Hong Kong is being hit by a triple whammy: it is now in its sixth consecutive quarter of political unrest; its an global services economy at a time of global travel lockdown; and now, of course, it is a target of China's own new-found diplomatic and political aggression.
So you'd expect Hong Kong's balance of payments to be reeling. But the first rule in Asian economics is 'never rule out Hong Kong'. And today its 2Q balance of payments showed it's current account surplus up HK$26.3bn yoy to $60.5bn. You can mainly thank the $55.1bn yoy narrowing of the trade deficit - but what happens to its trade balance is pretty much out of Hong Kong's hands.
It's the other bits of the picture that are surprising. First, the services surplus was down only $28bn yoy to $21.4bn, which is a pretty good result considering that in 2019 travel exports made up 29% of total services exports, but in 2Q dropped 97% yoy transport exports (last year, 30% of exports) fell 41.3% yoy In fact, if you exclude travel and transport, all other services exports fell only 6.2% yoy, whilst services imports ex transport & travel fell 10.6%. Ex travel and transport, the balance of all other services showed a surplus of $11.7bn, which was up 22.4% yoy!.
Then there's capital flows. There is, or was, some capital outflow , but nothing that amounts to capital flight. In fact, direct dis-investment amounted to only HK$18.4bn in the 12m to June, and in 2Q itself, there was a very small positive net direct investment into the place. Then there's portfolio investment: that showed an outflow of just HK$36bn in the 12m to June. But in context that's peanuts, and net portfolio investment into HK came to $231bn in 2Q alone.
Put it all together, add the net result is that HK's foreign reserves rose HK$15.5bn qoq in 2Q. For the world's most open economy, under siege both from within and without, that is pretty extraordinary. Never count Hong Kong out!
