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Hong Kong's trade on the up-and-up

Hong Kong's Trade Outlook for 2000 is published by the Hong Kong Trade Development Council Research Department. For ordering information call tel. 25844549. Price: HK$100.

Hong Kong is poised for a strong rebound in 2000, according to Michael Sze, the Trade Development Council's executive director. The TDC is introducing major initiatives this year to help Hong Kong companies ride the new wave of opportunity.

The TDC forecasts that total trade will grow by 7% in value terms. Total exports are expected to grow by 6%, led by an 8% increase in re-exports. Imports are expected to increase by 8%. Hong Kong's domestic exports, which are steadily decreasing, should nonetheless decrease at a slower rate of 3%.

Hong Kong is poised for a strong rebound in 2000....Michael Sze, TDC executive director.

Sze said that China's pending accession to the World Trade Organisation presented the single-biggest opportunity in 20 years for Hong Kong's manufacturers, traders and service providers.

"A key priority for TDC in the coming year is to analyse the full implications of China's WTO accession, sector by sector, in the context of Hong Kong's strengths," said Sze..

In addition to releasing detailed research studies on opportunities arising from China's WTO entry, TDC would partner with mainland entities to organise business seminars to help companies in Hong Kong build new strategies around China's WTO accession.

"Indeed, whatever the market, value-added information delivered via the fastest, most accessible channels is the key to helping Hong Kong companies compete in the era of the Internet and e-commerce."

According to the TDC Research Department report, Hong Kong's Trade Outlook for 2000, Hong Kong's merchandise exports in 2000 should show significant improvement from the sluggish performance in 1999. Total exports are expected to rise by around 6% in both nominal and real terms. Domestic exports are projected to moderate from the declines in 1999 to pose a fall of 3% in value or volume.

The outlook for re-exports will be more optimistic in anticipation of further pick-up in export processing activities on the Chinese mainland amid the continued recuperation in intra-regional trade, and persistent demand from industrial countries. Offshore trade, however, should keep expanding in view of the entrenched gains in cargo handling conducted at the other ports in the Chinese mainland. Mirroring largely an expected resurgence in re-export activities, and a recovery in domestic demand, the value of imports is projected to surge by 8% with import volume to increase by 7% in 2000.
Along with the expected revival in merchandise exports, services exports from Hong Kong should stage a continued pick-up in 2000.

The external economic environment for Hong Kong in 2000 should be encouraging given the prospect of decent global growth. The US will likely stage a soft landing with continually healthy consumer spending in anticipation of modest, pre-emptive monetary tightening. The EU will strive for a stronger, non-inflationary economic upturn. Japan, insured by continued fiscal injection, should see strengthening consumer demand on gradual subsidence of belt-tightening. Underpinned by renewed export demand and measures aimed at speeding up consumer spending, China will be able to achieve its growth target while generating rising demand for consumer goods, semi-manufactures and raw materials. Against this background, Asian recovery is expected to gather further momentum in 2000.

The marked stabilisation of macro-economic fundamentals and restoration of financial and trade activities in the once crisis-hit Asian economies, in retrospect, is perhaps the most eye-catching development in this region in 1999. Undoubtedly, the mostly export-led recovery of these economies in 1999 is facilitated by the incessant consumer demand stemming from a vibrant US economy, and the accelerated economic activities of Japan and the EU from the middle of this year. Having said that, an expected revival of consumer demand will reinforce the economic upturn that is being driven by growing export demand from inside and out of the Asian region.

Meanwhile, the pace at which consumer spending is being revived in the crisis-affected economies would likely vary in accordance with the effectiveness of the macro-economic stabilisation policies and reform measures that have been implemented. A case in point is South Korea苛it has recouped all output losses after painstaking belt-tightening through its financial crisis, which has contributed to the sizeable build-up of trade and current account surpluses. Currently, pent-up consumer spending in South Korea is fast accelerating. As a whole, the resurgence in consumer demand across the Asian region will translate into heavier import absorption, thus boding well for exports of goods and services from Hong Kong. Consumer as well as import demand from Latin American and Eastern European countries should also improve in 2000, though at a slower pace compared with what will likely be seen in Asia, as many of these countries still struggle to return to positive growth in the wake of the Asian crisis contagion.

Encouragingly, the crisis-affected Asian economies have opted for economic reforms and resisted any temptation to restrict imports through the financial turmoil. In contrast, protectionism is threatening to stage a comeback in Latin America in the lead up to several elections in the region. Because of entrenched health and environmental concerns, the EU, also a frequent instigator of antidumping cases has raised the import standards for many products originating from Hong Kong and the Chinese mainland. Even the US has recently moved to restrict imports of some politically sensitive products. Widening US trade deficits will likely reinforce the protectionist sentiments before the presidential and congressional elections in November 2000.

Meanwhile, there are growing signs of inter-regional trade blocs emerging alongside the intra-regional aggregates. On the other hand, progress on trade liberalisation could be inhibited on the part of major World Trade Organisation (WTO) members failing to resolve differences over the agenda for the Millennium Round. Irrespective of all these, the trade environment on balance looks optimistic in 2000 given the exports demand from the US, the EU and a recovering Japan, and particularly the US-China trade accord sought in November 1999. The trade accord, instrumental in stabilising bilateral trade relations, is a prelude for China to join the WTO and to be accorded by the US a permanent Normal Trade Relations (NTR) status. In this context, a substantially liberalised trade regime in China following its accession to the WTO will be on the cards, though the bulk of benefits emanating from trade liberalisation will likely materialise over many years to come.

Optimism aside, the trade environment next year will remain formidable amid intensifying competition from various fronts, leaving little ground for complacency. Competition in the US market with Mexico and Caribbean countries will be more intense; while that in the EU market will be strong in light of the growing presence of Eastern European competitors. Exports to the rest of Asia will draw in strong competition from the reviving Asian economies, and especially the indigenous manufacturers on the Chinese mainland, particularly for the low-end and standard items. Competition, along with the increased direct sourcing in the mainland by foreign companies, who are getting increasingly selective, will pose further challenges to Hong Kong traders. The implications will be further squeezes on margins with more urgent need to enhance supply chain management.

Exports of services as a whole should further improve in 2000 in anticipation of the quickening Asian recovery, and particularly, the favourable movements of the Hong Kong dollar vis-?vis the Japanese yen and currencies of most recovering Asian economies. This, coupled with the enormous downward adjustment in business costs, has helped restore competitiveness of Hong Kong's externally oriented industries. This will be conducive to higher services exports as well as attracting more tourists to Hong Kong next year. As for the transportation sector, port activities will be good despite the increased adoption of direct shipment. On the other hand, the air cargo industry will benefit greatly from the efficiency and capacity that the new airport can offer amid the growing popularity of quick response.

Meanwhile, the resumed confidence of foreign investors in the region after the Asian crisis, plus the enhanced trade and investment sentiments in view of a China-US WTO accord that will set the stage for liberalising most service sectors in China, will also contribute to greater demand for financial and other business services from Hong Kong. Evidently, Hong Kong will benefit from its increasingly crucial role as business integrator for foreign companies wishing to invest in China, and those indigenous mainland companies vying for greater global exposure.

Trade forecast

After the consecutive declines from 1997 to 1999, the unit value of both Hong Kong's exports and imports should see a mild revival by a magnitude of less than 1% in 2000. While competition may continue to exert downward pressures on prices, the general improvement in the outlook of regional economies including Japan since the middle of 1999 should see increased consumer demand engendering some upward pressures on prices. Additionally, continued increases in commodity prices are anticipated as demand hastens on the back of renewed global economic vigour. This should translate into slightly more expensive prices of raw materials and semi-manufactures in 2000, which will eventually feed through to product prices.

Along with the brightening global trade environment, another positive development is the constructive trade and investment sentiment engendered by the China-US accord sought in November 1999 with respect to China's accession to the WTO. The trade accord is instrumental in stabilising the bilateral trade relations between China the US, also removing a main obstacle to China becoming a member of the multilateral trade body in early 2000. Besides, it will allow China to acquire a permanent Normal Trade Relations (NTR) status from the US, which is expected around the middle of 2000. These developments will impact positively on the merchandise and services exports from Hong Kong next year, though major benefits emanating from China's liberalisation of its trade regime will likely materialise in years further ahead.