Major Economic Indicators

Recent Developments

• Slowing further from a 5.6% growth in 2008, the Russian economy is quickly wounded by the ongoing global economic crisis. Low oil prices, sizable external corporate debts, negative rating actions, continuing capital retreat, high interest rates and tight credit are expected to continue to weigh on the Russian economy, giving rise to a GDP forecast of -6.0% in 2009.
• Hong Kong's total exports to Russia fell by 39% to US$123 million in the first quarter of 2009, while imports from Russia decreased by 26% to US$85 million.

Current Economic Situation

Under the weight of the global economic crisis, the Russian economy shrank by a startling 9.5% in the first quarter of 2009. The downward shift in overseas demand for oil and metals, the primary export revenue earners for Russia that account for nearly 80% of total exports, has dragged Russia's foreign exchange earnings, while the retreat of foreign investment, negative rating actions and sizable external corporate debts have caused a significant depreciation of the rouble. On the other hand, rising unemployment has deterred consumer spending, although inflation has eased in recent months.

Looking ahead, the slackening prices of energy products and commodities will continue to dampen Russia's exports, while rising joblessness, falling inward investment and still-tight credit conditions will further affect consumer and business confidence, leading to a further contraction in consumption and industrial activities. Meanwhile, inflation, albeit easing, will likely remain a drag on purchasing power in 2009, on the back of the weak rouble. On the whole, Russia's economic growth is forecast to contract by 6.0% in 2009.

Trade Policy

The Russian business and trade regime has been liberalised considerably, especially during the process of negotiation for membership in the World Trade Organization (WTO). In contrast to the previous tightly-controlled situation, all enterprises and individuals are now allowed to trade without special registration. They are free to import nearly all products. Import licensing and other controls only apply to a few items, including some strategic products of very little interest to Hong Kong.

The Russian customs tariff classification is based on the Harmonised Commodity Description and Coding System (HS). All goods carried across the country's customs border have to be declared to customs authorities of the Russia Federation. A customs declaration should be submitted within 15 days after the goods are presented to customs authorities. Customs duties, if any, should be paid to the authorities when the goods cross the Russia border.

Import and export duties are calculated as a percentage of the customs value of the goods (ad valorem) or in euros per unit of measurement of the goods, and/or as a combination of these two rates. In most cases, however, ad valorem customs duties are levied as a percentage of the customs value of the goods, ranging from 3% to 33% for most imports. For most Hong Kong-type consumer products like garments, household hardware, consumer electronics, timepieces and jewellery, current tariff rates stand at 5%-20%. On the other hand, export duties are set for a few commodities like oil products, copper, nickel and goods made of these materials. Meanwhile, anti-dumping proceedings have been scarce, and there are currently no anti-dumping measures against the Chinese mainland and Hong Kong.

Aside from import tariffs, most imported products, as well as services, are subject to a value-added tax (VAT). The standard VAT rate has been reduced from 20% to 18% with effect from January 2004. On the other hand, the regional sales tax has been abolished completely. Meanwhile, a lower VAT rate of 10% applies to basic foods and children's items, while certain items and services, such as certain financial services and goods for re-exports, are exempt from the VAT.

Most imports, including consumer goods, are required to comply with appropriate Russian safety standards. The most common certificate that is required by customs border is the GOST R Certificate of Conformity (CoC) issued by the Gosstandart (GOST) of Russia Federation or its authorised agencies.

Looking forward, Russia's possible accession to the WTO is expected to have a bearing on its import regime. A bilateral market accession agreement with the US was signed in November 2006. Among other commitments, Russia would cut by 3% the weighted average of the rate of import tariffs on industrial goods, including consumer goods commonly exported from Hong Kong (e.g. toys, textiles, jewellery, watches, machinery and electronics, etc.), to around 10% over 6-8 years. For instance, the weighted average of import tariffs for textiles, apparel and shoes is currently about 18%, but after joining the WTO, the average rate will gradually fall to around 12%. Apart from cutting tariffs, Russia has also agreed to enhance its trading and regulatory environment, e.g. on the aspect of intellectual property rights (IPR) protection.

Hong Kong's Trade with Russia ^

Hong Kong's total exports to Russia fell by 39% to US$123 million in the first quarter of 2009, after expanding by 23% to US$1,100 million in 2008. Leading export items to Russia in the first quarter of 2009 included telecommunications equipment & parts (shared 12% of the total), toys, games & sporting goods (11%), computers (8%), jewellery (7%), and audio & video recorders/players (5%).

On the other hand, Hong Kong's total imports from Russia decreased by 26% to US$85 million in the first quarter of 2009, after a 53% increase to US$574 million in 2008. Major import items from Russia in the first quarter of 2009 included silver & platinum (shared 32% of the total), petroleum oils (other than crude) (14%), jewellery (13%), telecommunications equipment & parts (11%), and iron & steel bars, rods, angles, shapes & sections (9%).

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