Major Economic Indicators

Recent Developments

• As Germany is a member of the European Union (EU), its trade relations with Hong Kong/the Chinese mainland are affected by EU's common external trade policy and measures. As a euro-zone member, it has also adopted the euro as its legal tender from 1 January 2002.
• Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China has 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 license or surveillance document before entering the EU.
• The EU's new scheme on generalised system of preferences ("GSP") entered into effect 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 Germany dropped by 13% to US$4 billion in the first five months of 2009, while its imports from Germany fell by 20% to US$2 billion.
• The total stock of German direct investment in Hong Kong amounted to US$5.1 billion as at the end of 2007.
• Battered by its worst-ever recession since the Second World War, Germany moved deeper into recession in 2009, with first quarter GDP showing a staggering 6.7% year-on-year decline. As recession continues to rage across the globe, the export-led German economy is forecast to see GDP shrink 6.2% and 0.6% in 2009 and 2010, respectively.

Current Economic Situation

Germany, being the largest economy in the EU and the world's biggest exporter, has been severely hit by the global economic downturn and the subsequent slump in manufacturing activities and exports. With exports plunging and investment showing no signs of relief, the export-dependent German economy registered a staggering 6.7% year-on-year decline in the first quarter of 2009. In the meantime, domestic demand, despite strong household balance sheets and low reliance on consumption credit, has been snared by the bleak news on the labour market and massive loss of wealth from the crisis, while investment sentiment has remained sluggish on account of tight credit conditions, poor corporate earnings and gloomy outlook.

Looking ahead, the German economy, boosted by the stimulus spending, is forecast to stabilise further over the rest of 2009 as the global economy is beginning to pull out of the current unprecedented recession, yet the feeble global demand will remain a significant drag. All in all, Germany is forecast to see GDP shrink 6.2% in 2009 and 0.6% in 2010.

Trade Policy

Germany is a member of the EU, and it follows EU's common external trade policy and measures. As a euro-zone member, it has also adopted the euro as its legal tender from 1 January 2002.

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 Germany #

Hong Kong's total exports to Germany declined by 13% to US$4 billion in the first five months of 2009, after increasing by 16% to US$12 billion in 2008. Major export items during January-May 2009 included toys, games & sporting goods (shared 25% of the total), telecommunications equipment & parts (11%), other articles of apparel, of textile fabrics (7%), women's or girls' wear of textile fabrics, not knitted (6%), and electrical apparatus for electrical circuits (3%).

On the other hand, Hong Kong's total imports from Germany declined by 20% to US$2 billion in the first five months of 2009, after growing by 11% to US$7 billion in 2008. Major imports during January-May 2009 included passenger motor cars (shared 13% of the total), telecommunications equipment & parts (7%), ball or roller bearings (6%), textile/leather machinery & parts (4%), and semi-conductors & electronic valves/tubes (4%).

German Involvement in the Hong Kong Economy

Germany has a substantial investment in Hong Kong. According to the latest available figures from the Census and Statistics Department, total stock of direct investment from Germany amounted to US$5.1 billion (or HK$39.7 billion) as at the end of 2007.

Germany is well represented in finance, trading and other sectors of Hong Kong. The number of German companies operating in Hong Kong stands at some 500. Examples include Bayerische Landesbank, Commerzbank AG, and Deutsche Bank (banking), Olympia Office Machines (H.K.) Ltd., BASF and Markant Trading Organisation (Far East) Ltd. (trading/marketing), Lufthansa German Airlines (transportation), Henkel Asia-Pacific Ltd. and TÜV Rheinland (business services), and Siemens (electronics).

As of 1 June 2008, there were 77 German companies with regional headquarters in Hong Kong, while another 133 had regional offices.

Reflecting Germany's diverse activities locally, there were about 1,590 German nationals resided in Hong Kong as at the end of 2008.