HONG KONG (S.A.R.)
Region: Asia Pacific
Edition: July 2008
The 'DB' risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country and encapsulates the risk that country-wide factors pose to the predictability of export payments and investment returns over a two year time horizon. The 'DB' risk indicator is a composite index of four over-arching country risk categories: Political risk - internal and external security situation, policy competency and consistency, and other such factors that determine whether a country fosters an enabling business environment; Commercial risk - the sanctity of contract, judicial competence, regulatory transparency, degree of systemic corruption, and other such factors that determine whether the business environment facilitates the conduct of commercial transactions; External risk - the current account balance, capital flows, FX reserves, size of external debt and all such factors that determine whether a country can generate enough FX to meet its trade and foreign investment liabilities; Macroeconomic risk - the inflation rate, government balance, money supply growth and all such macroeconomic factors that determine whether a country is able to deliver sustainable economic growth to provide further expansion in business opportunities. The DB risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is subdivided into quartiles (a-d), with an 'a' designation representing slightly less risk than a 'b' designation and so on. Only the DB7 indicator is not divided into quartiles.
Trade Terms
The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country.
D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms.
Normal period of credit associated with transactions with companies in the stated country. Transfer Situation
The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports.
The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system. Trade & Commercial EnvironmentPayments performance data show that 69.9% of payments were prompt in the year to end-Q1 2008, up from 66.2% in 2007, while payments made 30 days or more over terms fell below 25%. Hong Kong payments performance is moving closer into line with that of China as supply chain integration continues. Meanwhile, the housing market is far stronger than in 2003, reducing consumer credit risk. Hong Kong's official FX reserves, for their part, stood at USD159.9bn at end-April 2008. This represented a level seven times currency in circulation and provides sufficient resources to defend the peg with the US dollar (if required). In May 2008, transaction fees for converting Hong Kong dollars into Chinese yuan were raised after Q1 2008 data hinted at speculative flows.
Economic Indicators: Government balance data refer to fiscal years (April-March).
Hong Kong’s economy remained in buoyant condition in Q1 2008, but activity levels could fall in Q3 2008 and inflation pressure could begin to be felt towards the end of the year. GDP growth of 9.6% was recorded in Q1 (year on year, y/y) in current-price terms, and came to 7.1% in real y/y terms. A pattern of buoyant construction activity and retail spending continued in Q1 2008. Gross construction sector activity was up 5.1% y/y in real terms, despite the drop in large public sector contracts (mainly transport-related) during the quarter, while in March 2008 retail spending was up by 20.0% y/y in value terms, 13.0% y/y in value terms. Such growth, along with double-digit y/y rises in of business receipts for most service sectors, was sufficient to offset the drop in domestic exports and industrial output in some segments, including a 22.8% y/y drop in the output of textiles, a 14.2% y/y drop in that for electronic goods and an 8.9% y/y decline in exports of footwear. Meanwhile, port traffic in Q1 2008 was up by 14% y/y to 62.6m tonnes, with outward-bound port traffic to all destinations except the US increasing in y/y terms. Early Q2 data in April and May 2008 suggest a continuation of the Q1 2008 performance. Mortgage delinquency and rescheduling rates for April 2008 dropped to an historic low of 0.24%. Passenger traffic was up 8.3% and freight 6.7% in air transportation, y/y, in May 2008. The unemployment rate continued to average 3.3% in March-May 2008, the same level as in February-April, and the underemployment rate was unchanged at 1.8%. Retail sales were up by 18.7% y/y, to HKD28.2bn (USD3.6bn), in April 2008. Domestic exports continued to drop (by 17.1% y/y in volume terms), but re-exports were up by 14.7%. Lending was up strongly in April 2008, with double-digit y/y rises in most categories. The data suggested that Hong Kong’s economic conditions remained fairly benign in Q2. However, conditions are likely to turn. In quarter-on-quarter terms, receipts for hotels and the financial sector fell by a double-digit rate in Q1 2008, a decline greater than the usual seasonal effect. Moreover, there are signs of weakness, as in the 4.3% y/y decline in spending on miscellaneous consumer durables in April 2008; this suggests that when demand for high-end luxuries arising from wealthy Chinese daytrippers is excluded, consumer demand is stagnating. Meanwhile, the CPI was up by 5.4% y/y in April 2008 and inflation should rise further in the rest of 2008. Indeed, Hong Kong has been through exceptionally easy monetary conditions in the past few months, which may in retrospect look anomalous. The composite interest rate calculated by the Hong Kong Monetary Authority had fallen to 0.79% by end-April 2008, more than 0.5 percentage points down from February 2008. Financing and mortgage costs should rise in Q3-Q4 once the US Federal Reserve shifts its stance.
DEFINITIONS Minimum Terms: The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country. Recommended Terms: D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms. Usual Terms: Normal period of credit associated with transactions with companies in the stated country. Local Delays: The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports. F/X Bank Delays: The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system. C/A (current account) balance, % GDP: Part of the balance of payments that records a nation's exports and imports of goods and services, and income and transfer payments. DSR (debt service ratio), %: Annual interest and principal payments on a country's external debts as a percentage of exports of goods and services. Govt balance, % GDP: The balance of government expenditure and receipts. Real GDP growth, %: GDP adjusted for inflation. Inflation, %: The increase in prices over a given period.
GLOSSARY CiA Cash in Advance CLC Confirmed Letter of Credit CWP Claims Waiting Period FX Foreign Exchange LC Letter of Credit LT Long term MT Medium term OA Open Account SD Sight Draft ST Short term
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