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Seeing the Light

A strong Export Index – the highest in a year – shows confidence is returning  

A strong Export Index – the highest in a year – shows confidence
is returning


Hong Kong exporters felt the full brunt of the global economic downturn in the first quarter of the year, prompting the Hong Kong Trade Development Council (HKTDC) on 16 June to revise downwards its 2009 forecast for Hong Kong exports. The HKTDC now predicts a decline of 10 per cent to 12 per cent in exports this year rather than the previously estimated drop of six per cent. 

The revised forecast, published in the latest HKTDC Trade Quarterly, was sparked by worse-than-expected world trade. The new forecast predicts that Hong Kong exports will perform at their lowest level since 1954. 

"A drastic inventory drawdown by overseas buyers, amid falling consumer demand and an appetite for low-priced products, has led to the increasing price pressures observed since the global financial crisis emerged," said HKTDC Chief Economist Edward Leung. 

Confidence Rising

Still, there is cautious optimism that industries have seen the worst, with the global economy expected to bottom out in the second half of the year. Such optimism is being fuelled by renewed orders from overseas buyers to replenish inventories, although orders remain conservative. 

The latest HKTDC Export Index, which monitors export performance and prospects of Hong Kong traders, rebounded strongly to 42.9 for the second quarter, up from 25.8 in the first quarter. 


Trading Down


Unlike previous economic downturns, the current recession has sparked a lifestyle change among overseas consumers. There has been a significant shift towards cheaper items and staying at home. As consumers trade down, sales of competitively priced products that are stylish, safe and environmentally friendly are sought after. 

Discount retailers have particularly strong bargaining power, demanding more from their suppliers in terms of quick response and flexible delivery to reduce inventory while responding to changing market demand. This means that Hong Kong suppliers are required to handle more orders of even smaller quantities but wider variety, along with even shorter delivery lead times. 

In light of further retail concentration in overseas markets, alongside slackening consumer demand, Hong Kong exporters and manufacturers are under mounting operational pressures. Bigger and leaner suppliers, able to adapt to the changing trade environment, are surviving the global recession, while less efficient producers have been wiped out.

The Export Index, based on a quarterly business confidence survey covering Hong Kong's major industries, may signal a slower rate of contraction in exports. 

The 17-point increase is the highest level in a year. Among the industries leading the way is the electronics sector, at 45.1, suggesting that the export contraction in electronics, one of the worst hit, may be less severe in the near term. In terms of market sectors, the Chinese mainland rose further, almost reaching the threshold for expansion. 

China Still Strong

There is cautious optimism that industries have seen the worse  
There is cautious optimism that Hong Kong industries have already seen the worst (photo credit: Hong Kong Air Cargo
Terminals Ltd)
"Although emerging economies have also suffered considerably from the crisis, the Chinese mainland is expected to be the first major economy to recover," said Mr Leung. He said the mainland's fiscal stimulus package and loosening bank credits should drive the recovery. 

  While far from being immune to the global financial downturn, the mainland's consumer market is outperforming its overseas counterparts. For the first quarter of this year, mainland consumer retail sales grew by 15 per cent, while results in the United States dropped 10 per cent. 

Mr Leung suggested that Hong Kong companies might find sales opportunities in the mainland's inland provinces and second- or third-tier cities, which are less reliant on exports than coastal areas. 

A survey conducted by the HKTDC in March found that 33.4 per cent of 500 Hong Kong companies with production, merchandising or marketing activities on the mainland had already begun doing business there. Among those who haven't, more than 30 per cent said they would enter, or would consider entering, the mainland market within the next six months. 

"Given that the whole consumption structure is set to move positively over a medium- and long-term timeline, export-oriented manufacturers also have the luxury of time to formulate strategies for entering what could well turn out to be the greatest consumer market on earth," Mr Leung said. 

Long-Term Outlook

Looking ahead, Mr Leung said sales would likely return to normal growth once a global economic recovery takes hold. That, however, would hinge on the normal functioning of the global banking and credit systems, a bottoming out of the US housing market and a revival of business and consumer confidence in developed economies. 

The HKTDC Chief Economist said the global economy could bottom out in the second half of the year – if various stimulus measures by world governments take effect. But he said the greater medium-term challenge was to avoid a prolonged global recession. That would involve rebalancing excessive savings in Asia against overspending in the US and other rich countries. Intensified protectionism and the outbreak of human swine flue may also threaten global economic recovery, Mr Leung added. 

For more details on the latest HKTDC Export Index, please see the June issue of the HKTDC Trade Quarterly, which can be ordered at: www.hktdc.com/bookshop.


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