HK Economy Dips Into Negative Zone?

[This article should be read together with Yiu (2019a) “HK becomes a battlefield of the US-China Trade War” (published on June 2) where the figures of HSI, Retail Sales, GDP, Number of Bankruptcies, Imports/Exports, etc. have been reviewed.]

Hong Kong Monetary Authority (HKMA), the de-facto Central Bank, has just released some statistical data about HK money supply, deposit, loan figures and the Balance Sheet of May 2019. Almost all of them show a dim prospect and many of them dip into negative zone. The trend also shows a continuous downward trend.

First, the money supply M3 figure has dropped by -0.3% yoy in Apr, as shown in Figure 1 (the red curve). The yoy time series clearly shows a downward trend, even though the just-released figure is +2.8% yoy in May, it. Its HK$ mom records -1.0% and its Total mom records -0.8%, it amounts to a reduction of M3 of HKD120b (Table 1), probably due to the money outflow and the reduction of credit trend. Figure 1 shows a strong and positive correlation between M3 and domestic credit (the blue curve).

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Table 1 Amounts of M2 and M3 of HK$, Foreign Currency and Total in May 2019, Apr 2019 and May 2018. Source: HKMA (2019b)
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Figure 1 HK Money Supply M3, 2011–2019 Apr. Source: HKMA (2009a)

Figure 2 shows the total domestic loans of the four economic sectors, viz. property lending, manufacturing, trade financing, and wholesale and retail trade. Two of the four economic sectors have dived into the negative zone in 2019Q1, and the yoy domestic loans of property lending and manufacturing sectors are also reasonably expected to be negative soon when the trade war effects are surfaced (Yiu, 2019a).

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Figure 2 Domestic Loans of Economic Sectors 2011–2019. Source: HKMA (2009a)

When the domestic loans are leveling off, the deposits are shrinking, resulting in a higher loan-to-deposit ratio. The just-released figure of HKD loan-to-deposit ratio was 88.3% at the end of May, in comparison with 87.3% in April. (HKMA, 2009b)

Figure 3 shows the trend of customer deposits in HKD, USD and other currencies. They show a clear downward trend of HKD deposit (the red curve), and it has dropped into the negative zone (-0.5% yoy) since April, but an upward trend of USD deposit (the blue curve). It is probably due to the interest rate difference between HKD and USD, and customers are converting HKD to USD to earn the risk-free extra interest (arbitrageurs).

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Figure 3 Customer Deposits in HKD, USD, and other foreign currencies. Source: HKMA (2019a)

Table 2 shows the latest amounts of deposits and loans (in HKD, foreign currencies and total). All mom changes in deposits are negative -1%, implying a net withdrawal of money from the banking institutions by the customers in May. It amounts to about net HKD136b withdrawal in a month. It is probably the consequences of the government’s proposed amendments of the Fugitive Offenders Ordinance, and it is expected to be aggravating in June. The reduction in loans and advances is leveling in mom, but more severe in yoy of foreign currency loans. It records a negative -4.1% change. The sharp reduction in foreign currency loans, but an increase in HKD loans is probably due to the lower interest rate of HKD than the USD.

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Table 2 Amounts of Deposits and Loans in HKD, Foreign Currencies and Total, in May 2019, Apr 2019 and May 2018. Source: HKMA (2019b)

The HKMA’s balance sheet also shows substantial reductions in the total assets of the Exchange Fund in May (cf April). It dropped by about 3.8%, amounted to HKD4,083.3 billion as at 31 May 2019. Liabilities also dropped by about 3.7%, amounted to HKD3,386.9 billion as at 31 May 2019. (HKMA, 2019c)

Figure 4 HK Exchange Fund Balance Sheet. Source: HKMA (2019c)

The Currency Board Account (Figure 5) also shows a drop in the monetary base from HKD1644.1 billion on 31 May 2018 to HK$1623.6 billion on 31 May, 2019. It is just a -1.2% yoy though, it continues the cross-the-2017-apex downward trend (2015-$1422.4, 2016-$1603.3, 2017-$1657.9, 2018-$1644.1, 2019-$1623.6). Furthermore, it starts to have a substantial drop in the Exchange Fund Bills, which is quite different from the previous trend of a continuous outflow from the Aggregate Balance, as shown in Figure 6.

Figure 5 Exchange Fund Currency Board Account as at 31 May 2019. Source: HKMA (2019c)

Figure 6 is the chart provided by HKMA to the Legislative Council about the fund outflow from Hong Kong since 2017, which has been causing the increasing hibor (see Yiu, 2019b).

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Figure 6 Fund Outflow from HK. Source: Yiu (2019)

[Updates: 2 tables are added to show the amounts of money supply, deposits and loans, and their yoy, mom — Jul 1, 2019 11:45]


HKMA (2019a) Monthly Statistical Bulletin, HKMA.

HKMA (2019b) Monetary Statistics for May 2019, Press Release, HKMA June 28.

HKMA (2019c) Exchange Fund Abridged Balance Sheet and Currency Board Account, Press Release, HKMA June 28.

Yiu, C.Y. (2019a) HK becomes a battlefield of the US-China Trade War, Medium, June 2.

Yiu, C.Y. (2019b) Heavy Private Debts May Cause the Next Crisis in Hong Kong — the Quiet Panic, Medium, April 30.

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ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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