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Jake's View
PUBLISHED : Tuesday, 07 May, 2013, 12:00am
UPDATED : Tuesday, 07 May, 2013, 3:56am

HKMA chief's household debt fears overblown

A clearer view of indebtedness reveals nothing to fret over, despite HKMA chief's alarmist talk


Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.

Soaring household debt and rampant consumer spending have put Hong Kong's economy at risk of overheating, the city's central bank boss said yesterday.

SCMP, May 4


Let's look at some specifics here; for instance, that bit about rampant consumer spending, which so concerns Norman Chan Tak-lam, the chief executive of the Hong Kong Monetary Authority.

He appears to base his concerns here on a statistic that private consumption has grown faster than gross domestic product since 2005. Indeed it has when one looks at the figures superficially. As the blue line on the first chart shows, the ratio of private consumption expenditure to GDP has risen from about 57 per cent in 2005 to about 65 per cent at present.

But what our man forgets is that almost a fifth of consumer spending in our domestic market is now attributable to tourists. If they later run into trouble because they have overspent, well, that could be bad news for consumer credit in Zhejiang or Jiangsu provinces.

Thus when calculating GDP, established practice is to deduct this tourist spending from the local consumer figures but add back what Hong Kong residents spend abroad. It not only makes sense in GDP but it gives you a better picture of whether local consumer activity is restrained or overheated.

The red line on the chart makes this adjustment. It shows that the ratio of consumer spending to GDP is pretty much what it was in 2005 and well down from earlier record highs.

Come on, Norman, get with the show. We don't expect howlers like this from the top man at the HKMA.

Likewise that bit about soaring household debt. Norman is worried because it has reached a record (just barely) 61 per cent of GDP.

Yes, and most other sectors of the economy also show record indebtedness as a ratio of GDP. After eight years of stagnation following the financial crisis in 1997, bank lending has doubled since 2005. If Norman is concerned about household debt, he must fret to know the ratio of non-household debt to GDP is 115 per cent, almost double his worry figure.

The second chart gives you a more telling perspective. Household debt now stands at about 35 per cent of total loans, down from 45 per cent 10 years ago. Overheated? Really?

This is a better way of looking at things, anyway, because measuring debt to GDP is like comparing apples to oranges. One is a balance sheet figure, the other a rough approximation of a funds outflow figure in a corporate cash flow statement. The two can be compared for amusement, but not for policy.

Norman's best, however, is that having presided over a 45 per cent slump in the Exchange Fund's investment income over the first quarter, he is now thinking of putting more of the fund's money into the Shanghai stock market. This one stands exactly where it did 12 years ago, although the economy on which it relies has quintupled in size. You spell this sort of performance as L-O-S-E-R.

Oh yes, Norman is worried about risk.



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1. Government doesn't want middle class mass protests on the street.
2. Middle class only turn out to protest when property assets fall.
3. More than a decade of artificially low interest rates has allowed a balloon of affordably-financeable property inflation at the household level.
4. Interest rates in the US will rise (and hence HK interest rates will rise when they do in the US). The only uncertainty is the timing.
5. An entirely plausible 200 basis points rise in interest rates will effectively increase a household's monthly interest payments by around 60%...in other words, by thousands or tens of thousands of HK$.
6. The HK Govt. is simply trying to encourage people to anticipate this likelihood...... even if it means inaccurate statements (as accurately set out by Jake) to prompt the right societal behaviour.
Discuss... as my professor used to say.
How much a household or an individual can bear an outstanding debt depends more than few charts – maths. The stability of a country and the longevity of the changing working life all should be taken into consideration. The former is unquantifiable and the latter is absolutely a known fact to an individual. Make sure any comment on the subject didn't exclude a subtext of all the above that misleading of the public is a disservice in a public forum. BTW Jake, you should and must defend against the claim by others that you were wrong on your Asia Tiger comment. Explain to your reader.
I thought the apples-and-oranges snub sounded familiar.
Can’t blame you for dressing down this straw man
in an overpaid position wearing emperor new clothe
His job requires the honesty of a mediocre
who understands the need to appear intelligent
while manipulated by movers in Beijing and Washington
You have pushed TH to a corner
where he preoccupies himself with ceteris paribus shadow boxing
with the two-factor monogamy of interest rate and housing price
A steady rise in interest rate probably implies that
happy days will be with us again
Norman Chan like so many other elites in govt is in way over his head. Looks at FS Tsang who perpetually gets gets budget projections wrong. Birds of a feather.


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