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2013: A Year of Pallid Promises

The Chinese mainland economy is on the mend, helping global trade  

The Chinese mainland economy is on the mend, helping global trade
(photo: EyePress)


Colour the outlook for Hong Kong trade a lighter shade of pale for 2013. Many of the more difficult aspects of the trading environment in 2012 will still be present, and they will have to make the most of limited, pallid opportunities. 

Still, next year is expected to remain stable. As the European Union continues to muddle through the debt crisis, the world economy should  expand only at a tempered pace, and Hong Kong exports are forecast to grow moderately by four per cent in value and one per cent in volume. Major risks facing Hong Kong exporters next year include: a renewed global economic downturn, the proliferation of protectionism, as well as escalating geopolitical tensions, notably in the territorial flare-up between China and Japan. 

Tepid Exports

Hong Kong exports have stayed largely tepid in 2012, despite slight pick-ups in recent quarters. Following a 10 per cent growth in 2011, exports edged up by a scant two per cent during the January to September period, with sales contracting by some two per cent in the first quarter before showing increases of two per cent and four per cent in the second and third quarters, respectively. 

If anything, this modest performance was in part bolstered by the continued rise in the unit value of Hong Kong exports, which grew by four per cent during the January to September period due to higher input costs. Predictably, Hong Kong exports declined in volume terms. Hong Kong exports in the first three quarters of this year continued to be dragged down by waning demand from the EU, where sales fell nine per cent. 

Escape to gold? Global opportunities may be limited  

Escape to gold? Global opportunities may be limited (photo: EyePress)

Yet sales to the United States, aided by a more stable economy, crept up by about two per cent, while those to Japan grew more than seven per cent amid the country’s revival from last year’s earthquake. With modest export production in developing Asia, Hong Kong exports to the region, dominated by semi-manufactures for export processing, have remained low, with sales to the Chinese mainland expanding by some four per cent. 

Other regions, in the meantime, posted mixed results, led again by the Middle East. The prevalence of mobile devices was a sector saver for electronics, which grew more than five per cent in the first three quarters to account for some 57 per cent of Hong Kong’s total exports. Household electrical appliances, however, were hit by competition from mainland enterprises. For clothing, exporters were worryingly exposed to other fledgling suppliers in the region, including mainland counterparts. 

Measured Recovery

  Business remains brisk at the HKTDC Hong Kong Electronics Fair (Autumn Edition) 

Business remains brisk at the HKTDC Hong Kong Electronics Fair (Autumn Edition)

Toy exports were encumbered by dwindling demand for electronic and video games. In contrast, jewellery and timepieces, which showed respective rises of some 20 per cent and 12 per cent, were among the winners, although sales in volume terms were less exciting. Among developed economies, the US looks the most resilient. The end of uncertainties stemming from the presidential and congressional elections has opened the door to modest growth amid continued monetary easing. There are now some signs of life in employment and the housing market. 

Game on: shopping for the latest digital attractions at the Asia Games show in Hong Kong  

Game on: shopping for the latest digital attractions at the Asia Games show in Hong Kong
(photo: EyePress)

The jobless rate, construction activity and property prices, however, have yet to return to pre-crisis levels. Further aggravated by the deep-seated fiscal problems, continued household deleveraging and the spillover from the EU, domestic demand will remain timid, and many recession-induced buying habits, not least “going back to basics,” will likely prevail. 

In the EU, only Germany is in relatively good shape, but prospects are darkened by persistent high unemployment, anaemic demand and its neighbours’ massive debts. Fiscal tightening and the fragile Eurozone fundamentals will continue to cast a pall over economic growth across the whole EU, although the foundations for tackling the debt crisis are gradually falling into place. As a result, consumer confidence should remain delicate, and the absorption capacity for imported goods will likely be weak. 

Political Headwinds

  Rising competition from rising Asian centres such as Myanmar

Rising competition from rising Asian centres such as Myanmar

On the other side of the developed world, Japan has been buffeted by a number of problems. While the stimulus from the massive reconstruction efforts following the devastating earthquake is expected to peter out, the Japanese economy will continue to face formidable challenges ranging from unstable electricity supply to a firm yen that suppresses its exports. 

Adding to these, the territorial dispute with the mainland is also dealing a blow to various sectors of the Japanese economy. By all accounts, sales to the market, production inputs and finished items are unlikely to be promising. 

Resilient Markets

To sustain their businesses under such pressures, Hong Kong exporters can best diversify into emerging markets. For the mainland, where priorities are stabilised growth and promoting restructuring, exports are impeded by the sluggish EU market. This especially has been affecting coastal provinces, already hit by the relocation of lower-end production to the inner regions and other Asian countries.  



Slight growth is expected in Hong Kong’s electronics export, with demand for IT products, including tablets, remaining robust, thanks to new models from leading players. Demand for smartphones should moderate, while AV products, including large-screen TVs and digital cameras will continue to see keen competition. 

Household electrical appliances, sales will face challenges from Chinese mainland enterprises, but lighting products should fare better. By and large, a modest appetite for finished electronics and electrical appliances will spur demand for semi manufactures, which may involve multiple shipments across the border. 


Exports will likely improve slightly in line with the stabilisation of the world market. As consumers continue to opt for simplicity and value-for-money, products with basic and practical features will see better performance. 

But the growing trend towards diversified manufacturing and sourcing models, and rising competition from such emerging production bases as Bangladesh, Indonesia, Vietnam, Cambodia and Myanmar, will continue to affect overseas apparel orders. 


The persisting back-to-basics trend means demand for traditional toys will remain steady. Sales of electronic and video games, on the other hand, should see modest rebound, as companies release new video game platforms, including the PlayStation Vita, Sony’s handheld game console and Nintendo’s Wii U. 

On the supply side, as Hong Kong manufacturers meet more stringent toy safety requirements overseas, relocation of production and sourcing from the Pearl River Delta region to other production bases remains difficult. 


Exports of less costly items, especially for watches with fashionable design, are expected to lead the pack. Demand in the lower-end segment is expected to hold up well, but sales will be constrained by competition from indigenous mainland suppliers. 


More cautious shoppers will likely stick to less pricey items, marked by good quality and craftsmanship rather than flashy brands. But Hong Kong exporters are expected to face troubles caused by sustained prices of precious metals, particularly gold. Despite corrections in 2012, the prices of precious metals will likely resume their upward trend, given a flood of international capital, as well as strong consumer and investment demand for precious jewellery in emerging markets, including China. 

Yet there are indications that the economy is on the mend, as investment picks up along with policy easing. The mainland is also steadily optimising its distribution channels and facilities, fostering consumption with such measures as purchase subsidies and higher wages.  

In Asia, the largest single growth driver in the world, consumption will remain resilient in a number of countries, especially in huge domestic markets including India and Indonesia, with their rapidly expanding middle classes. 

Stabilisation of the global market will also take some weight off export-dependent countries, such as Vietnam and Bangladesh, which are viable manufacturing bases for Hong Kong. Myanmar, on the road to economic liberalisation, is a notable case for garment and footwear production. 

There are no shortages of developing outlets for Hong Kong exporters. Resource-based economies should benefit from an expected firming of oil and commodity prices arising from the permutations of copious global liquidity, stable world demand, sustained geopolitical tensions and increasingly severe weather conditions. 

In Latin America, commodity-exporting economies includiing Brazil, Chile, Peru and Mexico should hold up well. Mexico, which has scrapped anti-dumping duties on a wide range of mainland-originated products since December 2011, is expected to continue to enhance the access of Hong Kong exports. 

Likewise for Russia, growth is expected to profit from sturdy oil and commodity prices, while its recent WTO accession should open new market opportunities. As for the Middle East and North Africa, steady crude prices should bode well for the economic fortune of oil-exporting nations, although social and political unrest will remain a major downside risk in the region.  

Hong Kong exporters should take full advantage of Dubai’s entrenched role as a regional business hub, luring buyers from as far as Sub-Saharan Africa, where economic growth will be supported by steady commodity prices, as well as sustained inflows of overseas capital and investment. 

Egypt, South Africa, Kenya and Nigeria, which comprise the “African diamond,” have risen to be respective gateways to Africa’s northern, southern, eastern and western regions. 

Unrelenting Risks and Challenges

Despite the easing of the Eurozone crisis, the problem itself is far from over. A lack of political will to push through macroeconomic reform in the indebted countries is one, while establishing a banking union remains in the planning stage. 

Protectionist pressures have also increased lately. Geopolitical developments may further incite trade tensions, particularly the territorial flare-up between China and Japan. After the earlier suspension of their mainland operations due to anti-Japan protests, Japanese shops and factories are back to business, but exports to China have taken a beating. 

If China and Japan swiftly resolve the dispute diplomatically, the likely economic impact would be minimal. But with no immediate signs that the conflict could be resolved, souring bilateral relations could translate into real economic damage to both China and Japan. The spillover to regional supply chains, which are skewed to electronic production, will likely be high, as Hong Kong re-exports of origin other than Japan and China may also be affected.

For more on trade and economic trends, please see the December issue of the HKTDC Trade Quarterly.

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