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According to data released by the Hong Kong government on Monday (July 25), Hong Kong’s exports in June fell by 6.4% compared with the same period last year, which was much higher than expected.
In May, the data was down 1.4%. In June, the market expected that the decline would be narrowed to 0.7%, but it expanded significantly to 6.4%.
In terms of breakdown, many major export destinations are facing a decline, and the most important export value to mainland China has fallen by 10.4%, becoming the main drag.
It is worth mentioning that the value of Hong Kong’s exports to Japan also fell by double digits. According to some analysts, it is not difficult to understand the reasons behind it. With the sharp increase in US dollar interest rates and the energy crisis brought about by the Russian-Ukrainian war, the yen has plunged sharply in recent months, and its purchasing power has also decreased accordingly.
Exports shrank unexpectedly, but imports unexpectedly rose. Economists had expected imports to contract by 2.1%, but grew by 0.5%. The trade deficit in Hong Kong in June was HK$68.5 billion, exceeding the market estimate of HK$38.5 billion.
A Hong Kong government spokesman pointed out that the worsening global economic outlook will bring more pressure on Hong Kong’s exports. Many major central banks continue to raise interest rates to suppress inflation, and global financial conditions are expected to tighten further, which will weaken economic momentum; ongoing tensions in Ukraine and the evolution of the global epidemic also pose challenges.
Dust for the second half of the recovery
“In general, the overall value of Hong Kong’s imports and exports of goods in the first half of the year rose year-on-year, indicating that the recovery process has progressed,” Cheng Shi, chief economist at ICBC International, told Chinese media. Looking forward to the second half of the year, he expects that Hong Kong’s foreign trade performance will still face pressure from weakened external demand, but the mainland is Hong Kong’s largest export destination.
In addition, the proportion of exports to Europe and the United States tends to decrease, which will weaken the negative impact of reduced demand in Europe and the United States. In addition, the interaction with the Asian market has been continuously improved, and the diversified trading partner structure has helped to enhance the resilience of Hong Kong’s foreign trade and strengthen its resistance to negative disturbances caused by geopolitics and trade protectionism.
Currently, Hong Kong and the mainland have not been able to clear customs, making it difficult for the retail and tourism industries to recover effectively. It highlights the importance of trade to the economy.
Wu Zhuoyin, an economist in the Asia-Pacific region of Natixis, told Hong Kong media that trade volumes continued to decline, but the apparent figures would not drop significantly due to price increases. Exports to Hong Kong will maintain this situation, and may not see much recovery.
At the same time, the bank lowered its forecast for Hong Kong’s annual export growth from 4% to 2%. It believes that the performance of local foreign trade will not improve until global inflation eases and supply chain problems are resolved next year.
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Hong Kong, which has almost no manufacturing industry, has become the sixth largest exporter of goods in the world.
one of the four pillars
Trade is one of the four pillar industries in Hong Kong, accounting for about 20% of the total GDP. Behind it is Hong Kong’s unique entrepot trade model.
In international trade, Hong Kong and Mainland China are treated differently. Taking the United States as an example, the United States passed the “United States-Hong Kong Policy Act” in 1992, which authorized the US government to continue to give Hong Kong different treatment from mainland China in trade after the handover of Hong Kong sovereignty, including tariffs and export controls.
The Chinese government also treats Hong Kong differently from other countries. For example, the two sides have signed the Agreement on Trade in Goods (CEPA), such as zero tariffs on goods originating in Hong Kong in the Mainland, and facilitation measures to speed up the customs clearance of goods in the Guangdong-Hong Kong-Macao Greater Bay Area.
Both sides have preferential measures for Hong Kong, providing Hong Kong with an excellent opportunity – re-export trade.
Zhuang Tailiang, an associate professor of economics at the Chinese University of Hong Kong, explained that Hong Kong collects “handling fees” in entrepot trade to make profits. Taking 2018 as an example, the volume of entrepot trade is about three times that of Hong Kong’s GDP, and Hong Kong only needs to charge about 6% of the service fee. 20% of GDP.
Through entrepot trade, Hong Kong, which has almost no manufacturing industry, has become the sixth largest exporter of goods in the world.
However, in recent years, the trade and logistics industry has gradually become a “sunset industry” in Hong Kong. On the one hand, the confrontation between China and the United States has become more and more fierce. The United States has threatened to cancel Hong Kong’s unique trade status. Coupled with other measures such as the establishment of bonded zones in other Chinese ports (such as Hainan Free Trade Island), and the low cost of loading and unloading automation innovation, it will be diluted to some extent. The advantages of Hong Kong have caused the throughput ranking of Hong Kong Port to continue to decline.
In 2004, it will remain the first in the world in terms of throughput for many years. Since then, it has been surpassed by Shanghai, Shenzhen, Ningbo and Guangzhou, and the ranking has dropped to ninth. This downward trend has been further exacerbated after the new crown epidemic.