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Hong Kong Export Growth to Slow in 2008
Manufacturers and Exporters Advised to Target Emerging
Markets, particularly the Chinese Mainland

December 6, 2007 - Hong Kong's export growth will slow in 2008, according to a trade forecast report released today by the Hong Kong Trade Development Council (TDC).

According to the report, Hong Kong's exports are forecast to rise by seven per cent in 2008, compared to the TDC's estimated growth of 8-9 per cent for 2007.

This moderating expectation is already evident in the TDC's Export Index, developed to monitor the export performance and prospects of Hong Kong traders. The index is based on a quarterly business confidence survey covering Hong Kong's major industries.

For the fourth quarter of 2007, the index stands at 48.8, much lower than the first three quarters' average of 57.7. A reading below 50 indicates a contraction in exports, according to the TDC.

Export market prospects
"The United States market will be less promising in 2008," says the TDC's Chief Economist Edward Leung. "A stronger euro and the European Union economy may help buffer against the slowdown in the US to some extent."

Mr Leung expects Hong Kong exports to Japan to be steady, but not particularly impressive, in 2008.

Hong Kong exports to the US recorded a negative growth of 0.7 per cent in the first 10 months of 2007. Exports to Japan also recorded a negative growth of 0.9 per cent. Exports to the EU in the same period, however, registered an encouraging growth of 5.7 per cent.

Mr Leung says that Hong Kong's export growth will also be determined by the degree to which emerging markets are affected by the US slowdown. (See table, in appendix, showing the impact of the US slowdown on Hong Kong exports.)

Hong Kong exports to emerging markets rose across the board in the first 10 months of 2007: ASEAN, up 14.3 per cent; the Chinese mainland, up 14.1 per cent; Commonwealth of Independent States and Central and Eastern European countries, up 28.5 per cent; the Middle East, up 20 per cent.

According to Mr Leung, Hong Kong exports will benefit from the dynamic growth taking place among oil-producing economies and emerging markets in Asia, as they will be less affected by a US slowdown.

Hong Kong manufacturers and exporters are advised to expand their emerging market sales, particularly to the Chinese mainland, which has sustainable domestic demand. Half of Hong Kong's exports now go to the mainland.

Production environment challenges
Hong Kong manufacturers and exporters are expected to face some big challenges ahead, including changes in the rules governing export processing trade in the mainland. The associated risk - disturbing the smooth operation of Hong Kong's supply chain in southern China - is a cause for concern. Mr Leung says the Central Government is now aware of the impact of its policies, and is more willing to consult the industry beforehand.

Rising production costs in the mainland, however, particularly in the Pearl River Delta (PRD) region, still present a challenge to Hong Kong manufacturers. Labour costs in the PRD have increased by some 25 per cent over the past two years. A new Labour Contract Law, which goes into effect in January 2008, may further exacerbate the situation.

The strengthening renminbi, which has appreciated by up to 10 per cent against the US dollar since mid-2005, meanwhile, has translated into a 2-4.5 per cent rise in production costs.

The mainland's promise to reduce greenhouse gas emissions and to adopt more environmentally friendly manufacturing processes also has implications for Hong Kong factories operating in the mainland.

Hong Kong manufacturers are advised to review their operations, including their use of technology, source of raw materials and factory locations, in future.

Mr Leung adds that Hong Kong manufacturers and exporters should manage their supply chains better to stay competitive. He also believes they should consider shifting from their basic methods of processing and product assembly to higher value-added production methods, thereby creating higher value-added goods.

They also need to monitor more closely new regulations in overseas markets aimed at protecting the environment and ensuring that products entering those markets are safe.


Export performance by industry
Hong Kong's electronics industry, which accounts for nearly half the territory's total exports, will remain the growth leader, according to the TDC report. Toy sales will be clouded by the spate of recent recalls. Exports of clothing, timepieces and jewellery are expected to be steady.

The report also notes that services exports should moderate slightly, in tandem with the slower growth of merchandise exports. The export of trade-related services and travel services, however, should continue to be bright.

Regarding the IPO (Initial Public Offering) business, the report says reasonably large-size IPOs should take place frequently in 2008.

To view a webcast interview of TDC Chief Economist Edward Leung offering further commentary on today's trade forecast, please visit:

http://webcast.tdctrade.com/071130_01/e_100.htm


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


Media Enquiries
Please contact the TDC's Media and Public Affairs Department:
Lawrence Yau Tel: (852) 2584 4510 Email: lawrence.yau@tdc.org.hk .


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