.2 billion (as a ratio of 391% to GDP)
at the end of the third quarter of 2017, compared with $9,760.6 billion (as a ratio of 379% to
GDP) at the end of the second quarter of 2017.
The ratios of both Hong Kong's external financial assets and liabilities to GDP at the end of
the third quarter of 2017 remained at a very high level, at 15.6 times and 11.6 times
respectively, reflecting that Hong Kong is a highly externally oriented economy and also a
major financial centre in the region with considerable cross-territory investment.

 External financial assets:

Within the total value of external financial assets at the end of the third quarter of 2017, direct
investment was the largest component, accounting for 37.5% ($15,266.0 billion) of the total
value. Portfolio investment ($12,626.4 billion) and other investment ($8,876.1 billion)
contributed 31.0% and 21.8% respectively.

 External financial liabilities:

Within the total value of external financial liabilities at the end of the third quarter of 2017,
54.0% ($16,442.2 billion) was in the form of direct investment. Other investment ($9,223.6
billion) and portfolio investment ($4,188.2 billion) contributed 30.3% and 13.8%
respectively.

III. External Debt

At the end of the third quarter of 2017, Hong Kong's gross ED (measuring total outstanding
gross external liabilities other than equity liabilities) amounted to $11,818.1 billion (as a ratio
of 452% to GDP). Compared with $11,670.5 billion (as a ratio of 454% to GDP) at the end of
the second quarter of 2017, gross ED increased by $147.6 billion. This was mainly
attributable to the increase in ED of other sectors, partly offset by the decreases in debt
liabilities in direct investment (intercompany lending) and ED of the banking sector.
  Sectoral Analysis

At the end of the third quarter of 2017, a major proportion of Hong Kong's ED was
attributable to the banking sector, accounting for 61.9% of the total. Other ED mainly
consisted of ED of other sectors (20.3%) and debt liabilities in direct investment
(intercompany lending) (17.6%).

ED of the banking sector decreased from $7,352.7 billion at the end of the second quarter of
2017 (as a ratio of 286% to GDP) to $7,318.5 billion at the end of the third quarter of 2017 (as
a ratio of 280% to GDP). ED of other sectors, debt liabilities in direct investment (intercompany
lending) and ED of the Government and the Hong Kong Monetary Authority amounted to
$2,394.3 billion, $2,074.3 billion, $27.8 billion and $3.2 billion respectively at the end of the
third quarter of 2017.