China is striving to transform its economy to a domestic consumption-oriented one. In the Pearl River Delta (PRD) region, exporters have been shifting their focus to the domestic market. Due to this macro trend, trade flows between Guangdong and Hong Kong and Macau have started to slow.
A bigger proportion of products made by PRD firms is now being absorbed by the mainland.
In 2014, a survey showed that 87 percent of Hong Kong enterprises in Dongguan had an eye on China’s domestic market, although most of them were exporting their products overseas. Sales in China’s domestic market have seen growth rates of as much as 35 percent.
The largest deficit in Hong Kong’s service trade is related to manufacturing services. It reflects the change in existing cooperation pattern between Hong Kong and Guangdong.
More Hong Kong firms now import industrial intermediate products from the mainland and then ship them to Southeast Asia factories for further processing.
With the improvement of port facilities in PRD, and the upgrade of manufacturing industry in the region, it has become a substitute of Hong Kong’s port services.
That makes Hong Kong a global trade operation and management center, rather than its previous role of a physical trade center.
In trade between Hong Kong, Macau and the mainland, import by mainland entities from Hong Kong and Macau accounts for a very small part.
Hong Kong, Macau and the PRD together comprise a key global export base. But Hong Kong’s existing role as an intermediate between “Made in PRD” and the global market is under challenge.
The city should get prepared.
This article appeared in the Hong Kong Economic Journal on April 18.
Translation by Myssie You
[Chinese version 中文版]
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