Why Hong Kong’s ‘indebted’ companies won’t trigger an economic collapse any time soon
- The recent prediction of a ‘cataclysmic recession’ triggered by high private-sector debt fails to take into account Hong Kong’s role as a global financial centre
- Debt levels are a poor measure of financial risk. Rather, the vulnerability of an economy has more to do with the quality of the credit and the ability to service it
This line of argument is based on misinformation, a highly questionable theory and a misunderstanding of how Hong Kong functions as a global financial centre.
It ignores the fact that Hong Kong is a global financial centre where banking sector assets and liabilities are extended far beyond the local economy. For example, Hong Kong’s total outstanding commercial bank assets amount to nearly US$3.4 trillion, about 10 times the city’s gross domestic product of US$360 billion. Such a large loan book only underscores the fact that offshore banking is the core business of Hong Kong’s banking system.
Hong Kong’s situation is no different from New York City, also a global financial centre. For example, five of the top 10 US commercial banks are domiciled in New York City, with combined total assets close to US$8 trillion. Meanwhile, the top 10 foreign banks’ total assets in their New York offices were estimated at US$1.17 trillion in 2018.
These 15 deposit-taking institutions alone have a combined loan book of more than US$9 trillion, which is about five times New York City’s economy of US$1.8 trillion. Needless to say, if all bank assets of all commercial banks operating in New York are included, the credit-to-GDP ratio for the New York metropolitan area will be extraordinarily high.
