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August 4, 1998

China's Exports to US and EU Remain Competitive

China's exports to US and EU rose by 18.4% and 25.0% in the first half of 1998 though her overall export growth slowed to 7.6% from January to June 1998, according to the latest issue of "Trade Watch" published by Hong Kong Trade Development Council.

China's exports to US and EU accounted for 34.24% share of her total exports in the first half of 1998. Hong Kong absorbed another 23.75% of which a large portion is for re-exports, again mainly to the US and EU markets.

"It is evident that China's manufactured exports remain competitive in these markets and is not significantly affected by the currencies depreciation in ASEAN countries," said TDC's Assistant Chief Economist Pansy Yau.

"ASEAN manufacturers depend heavily on imported parts and components. The net gain in export price competitiveness due to depreciation is limited. Moreover, the financial meltdown of ASEAN countries has put exporters in general facing tremendous difficulties in obtaining trade finance, thereby jeopardising their normal export operation," added Pansy Yau. "This explains why US and EU importers still stick to China for sourcing manufactured goods."

According to the report, the slowdown of China's export growth was mainly due to the sluggish import demand in Japan, South Korea and ASEAN countries.

In Japan, domestic demand has been dropping for four consecutive quarters since the second quarter of 1997. In addition, as the Japanese Yen depreciated by 19% against US dollar since July 1997, making imports less attractive, total imports dropped by 6.2% in the first quarter of 1998.

The situation in South Korea and ASEAN is similar, recording a 34.7% (first half of 1998) and 22.2% (first four months of 1998) decrease in imports in terms of US dollar.

In light of the causes of China's recent slowdown in export growth, the report says a devaluation of the Renminbi may not be effective in fostering her exports. It will probably prolong economic recovery in the region. According to the report, contraction in credits in Japan, South Korea, ASEAN and Hong Kong have affected the liquidity of their enterprises (FIEs) in the Chinese mainland. China's export growth was further affected.

The Chinese Government has tried to stimulate exports by the following measures:

• increasing the liquidity of exporters by extending more commercial bank's credits to exporters,
• lowering interest rates. The People's Bank of China decided to lower lending rates by 1.12 percentage points in July 1998, the second rate cut since March ,
• raising the VAT rebate for the exports of garments, textile, machinery, shipbuilding, ceramics, iron & steel and coal.

"These measures, together with a more favourable fiscal and tax policy, as well as a low-inflation operating environment, should somewhat offset the disadvantages associated with a relatively strong Renminbi," said Pansy Yau.

According to the report, with the gradual stabilisation of economies and restoration of confidence in financial systems in Asian economies, China will face increasing competition from other Asian economies. In the long run, China's cost advantage over other Asian economies as an export-processing base for foreign investors is likely to decrease, China has to further improve her investment environment and to reposition its export-processing industries to maintain her competitiveness and growth momentum of its exports.

• Advertising and market research are two of the fastest growing services industries in Hong Kong, in line with the development of Hong Kong into a high-income economy and the rapid rise of the Chinese Mainland as a big market for consumer products and other goods and services.
• Hong Kong's total advertising expenditure (adspend) rose by 20.1% to HK$ 20 billion in 1997. It ranked fourth in the world in terms of per capita adspend.
• According to an ABN-Media Asian Advertising Industry Poll conducted in December 1996, 61% of the respondents regarded Hong Kong as the advertising capital of Asia, followed by Tokyo (23%) and Singapore (9%). The overwhelming industry opinion was due mainly to the attractiveness of the Mainland market and Hong Kong being the gateway to the Mainland: 94% of the respondents regarded the Chinese Mainland as having the best growth potential over the next 5 years.

Note: Advertising and related services include: advertising companies and agencies; public relation services; market research companies; and other advertising services.Sources:
1997 Employment & Vacancies Statistics (Detailed Tables) Series A (Services Sectors), Report on 1995 Survey of Storage, Communication, Financing, Insurance & Business Services, and Estimates of GDP, Census and Statistics Department.

Range of Services

Advertising Agencies

Advertising agencies initiate, manage and implement advertising campaigns. In general, advertising agencies provide three major types of services, namely account management, creative services and media planning. Those that provide all three services are traditionally called full-service agencies. Some bigger multinational agencies also provide related services such as sales promotion and public relations, while smaller ones may only provide a more limited range of services.

A recent industry trend is for advertising agencies to spin off their media planning department as specialist companies. The 4As, which used to require that a member agency must provide full-service, including media buying, has now relaxed its membership rule.

Market Research Firms

Market research involves studying people as buyers, sellers, and consumers, examining their attitudes, preferences, habits, and purchasing power. Market research is also concerned with the channels of distribution, promotion and pricing, and the design of the products and services to be marketed.

A large portion of the work performed by most market research firms is commissioned by specific companies for particular purposes. However, some firms also routinely collect a wide spectrum of data and then attempt to sell some or all of it to companies that may benefit from such information. Market research may be quantitative, qualitative, or a combination of both.

Service Providers

Advertising

Hong Kong has a developed advertising market which is dominated by the multinational agencies. There are two major industry associations. The Association of Accredited Advertising Agencies (4As) requires that its members provide full service in advertising, and must have an annual billing of over HK$ 50 million. Most of its members are the major multinational agencies. 4As agencies are estimated to have around 60% of the market. In January 1996, a new body representing independent agencies, the Hong Kong Independent Advertising Agents Association (HiA), was set up. One of its membership criteria is that the members must be wholly or majority owned by Hong Kong citizens.

Market research

The industry is characterised by a handful of multinational companies which account for the bulk of the market (worth around HK$ 1 billion in 1996). There are also a large number of smaller companies / consultants which specialise in industry studies.

Most of the large players have a regional network of offices not only to source work in the various markets but also to be able to satisfy client requests for pan-Asian market studies. According to industry observation, multi-country studies not including the Chinese Mainland represent 20-30% of the revenues of Hong Kong-based market research companies. Chinese Mainland studies alone represent about 10% of revenues.

Exports

Hong Kong's exports of advertising and market research services totalled HK$ 2.0 billion in 1995, representing an average annual growth of over 20% since 1980. Hong Kong became a net exporter of advertising and market research services since the early 1980s. Imports of such services amounted to less than half of exports in 1995.

Services which are exported include: creative advertising, media buying, direct marketing, graphic design, marketing consultancy, customised market research and sales of research data. Other related exports include Hong Kong-based crew producing advertisements on behalf of overseas clients.

The Mainland Market

The Chinese Mainland is a growing market with increasing numbers of advertisers wishing to do business there. Creative resources is still lacking in the Mainland, which provides Hong Kong with the opportunity to satisfy that demand. Hong Kong-based companies often carry out the actual production of the advertising material in the Mainland after having done the concept, research and design stages in Hong Kong. Clients, who commission the campaigns in Hong Kong, then take the material into the Mainland and carry out the campaigns. The main export potential for advertising companies is that of designing and producing advertising campaigns for the Mainland market.

For market research, the main services exported are research work for clients based outside Hong Kong and sales of data about the Hong Kong market to overseas customers. In addition, market research firms may be subcontracted by another company to undertake market research. In terms of where the studies are carried out, the Chinese Mainland and the rest of Asia (pan-Asian studies) represent the biggest selling point for Hong Kong-based firms.

The potential size and growth prospects of the China markets mean that most multinational advertising and market research companies have set up their presence there. Many locally based independents are also doing the same. Nevertheless, wholly foreign-owned advertising agencies are still not allowed in the Mainland.

Industry Development and Market Outlook

• Hong Kong's spending on advertising rose by 20.1% in 1997 to reach HK$ 20.4 billion (US$ 2.6 billion), up from annual growth of 12.2% and 6.6% respectively for 1996 and 1995. Television and the print media (newspapers and magazines) accounted for roughly 45% each of total adspend.

Source: ACNielsen

• According to an ABN-Media Asian Advertising Industry Poll conducted in December 1996, 61% of the respondents regarded Hong Kong as the advertising capital of Asia, followed by Tokyo (23%) and Singapore (9%). The overwhelming industry opinion is due mainly to the attractiveness of the Chinese Mainland market and the fact that Hong Kong acts as the gateway to the Mainland: 94% of the respondents regarded the Chinese Mainland as having the best growth potential over the next 5 years.
• Following years of exponential growth, Chinese Mainland's spending on advertising has surpassed that of Hong Kong since the early 1990s to reach Rmb 37 billion in 1996. Adspend rose by a further 53.4% in 1997, according to ACNielsen, faster than any other Asian countries. One estimate puts the Mainland's advertising expenditure at Rmb 185.6 billion in 2000, or an average annual growth of almost 40%.
• While Hong Kong-based advertising agencies are establishing their presence in the Mainland, some joint-venture agencies in the Mainland are also opening offices in Hong Kong to serve their own clients and Hong Kong-based advertisers looking to advertise in the Mainland.

This new report is available for sale at the TDC Head Office or any SME Service Station, or it can be purchased through the CyberBookshop section in TDC website.

For press enquiries, please contact Lawrence Yau of TDC's Media and Corporate Communications at (852)2584 4510.

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