Over the last decade, China has been the leading investor among developing countries and Hong Kong is the foremost destination of Chinese investment. However, China’s outward investment has been grossly understated in official statistics due to avoidance of China’s foreign exchange controls. This paper tries to appraise those investment flows both quantitatively and qualitatively.

It examines the many estimates of Chinese investment in Hong Kong, tracing their sources and bases of estimation. Most of these estimates are found to be crude guesses with very little empirical support. However, from the data on asset value and market capitalisation of listed Chinese companies in Hong Kong, and also from interviews with knowledgeable sources, it is possible to gauge the rough size of Chinese investment in Hong Kong. The paper also examines China’s economic presence in major sectors of the Hong Kong economy. It discusses the composition of Chinese investment by industry and by ownership ...