Major Economic Indicators

Recent Developments

• Bulgaria and Romania acceded to the EU on 1 January 2007, signifying the sixth round of enlargement of the Union. Now, the EU is a trading bloc of 27 countries.
• All EU member states adopt common external trade policy and measures, which affect their trade relations with Hong Kong/the Chinese mainland. Meanwhile, following Slovakia's embracement of the euro as their new legal tender on 1 January 2009, 16 EU members have adopted the euro as their legal tender.
• Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China had been established to monitor EU imports of Chinese textiles and apparel, which was scheduled to operate for one year, covering 8 out of the 10 previously restricted categories. On 11 December 2008, the European Commission announced that the regime of double checking surveillance system was to expire on 31 December 2008. Accordingly, starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU.
• The EU's new scheme on generalised system of preferences ("GSP") entered into effect on 1 January 2009, and will remain in force until 31 December 2011. While the Chinese mainland remains a beneficiary, certain products, including toys, textiles and textile articles, footwear, furniture, jewellery, electrical equipment and watches and clocks, are excluded from preferential treatment.
• A number of Chinese mainland-origin products are subject to EU's anti-dumping duties, including bicycle parts and certain leather footwear, which are of interest to Hong Kong exporters.
• Hong Kong's total exports to the EU decreased by 20% to US$15 billion in the first five months of 2009, while its imports from the EU slid by 18% to US$10 billion.
• The total stock of EU direct investment in Hong Kong amounted to US$96 billion as at the end of 2007.
  
• Under the twin bite of the tightening of global credit and significantly weakening external demand, the EU economy has slid into a recession since the last quarter of 2008, registering two consecutive quarterly GDP declines, i.e. 1.6% in Q4 2008 and 4.5% in Q1 2009. Rising joblessness, plus weakening consumer confidence, has continued to weigh on consumer spending, while business investment slows as a result of worsening profit margins and tighter credit conditions. Externally, exports remain weak as the effects of the global financial tsunami continue to deepen. Despite a series of stimulus measures, the EU and eurozone are both forecast to see GDP contract 4% in 2009.

EU Membership

The EU, before 1 May 2004, consisted of 15 developed countries in Western Europe, namely Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom. 

On 1 May 2004, the EU enlarged into Central and Eastern Europe and the Mediterranean, and 10 countries in the region, including Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, joined the EU as its member states.

Signifying the sixth round of enlargement, Bulgaria and Romania joined the EU on 1 January 2007. Now, the EU is a trade bloc of 27 countries, with Germany, France, the UK and Italy remaining the four biggest economies, which together account for about two-thirds of the total EU output.

Current Economic Situation                                              

In view of the twin bite of the tightening of global credit and significant weakness in the global economy, the EU economy has slid into a recession since the last quarter of 2008, registering two consecutive quarterly GDP declines, i.e. 1.6% in Q4 2008 and 4.5% in Q1 2009.

While gloomy job prospects and in turn weakening spending confidence hold back consumer spending, private investment slows further as a result of worsening profit margins and tighter credit conditions. Externally, exports have remained weak as the full effect of the global financial tsunami is being felt. Despite nascent signs of recovery following a series of stimulus measures, the EU and eurozone are both forecast to record a GDP contraction of 4% in 2009.

At country level, Germany continues to suffer from the slump in world trade and investment, due mainly to its specialisation in production and trade of capital goods. On the other hand, Italy continues to suffer from adverse wealth effects, while heightened economic weakness and intense competition from emerging suppliers have weighed on domestic consumption and investment. In France, domestic demand has provided limited support to growth as unemployment trends upward, as investment suffers from downturns in the investment cycle and housing market, as well as tighter credit conditions prompted by the financial turmoil. In the UK, the ongoing scarcity of credit and further falls in property prices continue to curb consumer spending, not to mention rising unemployment.

Trade Policy

All EU member states adopt common external trade policy and measures. Meanwhile, 16 EU members, including Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain, have adopted the euro as their legal tender.  

Textiles and Clothing

Hong Kong's textiles and clothing exports to the EU were previously subject to the World Trade Organisation (WTO) Agreement on Textiles and Clothing (ATC), under which quantitative restrictions on textiles and clothing were eliminated completely on 1 January 2005.

Likewise, the previous quotas imposed by the EU on textiles and clothing products originating from the Chinese mainland were removed on 1 January 2005. However, as a result of the EU-China agreement reached in June 2005, the EU imposed safeguard quotas on 10 categories of Chinese textile products for the period of 2005-2007. Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China was established to monitor EU imports of Chinese textiles and apparel for one year, covering 8 out of the 10 previously restricted categories.

On 11 December 2008, the European Commission announced that the regime of double checking surveillance system was to expire on 31 December 2008. Accordingly, starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU.

Non-textile Manufacturing Products

Previously, the EU also imposed Union-wide quotas on three categories of non-textile products originating from the Chinese mainland, including certain footwear, porcelain and ceramic tableware/kitchenware. But these quotas were liberalised on 1 January 2005.

Scheme of Generalised Tariff Preferences

The EU's new scheme on generalised system of preferences ("GSP") entered into effect on 1 January 2009, and will remain in force until 31 December 2011. The scheme classifies products into two categories, namely sensitive products that enjoy the benefits of reduced tariff rates by 3.5 percentage points, and non-sensitive products that enjoy total tariff suspension. Under the new GSP scheme, the Chinese mainland remains a beneficiary. But certain products, including toys, textiles and textile articles, footwear, furniture, jewellery, electrical equipment and watches and clocks, are excluded from preferential treatment. Regarding Hong Kong, the territory has been fully excluded from the EU's GSP scheme since 1 May 1998.

Anti-dumping Measures

The EU has initiated anti-dumping proceedings against certain mainland-origin products. Currently, there are a number of mainland-origin items subject to EU's anti-dumping measures, including bicycle parts and certain leather footwear (definitive duty at 16.5%), which are among the affected products of interest to Hong Kong.

Other Measures

To combat the spread of the Asian longhorn beetle, the EU introduced in July 1999 emergency controls on wooden packaging material originating in the Chinese mainland. Wood covered by the measures must be stripped of its bark and free of insect bore holes greater than 3mm across, or have been kiln-dried to below 20% moisture content.

For health reasons, the EU has adopted a Directive on the control of the use of nickel in objects intended to be in contact with the skin, such as watches and jewellery. Following the emergency ban adopted in December 1999, the EU has adopted a Directive to ban the use of some phthalates in certain PVC toys and childcare articles on a permanent basis, which will come into effect from 16 January 2007. In addition, the EU has adopted a Directive to prohibit from September 2003 the trading of clothing, footwear and other textile and leather articles which contain azo-dyes, from which aromatic amines may be derived.

On the other hand, the EU has adopted a number of Directives for environmental protection, which may have an impact on the sales of a wide range of consumer goods and consumer electronics. Notable examples include the Directive on Waste Electrical and Electronic Equipment (WEEE) implemented in August 2005, and the Directive on Restriction of Hazardous Substances (RoHS) implemented in July 2006. 

On 3 December 2008, the European Commission (EC) presented two proposals: one for a recast WEEE Directive and the other for a recast RoHS Directive. As per the EC, the purpose of a recast WEEE Directive is to tackle a number of technical, legal and administrative difficulties since its entry into force, while as for the recast RoHS Directive, the EC aims to improve implementation by the Member States (e.g., by ensuring a more harmonised implementation), improve enforcement and increase understanding of the provisions.

On the heels of the WEEE Directive and RoHS Directive, the EU's new Directive on the eco-design of Energy-using Products (EuP) is now in place. This EuP Directive does not directly introduce binding requirements for specific products, but does define conditions and criteria for setting via subsequent measures. On 16 July 2008, the EC presented a proposal to extend the EuP Directive to set compulsory minimum ecodesign requirements for not only energy-using products but all energy-related products. The EuP Directive as it stands now already applies to a wide range of equipment, from office appliances, televisions and hairdryers to boilers, water heaters and industrial fans. The proposed extension, while continuing to apply to energy-using products, will cover products that - while not themselves consuming energy - nonetheless impact on the consumption of energy. The proposal was approved by the European Parliament on 24 April 2009; thenceforth, the Commission could set minimum efficiency standards for products which impact on the energy consumption, such as windows, insulation materials, showers and water taps.

Moreover, REACH, the EU Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals, entered into force in June 2007. Among others, it requires EU manufacturers and importers of chemical substances (whether on their own, in preparations or in certain articles) to gather comprehensive information on properties of their substances produced or imported in volumes of 1 tonne or more per year, and to register such substances prior to manufacturing in or import into the EU.

The European Chemicals Agency (ECHA) drew up a Candidate List of 15 substances of very high concern (SVHCs) on 28 October 2008, and prioritised seven for their particularly dangerous effects. On 1 June 2009, the ECHA made its first recommendation of seven substances that should no longer be placed on the market or allowed to be used within the EU, except if specifically authorised. The seven substances will likely affect Hong Kong producers, as several of them are used in consumer goods, including various textile applications.

Highlighted by the 2007 summer of recalls, the European Parliament voted through on 18 December 2008 a new Toy Safety Directive, which was later adopted on 11 May 2009. The new Toy Safety Directive provides a clearer definition of what is considered to be a ‘toy', bolsters safety regulations, clarifies warnings and age-limit descriptions, bans substances which are carcinogenic, mutagenic or toxic for reproduction (CMRs) and restricts the use of heavy metals and fragrances. The Directive, which requires member states to implement its provisions before January 2011, will impose new and more stringent safety requirements to cope with recently identified hazards, strengthen manufacturers' and importers' responsibilities, and enhance market surveillance activities by member states' enforcement activities.

Hong Kong's Trade with the EU^{^}

Hong Kong's total exports to the EU fell by 20% to US$15 billion in the first five months of 2009, after a 6% growth to US$50 billion in 2008. Major export items in January-May 2009 included telecommunications equipment & parts (shared 15% of the total), toys, games & sporting goods (11%), other articles of apparel, of textile fabrics (9%), women's or girls' wear of textile fabrics, not knitted (6%), travel goods & handbags (4%), and watches and clocks (3%).

On the other hand, Hong Kong's imports from the EU slid by 18% to US$10 billion in the first five months of 2009, following a rise of 12% to US$29 billion in 2008. Major import items in January-May 2009 included telecommunications equipment & parts (shared 8% of the total), non-electric engines/motors & parts (7%), pearls, precious & semi-precious stones (7%), travel goods & handbags (4%), semiconductors & electronic valves/tubes (4%), and passenger motor cars (4%).

^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

EU's Involvement in the Hong Kong Economy

Many EU companies have used their operations in Hong Kong as a springboard to other Asia-Pacific markets, especially the Chinese mainland. As of 1 June 2008, there were 410 EU companies with regional headquarters in Hong Kong, while another 732 had regional offices.

The EU is one of the major sources of foreign direct investment in Hong Kong. According to the latest available figures from the Census and Statistics Department, the total stock of direct investment from the EU amounted to US$96 billion as at the end of 2007.

The EU is well represented in trading, finance, insurance, retailing, transportation and other sectors of the Hong Kong economy. Major companies with EU interests include the HSBC, Standard Chartered Bank, Barclays Bank, Inchcape, ICI (China), Prudential Portfolio Managers, Marks & Spencer, British Airways, Commerzbank AG, Deutsche Bank, Olympia Office Machines (H.K.) Ltd., BASF, Henkel Asia-Pacific Ltd., Lufthansa German Airlines, Siemens, TÜV Rheinland, BNP Paribas, Credit Agricole, Moet Hennessy Asia Pacific, Parfums Christian Dior Far East, Air France, ABN AMRO, P&O Nedlloyd (H.K.) Ltd., Philips Hong Kong Ltd., Shell Hong Kong Ltd, Banco di Roma and Ericsson Limited.

Reflecting EU's widespread interests locally, there were some 30,730 EU nationals resided in Hong Kong as at the end of 2008.