Growth in Hong Kong’s import and export trade exceeded the world average for a long time.
However, things started to change early last year.
There is a “new normal” in the city’s foreign trade, which may have a far-reaching impact on its future economic growth.
Hong Kong’s trade maintained an annual growth rate of 9 percent between 1990 and 2008, compared with an average of 6 percent in world trade.
The city’s trade managed to grow 3.6 percent even in 2014, versus a 2.8 percent rise around the world.
However, Hong Kong’s trade volume dropped 3 percent in the first 11 months of last year, and it’s heading for its second annual decline since the financial crisis.
By contrast, global trade is expected to have grown 2.8 percent last year, World Trade Organization figures show.
Hong Kong registered a contraction in trade only during the Asian financial crisis.
What’s the underlying reason for the recent decline in trade?
Over the last 15 years, the city’s exports to Asian cities jumped threefold, compared with 170 percent growth in the city’s overall exports.
However, Hong Kong’s exports to other Asian cities dropped 1.7 percent between January and October last year.
That dragged down overall export growth by 1.56 percentage points.
Also, it’s a sign that the city’s export destinations are undergoing a structural shift.
That is closely related to the relocation of the processing trade of multinational companies.
These firms built a processing trade manufacturing chain in Asia centered around China for several decades.
Hong Kong benefited from the model of “stores in front and factories behind”.
However, many multinational companies have moved their factories to low-cost countries because of surging labor costs in China.
It’s a persistent and structural change. That’s the key reason behind Hong Kong’s falling exports.
Meanwhile, China is shifting from an export-led economy to a consumption-driven model.
The country won’t maintain the rapid growth in import and export trade of the past.
Instead, it will emphasize the service sector.
As a result, trade between the mainland and Hong Kong will also suffer.
In addition, the number of inbound travelers to Hong Kong is growing more slowly, and their consumption habits have changed.
That would exert a huge impact on the city’s retail sales.
Hong Kong’s exports to the mainland soared 3.4 times over the last 15 years, representing 76.8 percent of the city’s export growth to Asia and 65.8 percent of its overall export growth.
Now, the city will face challenges in maintaining its role as a trade hub, since the region’s processing trade chain has gone through structural changes.
Also, Hong Kong’s trade-related service exports surpassed HK$500 billion (US$63.9 billion) in 2014, accounting for half the city’s total exports of services.
Slower growth in trade will therefore weigh on the exports of services.
Declining trade growth will also affect economic growth and employment.
In 2013, the trade and logistics sectors contributed 23.9 percent of the city’s gross domestic product, or nearly 30 percent if related services are included.
The trade and logistics industries have created 770,000 jobs, or nearly 1 million jobs, including related services.
Easing trade growth will mean the creation of fewer jobs.
Nevertheless, the “One Belt One Road” strategy is expected to create several hundred billion dollars of incremental trade for the city.
And Hong Kong is also involved in regional trade talks in an attempt to open up new markets.
This article appeared in the Hong Kong Economic Journal on Jan. 20.
Translation by Julie Zhu
[Chinese version 中文版]
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