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Hong Kong Exports Off to Strong Start in 2008
Exporters Advised to Consider Emerging Markets Given Modest Full-Year Prospects

10 June 2008 - Prompted by sizzling intra-Asian trade, sustained demand from Europe and firmer export prices, Hong Kong's exports grew 11.5 per cent in the first four months of the year, although full-year trade prospects appear more subdued, according to the latest Hong Kong Trade Quarterly, published by the Hong Kong Trade Development Council (HKTDC).

According to the report, the lingering impact of a United States-led global slowdown will result in a modest export growth of seven per cent in 2008, unchanged from the previous forecast issued by the HKTDC's Research Department late last year.

The US economy showed only marginal growth in the past two quarters, reflecting the continued corrections in the housing market and the ensuing sub-prime fallout, credit turmoil and weakening of consumer confidence. In contrast, exports to the European Union are in better shape, thanks to its stronger economy and a firm euro.

"Falling exports to the US but expanding sales to the EU have helped bring a slowdown in cargo diversion and, in turn, served to lift Hong Kong's re-exports," noted Edward Leung, Chief Economist of the HKTDC. "EU buyers, for their part, are more inclined to use Hong Kong as a consolidation centre."

Mr Leung added that Hong Kong's firmer export prices, spurred by rising input costs, have further contributed to the inspiring sales performance. Unsurprisingly, price rises are more prevalent for exports to Europe but less significant for exports to the US. The depreciation of the US dollar has also galvanised Hong Kong exporters into shunning the currency to settle non-US transactions.

The Asian Promise
"Although the US economy is expected to pick up slightly in the latter half of 2008, the main engine for Hong Kong's export growth will be intra-Asian trade, particularly with the Chinese mainland," said Mr Leung.

In the first four months of 2008, Hong Kong's re-exports to the Chinese mainland of China-origin goods increased 17 per cent. This, said Mr Leung, was due to the rapid growth of local sourcing in the mainland and the increasing use of Hong Kong as the regional distribution centre for manufacturing processes in the mainland.

Hong Kong's electronics exports, accounting for half the total, recorded double-digit growth from January to April 2008. These exports were mostly parts and components shipped from Asian countries to the mainland for assembly. During the same period, Hong Kong's processed diamond exports to India surged 170 per cent, following the trend of outsourcing diamond polishing and processing from India to China.

"Intra-Asian trade should remain buoyant," said Mr Leung. "For expensive items such as electronic parts and components and diamonds, exporters prefer shipment by air through Hong Kong, using their Hong Kong offices to manage the logistics."

The change of government policies in Taiwan should eventually contribute further to economic integration and regional growth, according to Mr Leung. Hong Kong is poised to benefit from growing trade between the mainland and Taiwan, despite a weakening of its intermediary role in the near term.

"In all, Hong Kong exports should continue to expand in 2008, as the US economy is expected to pick up slightly in the latter half of the year, spurred by fiscal stimulus, interest rate cuts and special measures to support the financial system. Heightening global inflationary pressures, however, will be the biggest challenge facing the global economy," said Mr Leung.

Hong Kong exporters are advised to look to emerging markets around the globe for sales expansion, according to Trade Quarterly. In particular, strong demand from commodity exporters and Asian countries should help cushion some of the negative impact from the slowing world economy.

Hong Kong Trade Quarterly, published by the HKTDC Research Department, spotlights global trade trends and business developments relevant to the Hong Kong trading community.

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About the HKTDC
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 offices worldwide, including 11 in the Chinese mainland, the HKTDC promotes Hong Kong as a platform for doing business with China and Asia. The HKTDC 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, visit www.hktdc.com

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