Overview

• Hong Kong's electronics industry is the largest merchandise export earner, which accounted for more than 50% of Hong Kong's total exports in 2008. According to latest available statistics, Hong Kong was the world's second largest exporter of calculators, radios, telephone sets, sound recording apparatus, computer parts/accessories and video recording/reproducing apparatus (including DVD/VCD recorders/players).

• Hong Kong's electronics exports rose by 7% in 2008. Sales to Chinese mainland, the largest export market, continued to expand but at a slightly slower pace than previous years due to the global economic slowdown. Overall, exports to major markets experienced growth except for a minor decrease of 1% to the US. 

• Small, wireless connectable computers such as netbooks and mobile internet devices are gaining popularity among consumers. With the improvement of wireless access infrastructure in many developed countries, sales of mobile phones and PDAs with Internet access capabilities are also expected to increase.  As electronic components become smaller yet with increasing computational power, manufacturers are able to offer multi-purpose electronic gadgets with sleak and eco-friendly design at lower prices.

Industry Features *

* Industry statistics cover activities in Hong Kong only.

Hong Kong's electronics industry is the largest merchandise export earner, which accounted for more than 50% of Hong Kong's total exports in 2008. According to latest available statistics, Hong Kong was the world's second largest exporter of calculators, radios, telephone sets, sound recording apparatus, computer parts/accessories and video recording/reproducing apparatus (including DVD/VCD recorders/players).

Finished goods constitute about one quarter of Hong Kong's electronics exports, of which the majority are consumer electronics for domestic use. The largest category is audio-visual (AV) equipment, consisting of radios and optical discs players, hi-fi equipment, TV sets, digital versatile disc (DVD) players/recorders, MP3 players, etc. Moreover, Hong Kong exports a variety of computer products, such as desk-top/notebook computers, netbooks, routers, monitors and magnetic and optical disk drives, as well as telecommunications products like corded and cordless telephones and mobile handsets. Other items with smaller export value include calculators, electronic dictionaries and translators, pdas and USB flash drives.

Parts and components constitute about three quarters of Hong Kong's electronics exports, of which majority are re-exported to the Chinese mainland for outward processing production.  Meanwhile Hong Kong produces and exports a variety of parts and accessories for telecommunications items, AV equipment, office machines and computers, as well as components like resistors, capacitors, inductors, crystals, resonators, speakers, switches, buzzers, liquid crystal displays (LCDs), printed circuit boards (PCBs) and transformers.

Most manufacturers have relocated the labour-intensive production processes to the Chinese mainland for cost reasons.  Meanwhile, their Hong Kong offices are mainly responsible for product development, quality control, management, marketing and logistic support. There are a number of companies still maintaining the high value-added and/or capital-intensive production in Hong Kong, e.g. IC packaging/testing, production of multi-layer PCBs, lead-frame bonding and PCB assembly by surface mount technology (SMT) for high-value products.

The success of Hong Kong's electronics industry also lies in efficient management. Against the fast changing markets, Hong Kong companies emphasise quick response to ensure effective marketing services to their customers, and to monitor the changing product trends. Many Hong Kong companies have also further strengthened their quality assurance systems and are accredited with ISO 9000 --- an internationally recognised standard for quality management system, and ISO 14000 --- a standard for environmental management system, amid the growing concerns for environmental protection. 

Performance of Hong Kong's Exports of Electronics ^ 

* Insignificant
^ 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.
 

Hong Kong's electronics exports grew by 7% in 2008. Exports of IT equipment, telecommunications equipment and semiconductor items increased by 7%, 24% and 8% during this period, while exports of AV equipment experienced a slight dip of 5%. 

Trade to our major export destinations, Chinese mainland (60% of total exports), the EU (10%), the US (8%), ASEAN (7%) and Japan (4%) all experienced growth in 2008 except for a minor decrease of 1% to the US, possibly due to a weaker US dollar and slack sales in the domestic market in the later part of the year. 

Exports to the Chinese mainland rose by 8% to HK$856 billion in 2008, of which finished products and electronic parts and components accounted for 12% and 88% respectively. Amid the steady input demand for outward processing production, exports of parts and components continued to expand despite lower component prices.

Elsewhere in Asia, exports to ASEAN, which constituted mainly of parts and components, rose by 9% in 2008 amid increases in export production in the region. Exports to Singapore made up 30% of Hong Kong's exports to ASEAN and experienced a moderate increase of 2%, while exports to Japan, one of our major destinations in Asia grew by 3%. 

Sales Channels 

Hong Kong manufacturers of finished electronic items mostly produce on OEM and ODM basis for reputable brand names in overseas markets. Some of these major buyers have set up buying offices in Hong Kong for direct sourcing. Hong Kong companies also sell to specialised importers and traders in North America and Europe, who distribute the merchandise under their own channels or re-sell to their clients for further distribution.

For Japan, although imports of electronics are dominated by reverse imports from Japanese production facilities in Asia, some brands like Hitachi, Sharp, Toshiba, Sony, Matsushita and Sanyo have OEM arrangements with Hong Kong suppliers. In any event, after-sales services are usually undertaken by overseas buyers, while Hong Kong suppliers provide technical support for repair and maintenance. 

There are also a number of large Hong Kong companies marketing electronic products under their own brand names, including Truly, V-Tech, Group Sense, Venturer, GP and SMC. Their sales network covers not only the advanced countries, but also economies like Latin America, Eastern Europe and various parts of Asia. 

As for parts and components, many manufacturers produce on custom-made basis for famous US, European and Japanese companies, e.g. parts and accessories of computers, recorders, and radio receivers, as well as components/modules like PCBs and LCDs. Meanwhile, standard components are usually exported directly to distributors and manufacturers in overseas markets, although some Hong Kong companies also have their own sales offices and/or representative offices abroad. 

Hong Kong is an important trading hub for electronic parts and components in Asia-Pacific. Apart from Chinese products, many items from Japan, Taiwan, the US and South Korea are re-exported via Hong Kong. A number of multinational manufacturers of parts and components have set up their offices in Hong Kong, engaging in sales, distribution and sourcing activities in the Asia-Pacific region.  

Industry Trends 

Facing intense competition from other Asian suppliers, Hong Kong continues to be a popular sourcing centre for higher-end consumer products. This is because competition from less advanced suppliers is confined to low-end mass-market items and simple products, while more advanced competitors like Taiwan and Singapore have different product mixes from Hong Kong. 

Though the Chinese mainland has a strong pool of well-established indigeneous manufacturers of domestic electronics items and poses obvious threat to Hong Kong exporters in the international market, it is mainly in the OEM business. While maintaining their OEM production, Hong Kong companies focus more on ODM and provide a variety of value-added services to their customers. The strength of Hong Kong's ODM business lies in product design and development, as well as quality assurance and timely delivery, while knowledge of world product trends and different consumer tastes and preferences in different markets are also their edge. 

While parts and components for consumer electronics are selling well in Asia, major players have re-positioned to supply parts and components for commercial and industrial equipment like computers, telecommunications and navigation systems. For example, many PCB manufacturers have shifted to the production of fine pitch multi-layer boards for sophisticated products, while some LCD companies have developed high-resolution LCD modules for high-value products. These manufacturers tend to adopt a strategy of higher degree of vertical integration to increase value-added. PCB layout, schematic drawing, tool-making, production and/or quality assurance are all done under one roof. 

On the other hand, the fast changing consumption pattern has resulted in low inventory levels in major export markets, requiring quick response for inventory replenishment. Hong Kong companies are well known for their adaptability and responsiveness to the rapidly evolving consumer tastes and technological changes. Some companies also re-engineer their procurement and production management systems, in a bid to shorten delivery lead times. Due to its time-sensitive nature, computers and electronic products are one of the major items to be transported using air freight in Hong Kong. 

CEPA Provisions 

In the Supplement IV to CEPA, Hong Kong service suppliers are allowed to set up wholly-owned enterprises in the Mainland to provide environmental protection services from 2008. Market entry for Hong Kong service providers is further eased in the latest liberalization measure to permit the Guangdong Province to approve the qualification of the Hong Kong service suppliers for setting up enterprises to operate environmental pollution control facilities in Guangdong. 

For trade in goods, since the implementation of the second supplement to CEPA in January 2006, all products of Hong Kong origin can be imported into the mainland at zero tariff. According to the stipulated procedures, products which have no existing CEPA rules of origin will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met. 

List of goods entitled to CEPA zero tariff preference in 2009 is found here:
http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2009.pdf
 

General Trade Measures Affecting Exports of Electronics 

Hong Kong exporters should be attentive to the growing popularity of green concept in the marketplace. Especially in Europe, consumers are generally conscious of environmental protection. Not surprisingly, the EU has adopted a number of directives for environmental protection, which may have an impact on the sales of electronics and electrical appliances. These include the restrictions on batteries and accumulators that contain mercury, as well as the Directive on Waste Electrical and Electronic Equipment (WEEE) implemented in August 2005, and the Directive on Restriction of Hazardous Substances (RoHS) that came into effect in July 2006. 

The European law on chemicals, REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals), was operational since June 2007. REACH requires registration of all substances and substances in articles manfactured in, or imported into, the EU market in quantities of 1 tonne or more per year. EU manufacturers and importers are also responsible for the collection, recovery and recycling of used products under the Directive on Waste Electrical and Electronic equipment (WEEE) and to restrict the types of hazardous materials in electrical and electronic equipiment under the Directive on the Restriction on the Use of certain Hazardous Substances (RoHS). 

The Chinese mainland has adopted similar regulations. These include the already effective Management Methods on Prevention and Control of Pollution Caused by Electronic Information Products since March 2007 and the Management Methods on Prevention of Waste Electronic Equipment Pollution on Environment since February 2008. The regulation on recycling and treatment of waste electrical and electronic equipment will be effective from 1 January 2011. 

Product Trends 

Small, wireless connectable and relatively cheap computers such as netbooks and mobile internet devices are gaining worldwide popularity among consumers in 2009. With the proliferation of wireless access points in many developed countries, sales of mobile phones and PDAs with Internet access capabilities are also expected to increase. 

The design of computer peripherals such as mouse, webcam, speakers, printers, scanners and USB flash drive is getting fancier and more multi-functional. A USB flash drive is also a calculator, a printer is also a scanner, photocopier and fax machine, speakers with a docking station for ipods or other portable music devices is also common. As electronic parts and components become smaller yet with increasing computational power, manufacturers are able to offer multi-purpose electronic gadgets with sleak design and at affordable prices in the market. 

Likewise, it is the norm for latest consumer electronic products to have additional features and capabilities, and the product trend is moving towards feature-rich devices with simple user interface, which are light-weighted and energy-efficient. High-definition flatscreen television, digital camera for video recording and storage, mobile phones as mp3/4 player, dvd and harddisk recorders/players and highly-interactive video game consoles are all gaining foothold in their respective product categories in most developed markets. 

With increasingly stringent environmental protection policies in place in many parts of the world and higher consumer demand for eco-friendly products, fewer electronic products now contain hazardous chemicals and many have energy saving features. Sony has in April 2009 introduced their greenest TV in Europe, it uses energy efficient backlight which consumes 50% less power and has a motion sensor to automatically switch on/off when someone is in/out of the room. Consumer electronic products with similar or even more ‘green features' will gradually capture larger market share in the near future.