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Export Confidence Improves Slightly But Remains Fragile
Opportunities in Smaller Orders and Value-for-Money Products

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Speaking today at a press conference, HKTDC Chief Economist Edward Leung said that Hong Kong export confidence remains fragile, though there has been a slight rebound in sentiment

15 March 2012 – The latest HKTDC Export Index, published by the Hong Kong Trade Development Council (HKTDC), showed a slight rebound from the previous quarter, though Hong Kong exporter confidence remains weak. The Index was revealed today at a HKTDC press conference led by the Council’s Chief Economist Edward Leung. It is also available in the latest issue of the HKTDC Trade Quarterly. 

Export Index Up
The HKTDC Export Index rebounded to 43 in the first quarter of this year, from 40.6 in the fourth quarter of 2011. “Despite the slight rebound in sentiment, confidence remains fragile,” said Mr Leung. “A reading below 50 indicates negative export sentiment and signals a contraction in Hong Kong’s exports over the short term. This is the third consecutive quarter with a reading below the watershed of 50.”

Export sentiment improved for most major industries. The indices for toys and jewellery saw the biggest rise, to 45.5 and 45.3 respectively, though both remained below 50. Clothing exporters were among the most pessimistic, with the clothing index dropping to 37.7, its lowest reading since the third quarter of 2009.

Among major markets, the indices for the Chinese mainland and Japan were relatively steady, at just below 50. Export confidence improved slightly for the United States, with a reading of 46.3, up from 43.8. Confidence in the European Union saw little change from the preceding quarter, with a reading of 42.6 compared to 42.1 the previous quarter.

Labour Shortages, Wage Increases
Regarding labour issues on the mainland, 86 per cent of survey respondents reported higher mainland costs over the past quarter, compared to 79 per cent in the fourth quarter of 2011. About 55 per cent said they, or their suppliers, experienced labour shortages after Chinese New Year. Among these, 57 per cent said that this year’s post-New Year’s labour shortage has been more severe than last year.

“Although higher labour costs could be due to seasonal factors, as workers usually get pay rises after Chinese New Year, it is expected that labour shortages and wage rises will persist,” said Mr Leung. “Hong Kong companies will continue to face the problem of lower profit margins due to rising production costs, as well as subdued overseas demand and intensifying competition.”

Structural Challenges
The latest issue of Trade Quarterly presents an HKTDC research study, conducted in late 2011, about export performance. Some 3,500 Hong Kong manufacturers and traders were surveyed. Negative sentiment prevailed, with one-third of respondents saying that their export performances this year would be “unsatisfactory” or “very unsatisfactory,” and 45 per cent expecting only “average” performance. They attributed this to the “weak purchasing power in their target market” (89 per cent), particularly in Western Europe and the US; “decline in product competitiveness” (87 per cent) as their prices have become uncompetitive because of surging costs and exchange rate movements; and “fierce competition from counterparts” (83 per cent), particularly from the mainland.

Mr Leung noted that these are likely to be long-term concerns for Hong Kong exporters. “Although some exporters said they would pass the cost increases on to buyers, it will not be enough, unless they continue to launch new products or improve their product quality.”

Small is Beautiful
Given sustained economic hardship, consumers in traditional markets will likely remain conservative, according to Mr Leung, adding that buyers, whether they are importers, distributors or retailers, will likely place smaller orders. He advised exporters to “build their design capability to cash in on the demand for private labels.”

Mr Leung also urged Hong Kong exporters to pursue emerging markets, where a rising middle class offers greater opportunities for Hong Kong products. “To be successful in emerging markets, exporters need to offer competitive products similar to traditional markets but with reduced features to cope with limited affordability in those markets.” He added that purchasing power in emerging markets will still be low compared to mature markets and that buyers in emerging markets tend to place even smaller orders than their counterparts in traditional markets. “As an effective way to differentiate themselves from other suppliers, Hong Kong exporters should adopt a decent branding strategy for their products,” Mr Leung said.

Whether pursuing opportunities in developed or emerging markets, Mr Leung said “Hong Kong exporters will have to establish themselves as value-for-money suppliers with a clear differentiation from other low-cost vendors. Most important, they need to strengthen their supply chain management to handle smaller orders with wider variety and quick deliveries at reasonable costs.”

For a webcast summary of Mr Leung's remarks, please visit: http://www.youtube.com/user/HKTDC?feature=mhee

Media Enquiries
Please contact the HKTDC's Corporate Communication Department:

Joe Kainz
Tel: (852) 2584 4216
Email: joe.kainz@hktdc.org

About the HKTDC
A statutory body established in 1966, the Hong Kong Trade Development Council (HKTDC) is the international marketing arm for Hong Kong-based traders, manufacturers and service providers. With more than 40 global offices, including 11 on the Chinese mainland, the HKTDC promotes Hong Kong as a platform for doing business with China and throughout Asia. The HKTDC also organises trade fairs and business missions to connect companies with opportunities in Hong Kong and on the mainland, while providing information via trade publications, research reports and online. For more information, please visit: www.hktdc.com 

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