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HKTDC Export Index 4Q18: Hong Kong Exporters Preparing for More Challenges Ahead podcast

  • The HKTDC Export Index edged down slightly by 0.6 points to 35.2 in 4Q18, suggesting more stable exporter sentiment, amidst on-going China-US trade friction.

  • Looking ahead, concerns over slower export growth is likely to last into the new year, with nearly half of respondents (49.2%) worried that overall sales will decrease in 2019.

  • Major industries are likely to be affected by the overall pessimistic sentiment, with all industry sub-indexes staying in contractionary territory below-50 in 4Q18. However, electronics, the largest sector that accounts for nearly 70% of Hong Kong exports, has seen marginal improvement in its sub-index, up from 35.4 in 3Q18 to 35.9 in 4Q18. This is also the only sector reporting an improvement during 4Q18.

  • Regarding the prospects for individual markets, the discrepancy of expectations between Mainland China (44.7) and the US (41.5) has narrowed from 10.4 points in the preceding quarter, to the latest 3.2 points.

  • As a sign of more stable sentiment, all subsidiary indexes have ended the sharp decline experienced in the previous quarter, including the Employment Index (46.6), the Trade Value Index (44.8) and the Procurement Index (43.4).

  • Concerns over the China-US trade friction are evidently growing among Hong Kong exporters. Since tracking exporters’ views on the trade dispute in 1Q18, this is the first time that negative has views have gained a majority, with over half of all respondents (54.4%) expecting the trade dispute to dampen export prospects over the near term.

  • In terms of real impacts from the trade dispute on the export performance, some 46.4% of respondents believed that it had already worsened their export businesses, up from 36.1% in the previous quarter.

  • On the whole, exporters are evidently facing many challenges from China-US trade friction, with an increasing number of responses recorded across all the conceivable negative spill-overs.

  • On the positive side, Hong Kong exporters were proactively finding ways to combat with the potential negative spill-over, amidst uncertainties from the lingering trade dispute. Respondents were found to be more inclined to engage in long-term diversification strategies than in short-term technical tactics.

Following the largest quarterly drop recorded in 3Q18, the HKTDC Export Index stopped significant downtrend at the end of 2018. The index remained at a similar level as at the last quarter, with only a small drop of 0.6 points to the latest reading of 35.2 in 4Q18 – the lowest level in the past three years.

Looking back, Hong Kong exporters expressed high spirits at the beginning of 2018 and even reached the 29-quarter high of 54.1 in 2Q18, before becoming evidently worried when the trade dispute between China and the US dragged on.

Concerns over a slower export growth is likely to last into the new year, at least over the next few months, with nearly half of respondents (49.2%) worried that overall sales will decrease in 2019, compared to 21.1% who expressed the opposite.

Chart: HTKDC Export Index
Chart: HTKDC Export Index

Major industries are likely to be affected by the overall pessimistic sentiment, with all industry sub-indexes staying in contractionary territory below-50 in 4Q18. On the whole, only electronics is showing a small rebound of 0.5 points to 35.9, while machinery remained the most promising sector at 36.6. Timepieces (34), jewellery (30.5) and clothing (30.3) were found to be falling further below the overall average. Meanwhile, sentiment has turned upside down in toys, with its reading plunging from the most positive among key industries at 43.6 in 3Q18, to its lowest level in nearly 10 years at 24.3.

PeriodHKTDC
Export Index
ElectronicsClothingToysJewelleryTimepiecesMachinery
4Q1835.235.930.324.330.534.036.6
3Q1835.835.432.843.638.543.542.5
2Q1854.155.243.653.241.349.054.9
1Q1849.449.542.451.444.157.053.8


Regarding market prospects for trade counterparts directly involved in the on-going trade dispute, the discrepancy of expectations between Mainland China and the US has narrowed from 10.4 points in the preceding quarter, to the latest 3.2 points. Confidence in Mainland China dropped to a three-year low at 44.7, whereas the US edged up to 41.5. Other major markets were down further, with Japan falling to 47.3, and the EU dropping to 41.8 in 4Q18.

HKTDC Export Index
by Market
USEUJapanMainland China
4Q1841.541.847.344.7
3Q1839.843.348.950.2
2Q1851.254.051.353.8
1Q1850.249.150.050.3


In contrast to the downbeat overall sentiment, Hong Kong exporters seemed to be more relieved about the performance of their offshore trade businesses (i.e. shipments not passing through Hong Kong, but handled by Hong Kong exporters). The Offshore Trade Index climbed from 43.9 in 3Q18, to 48.7 in 4Q18 – just below the watershed of 50. Although staying in the contractionary zone, offshore trade is expected to outperform overall exports, with its reading staying well above the overall export index.

Chart: Offshore Trade Index
Chart: Offshore Trade Index

The unit price trend was linked to the overall export sentiment. The Trade Value Index remained at 44.8 – the same level as in 3Q18, suggesting that the upward pressure on unit prices is likely to be restrained over the near term. Overall, machinery is the least likely to suffer a further drop in prices, with its reading the highest among major industries at 49.1, followed by toys (46.8), electronics (44.7), clothing (44.3) and timepieces (43.5). Jewellery remained the least likely to see price increases over the near term, with its reading lagging behind at 38.

PeriodTrade Value IndexElectronicsClothingToysJewelleryTimepiecesMachinery
4Q1844.844.744.346.838.043.549.1
3Q1844.844.942.052.537.045.544.7
2Q1854.655.545.656.448.649.056.5
1Q1852.852.452.958.746.667.056.9


The Procurement Index edged down further to 43.4 in 4Q18, from 45.5 in 3Q18, with some industries particularly upbeat compared with others. Procurement sentiment in timepieces is the most positive, moving to expansionary territory at 53 – the highest among major industries, followed by machinery (51.9) and clothing (50). However, some other major industries are less optimistic in procurement terms. Toys retreated to the contractionary after some sense of optimism over the last two quarters, while electronics also dropped to a seven-quarter low. Despite having the lowest reading, procurement intentions in jewellery have been up nine points from a score of just 25 in the previous quarter, to 34 in 4Q18.

PeriodProcurement IndexElectronicsClothingToysJewelleryTimepiecesMachinery
4Q1843.442.250.044.334.053.051.9
3Q1845.546.339.052.125.039.043.1
2Q1857.357.751.562.942.347.062.3
1Q1846.747.040.243.842.256.048.8


In line with the overall pessimistic sentiment, the Employment Index decreased further to 46.6, from 47.9 in 3Q18, suggesting the jobs market is likely to remain quiet over the near term. Even though prospects for jewellery export are not particularly outstanding, recruitment intentions in the industry did enjoy some rebound, with its reading up from 44 in 3Q18 to the latest 48, followed closely by electronics at 47.8. Meanwhile, employment is likely to contract somewhat in toys (44.3), machinery (40.6) and timepieces (40) over the near term. Clothing remained the most subdued in terms of employment, with its reading down further to 38.5 – the lowest of all the major industries.

PeriodEmployment IndexElectronicsClothingToysJewelleryTimepiecesMachinery
4Q1846.647.838.544.348.040.040.6
3Q1847.948.740.547.944.050.045.0
2Q1853.254.244.155.751.048.051.9
1Q1847.847.843.145.152.954.051.9


Looking ahead, concerns over China-US trade friction are evidently mounting among Hong Kong exporters. Since tracking exporters’ views on the trade dispute in 1Q18, this is the first time when negative views have taken the majority.

Over half of all respondents (54.4%) expected the trade dispute to dampen export prospects over the near term, compared to some 42% of exporters who disagreed in any linkage between the trade dispute to the foreseeable export performance, down nearly 10 percentage points from the preceding quarter.

Chart: What effect do you expect the China-US trade friction to have on your export performance
Chart: What effect do you expect the China-US trade friction to have on your export performance

While the unresolved China-US trade friction has evidently undermined the overall sentiment, the real impact on export performance is also emerging. Some 46.4% of respondents believed the trade dispute had already worsened their export businesses, up from 36.1% in the previous quarter. Meanwhile, exporters who were not convinced of any spill-over from the dispute also decreased from 60.8% to 50.9%. After all, China-US trade friction is not very likely to boost overall exports, and just a handful of respondents (2.6%) would disagree.

Chart: Up till now, what effect has the China-US trade friction had on your export performance?
Chart: Up till now, what effect has the China-US trade friction had on your export performance?

Among those exporters who reported a negative impact from China-US trade friction, most respondents (65.8%) had experienced buyers ordering less, up from 52.9% in the preceding quarter. In addition, the trade dispute had given the buyers cause to bargain on price, with 46.2% of respondents agreeing, compared to just 18% in the previous quarter.

On the whole, exporters are evidently facing many challenges resulting from China-US trade friction, with an increasing number of responses recorded across all the conceivable negative spill-overs.

Chart: How is the China-US trade friction affecting your company?
Chart: How is the China-US trade friction affecting your company?

On the positive side, Hong Kong exporters were proactively finding ways to combat with the potential negative spill-overs, amidst uncertainty from the lingering trade dispute. Respondents were found to be more willing to engage in long-term diversification strategies.

A majority of respondents (65.5%) have explored the possibility of developing markets outside the US. Other exporters were devoted to enhancing the competitiveness of products (39.4%), or even moving their production/sourcing base away from Mainland China (27.4%).

In contrast, some more short-term technical tactics were found not very appealing to Hong Kong exporters. Less than one-tenth of respondents have considered tariff engineering (9.3%), while even fewer had considered filing an application to avoid the additional US tariffs.

Chart: How would your company respond to the China-US trade friction?
Chart: How would your company respond to the China-US trade friction?

The HKTDC Export Index is designed to monitor the current export performance of Hong Kong traders and gauge their near-term prospects. With a reading above 50, the Index indicates that more than half of the surveyed traders incline towards the upside, which can be interpreted as an upward trend and an increase in confidence.

Content provided by Picture: Doris Fung
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