After a difficult 2019, Hong Kong trade is forecast to see further declines in 2020 on the back of the global economic slowdown and ongoing trade protectionism.
The value of Hong Kong exports is expected to shrink by 2.0 per cent next year, according to the latest forecast by the Hong Kong Trade Development Council (HKTDC) in its latest report.
Meanwhile, the HKTDC Export Index for the final quarter of 2019 hit a record low of 18.8, down 8.6 points from the previous quarter, indicating that Hong Kong exports are expected to remain sluggish in the coming months.
HKTDC director of Research Nicholas Kwan attributed the decline of the city’s exports to a slowdown in the global economy compounded by the impact of the Sino-US trade dispute. “The proliferation of protectionism into the broader economic and geopolitical arenas suggests a growing risk of a deep and protracted global slowdown,” Kwan says.
Speaking at a press conference to announce the forecast, Kwan says Hong Kong exporters are facing unprecedented pressure amid the current uncertainties. “Our survey found that 65 per cent of local exporters anticipated a drop in their total sales in 2020. The softening of global demand (37.3 per cent) has overtaken Sino-US trade tensions (31.5 per cent) to become their primary concern,” he says.
Export Index hits record low
The HKTDC Export Index monitors the current export performance of Hong Kong traders and gauges their near-term prospects. HKTDC assistant principal economist (Greater China), Alice Tsang says the readings for all major industries stayed well below the watershed score of 50, indicating that local exporters are increasingly pessimistic about the city’s export outlook.
This was particularly marked in the electronics and timepiece sectors where the indices fell to 18.2 and 15.5 respectively – the lowest figures ever recorded.
The proliferation of protectionism into the broader economic and geopolitical arenas suggests a growing risk of a deep and protracted global slowdown.” – HKTDC director of Research Nicholas Kwan.
On the outlook for specific markets, Japan was the most promising with the index standing at 47.4, followed by Mainland China and the US, tied at 40.1. The European Union ranked last, falling 4.5 points to 36.8, the lowest figure for this market since the global financial crisis in 2008-09.
“The trade conflict between the mainland and the US has adversely affected more than half of the exporters surveyed (56.5 per cent),” Tsang explains. “Most of them have suffered from fewer orders (70.8 per cent), while a growing number of exporters (58.1 per cent, up from 44.1 per cent in the last quarter) experienced tougher price bargaining with buyers,” Tsang adds.
Shifting market focus
Tsang adds that more than one-third of respondents (37.9 per cent) have explored business opportunities in alternative markets to reduce their reliance on the US, with half of them shifting their focus to the Asian market, and nearly one-fifth specifying an expansion into countries in the Association of Southeast Asian Nations (ASEAN) bloc.
Other tactics include lowering unit prices (17.9 per cent) or the minimum quantity per order (15.4 per cent), diversifying production or sourcing bases (14.4 per cent), increasing the added value of products (12.8 per cent) or, more pessimistically, downsizing the company (17.9 per cent).
Eye on East Africa
Against the backdrop of the Sino-US trade conflict, manufacturers are seeking alternative manufacturing bases, with East Africa emerging as an option, according to the report. HKTDC assistant principal economist (ASEAN and Emerging Markets), Wenda Ma says enhanced regional integration, continued urbanisation, improved infrastructure and technology development are all supporting the region’s industrialisation and structural transformation.
Ma highlights that the rise of East Africa is being led by Ethiopia, with the country’s strong growth being driven mainly by the development of its light manufacturing industry, as well as a growing consumer market and continued public investments.
“In addition to reducing red tape for businesses, Ethiopia has, with assistance from Mainland China, invested heavily in industrial parks and road, rail and air infrastructure to facilitate its exports. In particular, the Addis Ababa-Djibouti Railway has greatly increased the landlocked country’s attractiveness as a manufacturing hub,” says Ma.
Being the largest and most advanced economy in the region, Kenya is widely recognised by multinational companies as a launch pad into the East African market. “With a growing young population, a dynamic private sector and improved infrastructure, Kenya offers a wealth of trade and investment opportunities across various sectors including infrastructure development, manufacturing, tourism, as well as information and communications technology (ICT). It is also a leader in financial innovation in Africa,” Ma adds.
Mainland elderly market
Many Hong Kong companies are striving to develop new markets and diversify their business to help cushion the impact of lingering tensions between the world’s two largest economies. HKTDC economist Doris Fung notes that an ageing population in the mainland coupled with a more independent lifestyle has stimulated the demand for products and services related to the senior citizen market, bringing new opportunities for Hong Kong traders.
“Chinese society is ageing fast and the ‘silver hair’ market is expanding rapidly,” she says. “The middle-class senior group on average spends around 90 per cent of their personal pension or monthly income, which equates to CNY 5,090 (USD 726) per person.”
“Apart from garments and accessories, health supplement tablets such as calcium, vitamins and fish oil, as well as smart electronic products are also popular among the elderly, while children will buy functional goods such as living aids, rehabilitation products and health monitoring equipment for their parents. Many elderly people on the mainland are also active travellers, spending thousands of yuan on each trip,” Fung adds.