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AI in driver’s seat

Louis Chan
Louis Chan, Assistant Principal Economist (Global Research)

The abrupt rewiring of the world’s economy brought by COVID-19 has upended global trade, and the world’s premier exporter, Mainland China, along with the international investment and business hub of Hong Kong, are key players in this rewiring.

Speaking at the release of the Hong Kong Trade Development Council’s (HKTDC) forecast for Hong Kong’s export performance for 2020, HKTDC Assistant Principal Economist (Global Research) Louis Chan said the unprecedented and overwhelming nature of the COVID 19 outbreak can be a timely game-changer. It will encourage a new phase of creativity and sustainability, while preparing the global economy for a more resilient and robust post COVID-19 future after a broad-based recovery, he said.

Bright spots

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“Some businesses – including e-commerce marketplaces, pharmaceutical and healthcare companies, logistics solution providers, video-conferencing solution providers and entertainment streaming and online gaming platforms – are likely to thrive in this ‘new normal’,” Mr Chan said.

He predicted the pandemic will accelerate automation and artificial intelligence (AI)-driven technology will become more mainstream as the global economy and industry reboots and tilts more towards digitalisation and automation. At the same time, business-model innovations that use big-data analytics, contactless solutions and new digital channels would help traditional commercial operations – such as restaurants, last-mile delivery services, public transportation – undergo digital transformation and survive the COVID-19 crisis.

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“Some businesses – including e-commerce marketplaces, pharmaceutical and healthcare companies, logistics solution providers, video-conferencing solution providers and entertainment streaming and online gaming platforms – are likely to thrive in this ‘new normal’,” Mr Chan said.

He predicted the pandemic will accelerate automation and artificial intelligence (AI)-driven technology will become more mainstream as the global economy and industry reboots and tilts more towards digitalisation and automation. At the same time, business-model innovations that use big-data analytics, contactless solutions and new digital channels would help traditional commercial operations – such as restaurants, last-mile delivery services, public transportation – undergo digital transformation and survive the COVID-19 crisis.

Mr Chan quoted Bain & Company research which anticipated that by the end of the 2020s automation of business processes may eliminate 20% to 25% of current jobs. Over the next two years Bain sees the share of companies scaling up automation technologies – ranging from low code automation, optical character recognition, robotic process automation to conversational AI – will at least double.

Export outlook declines

Nicholas Kwan
Nicholas Kwan, Hong Kong Trade Development Council (HKTDC) Director of Research

Uncertainties about the length and depth of the economic downturn brought by COVID-19 and the threat of trade protectionism led the HKTDC to revise its Hong Kong export growth forecast for 2020 down to a decline of 10%, from the previous prediction of a 2% fall.

Nicholas Kwan, HKTDC Director of Research, said at a press conference: “The revision takes into account the latest HKTDC Export Index survey, which indicated that 82% of the 500 [respondent] exporters forecast their total sales will drop 10% year-on-year.

“The spread of the COVID-19 pandemic (64.6%), softening global demand (19.5%) and the trade tensions between Mainland China and the United States (10.8%) remained the biggest threats that may affect their export prospects.”

Meanwhile, 97.5% of survey respondents – up 3.6 percentage points from the previous quarter – have experienced adverse shocks to their businesses because of the COVID-19 pandemic. These include buyers purchasing less (57%) or cancelling orders (52.3%), delays in product deliveries (55.8%) and logistical disruptions (53.1%). In response to the pandemic, 67.6% of respondents had implemented remote-working arrangements, while more than 41% developed online sales channels to supplement conventional sales operations.

Index stabilises

Alice Tsang
Alice Tsang, HKTDC Assistant Principal Economist (Greater China)

The HKTDC Export Index rose a marginal 2.2 points to 18.2 in the second quarter of 2020. “This may indicate that the negative sentiment is now plateauing, yet the reading is still well below the 50-point watershed, indicating that Hong Kong’s exports performance is not likely to improve dramatically in the short term,” HKTDC Assistant Principal Economist (Greater China) Alice Tsang said.

“In addition, the Procurement Index fell by 4.3 points to a record low of 10.5, with all major industry sectors dropping further – jewellery (2.0), clothing (9.4), electronics (10.4), toys (11.3), machinery (14.8) and timepieces (17.3) – showing buyers will source less in the coming months,” she said.

“Having said that, demand for electronics items related to computers, webcams, microphones and medical applications, wearable tech and smartwatches with health-monitoring functions, as well as comfortable, multi-purpose and athleisure wear are on the rise, while stylish fashion jewellery and design pieces and wedding items would also have a better chance,” Ms Tsang analysed.

Trade tensions back in focus

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Ms Tsang said exporters remained cautious on near-term prospects in Hong Kong’s major markets. Japan (46.5) continued to be seen as the most promising, followed by the United States (39.3) and the mainland (39), while the European Union (35.0) was again rated as the least-appealing market.

“The US is the only market that recorded a drop in the index this quarter. This may be attributed to the fact that Hong Kong exporters had again become cautious on Sino-US trade tensions,” she said. “A total of 69.8% of respondents, up 20 percentage points from last quarter, were concerned the dispute would damage their exports prospects.”

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Ms Tsang said exporters remained cautious on near-term prospects in Hong Kong’s major markets. Japan (46.5) continued to be seen as the most promising, followed by the United States (39.3) and the mainland (39), while the European Union (35.0) was again rated as the least-appealing market.

“The US is the only market that recorded a drop in the index this quarter. This may be attributed to the fact that Hong Kong exporters had again become cautious on Sino-US trade tensions,” she said. “A total of 69.8% of respondents, up 20 percentage points from last quarter, were concerned the dispute would damage their exports prospects.”

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Under the phase-one trade agreement between the US and the mainland, America agreed to halve tariffs to 7.5% on List 4A goods imported from the mainland, while the mainland agreed to import US$200 billion worth of goods and services from the US by 2021. “However, smooth implementation of the deal under the current disruptive environment remains highly challenging,” she said.

Giving an overview of Hong Kong’s exports to major markets, Ms Tsang said exports to Latin America fell 30.6% in January to April this year, the biggest decline among main destinations. Exports to all other markets also fell, except for Mainland China, which managed to expand 1.2%. Exports to Developing Asia were almost unchanged, showing a drop of 1.9%.

Hong Kong merchandise exports fell for all sectors, with electronics – the largest sector, accounting for HK$2.73 trillion (US$351 billion), or about 80% of total exports – declining a relatively modest 3.2%. Clothing, down 34.8%, showed the biggest fall.

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