Hong Kong to sustain export growth in 2006

TDC's Chief Economist Edward Leung points out that continued globalisation, liberalisation of trade and strong global demand will fuel Hong Kong's export growth in 2006.

The liberalisation of world trade in the past 15 years has resulted in faster growth in world trade than world output. The annual growth of world trade from 1990 to 2005 was 6.5%, three-percentage points higher than the growth of world output over the same period.

The contribution of exports of goods and services in world GDP has also been increasing. In 1990, exports of goods and services contributed to around 19% of world GDP. In 2005, it is near to 30%. Mr. Leung said:

'Irrespective of MC6 outcomes, international trade is expected to remain at least as imperative as it has been to the global economy. Of course, if the MC6 meeting can enable negotiations to move forward sufficiently to conclude the Doha Round in 2006, it will provide a more stable environment in which international trade can flourish, and lead to a reduction in poverty. The impact on trade globalisers will be stronger.'

Robust growth engines

The two growth engines of Hong Kong's exports, the US and Chinese mainland, will remain robust in 2006.

Although US economic growth, after its fastest expansion in five years, will ease in 2006, higher-income earners are expected to maintain their spending spree on high-end items. The Chinese mainland will continue to be the axis of growth in Asia. Intra-regional trade in Asia will be driven by continued demand from the mainland.

Apart from the mainland market, Eastern Europe, the Middle East, as well as Southeast Asia and South Asia, will continue to be welcome outlets for Hong Kong exporters intending to diversify their markets. Where products are concerned, electronics will remain the export growth leader.

Demand for music players, flat panel TVs, replacements and upgrades of computers and the increase in trade of electronics parts assembling as a result of production relocation to Asia will drive Hong Kong's electronics' exports growth in 2006. In 2005, electronics contributed to 72% of Hong Kong's export growth.

Jewellery exports will be helped by stronger global demand. Export prices will rise due to the increase in material costs. In the case of garments, deals reached between China and the US/EU affecting around 40% of Hong Kong's re-exports of textiles and clothing of China origin to the countries provide some certainty for Hong Kong exporters. However, protectionist sentiment will linger on. In the case of watches, the TDC report predicts steady sales.

For toys, the TDC report forecasts solid growth led by video games, educational and electronic toys. However, lower profit margins are expected due to retail consolidation and material cost increases.

Export risk factors

The report reminds traders to pay attention to the following risks, which may affect Hong Kong's exports:


• Further unfavourable currency movements, such as the appreciation of the US dollar or RMB, which may affect our production costs and price competitiveness;

• Unexpected hikes in US interest rates

• Surge in crude oil prices. The threat is diminishing as supply is catching up and prices stabilise

• Undercurrent of protectionism

• Outbreak of human-to-human avian flu

• Persistent security issues

For trade in services, the macro environment for exports should remain broadly positive in 2006, due to satisfactory trade prospects for the Greater PRD and continued strength in inbound tourism.

The dominance of Hong Kong in air cargo is secure for the near future. In 2005, Hong Kong's air cargo throughput recorded a growth of 10% in the first nine months of the year. The reliance on airfreight for exports in Hong Kong's total exports has also been increasing, from 18% in 1995 to 30% in 2005.

This is caused largely by a rising share of electronics products in Hong Kong exports and the confluence of electronics production bases on the mainland and in other Asian economies, to which Hong Kong supplies a wide range of electronics parts and components. The TDC expects Hong Kong's total merchandise exports to have risen by 11.5% in value in 2005.