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Moderate Rebound for Hong Kong Exports Expected in 2010
HKTDC Forecast Also Reminds Exporters of Risks and Challenges

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  HKTDC Chief Economist Edward Leung expects Hong Kong exports to rebound moderately by five per cent in 2010
16 December 2009 – Pushed by a gradual recovery of the world economy, Hong Kong exports led by electronics are set to rebound moderately by five per cent in 2010, according to a Hong Kong Trade Development Council (HKTDC) report which also warns exporters of uncertainties and challenges in the year ahead. 

Signs of the rebound are evident in the HKTDC Export Index, which monitors the export performance and prospects of Hong Kong traders. The quarterly survey, which forms the basis for the index, is published in the latest issue of the HKTDC Trade Quarterly

During the fourth quarter of 2009, the index returned to expansionary territory for the first time in more than two years, rising to a level of 53. A reading above 50 indicates predominant optimism among respondents. Most of the optimists in the survey said they saw buyers building up inventory. 

“Exporters are largely optimistic over the medium-term,” said HKTDC Chief Economist Edward Leung. “Some 44 per cent of our surveyed companies believed their export performance would be better in the coming year as a whole compared to this year, while 28 per cent thought their businesses would perform at about the same level next year. Their optimism seems well-grounded and more than just wishful thinking.” 

In an environment of continued low interest rates, many expect excessive liquidity to sustain rallies in asset prices in some locations, prompting a rebound in consumer and business confidence in selected markets, such as the Chinese mainland. 

Index Edges Up
While there was a divergence in sentiment among industries and markets, the index for mainland China continued to edge up to 52.5, staying above 50 for two consecutive quarters. The figure for Europe moved higher to 51.3, and electronics exports appear to be poised for expansion in the near term, with the index for that sector jumped 6.5 points to 56.4 in the fourth quarter. 

The improvement in sentiment for the electronics industry is in step with the global electronic cycle, which has shown tentative signs of recovery due to the gradual release of demand which had been held back during the recession, as well as a quicker pace for computer upgrading. 

“As electronics account for more than 50 per cent of Hong Kong merchandise exports, the positive development in the global electronic cycle will be an important boost for Hong Kong exports,” Mr Leung said. 

Compared to the third quarter of 2009, fewer Hong Kong companies which source, produce or sell on the Chinese mainland consider weak export demand as “serious” or “very serious.” Buyer demand for price reductions is cited as the biggest operating difficulty, but the percentage considering the issue “serious” or “very serious” has dropped to 68 per cent from 71 per cent. 

“It is important to note that the majority of respondents have made proactive plans for next year,” Mr Leung said. “While they believe buyers will demand better quality or higher safety requirements, nearly 90 per cent of the respondents said they would improve their product quality, and 80 per cent said they would offer high-end products.” 

Traditional Market Recoveries Uneven
Looking at Hong Kong’s traditional markets, the pace of recovery in the United States is expected to be slow despite emerging signs of stabilisation. Although consumer sentiment there is expected to improve gradually, consumption will expand at a faster rate only when the drag from household deleveraging subsides, and the initial boost from stimulus-driven spending and inventory replenishment is able to sustain job creation. 

Similarly, turnaround for the European Union is expected to be moderate on the whole and uneven among member states. The survey indicates that revival of consumer confidence will also be restrained, while consumption will only expand at a tempered rate. 

The Chinese mainland, however, shows signs of strong growth in retail sales which are expected to rise by more than 15 per cent in the first ten months of 2009. Economic recovery is expected to continue with China’s central government likely to maintain its pro-growth policies for the foreseeable future. In addition, an improvement in the labour market and favourable developments in property and stock markets should inject added vitality into consumption, spawning enormous demand for a comprehensive range of consumer products.

“In selling to the mainland market, Hong Kong suppliers should take heed of the diversity of the consumer base, not least between the large cities in the coastal regions and the second- and third-tier cities of the inland provinces,” Mr Leung said. “Consumer preferences aside, there are big differences in income levels and spending power.” 

ASEAN Poised for Growth
Besides the Chinese mainland, faster growth in Association of Southeast Asian Nations (ASEAN) economies, flanked by burgeoning asset prices and fairly low leverage among households, will ignite consumer demand led by an expanding middle-class with a strong appetite for imported goods. 

Central and Eastern Europe is also bottoming out due to the budding recovery of the European Union economy. Outside the European Union, Turkey, with a relatively stable macroeconomic environment, should see a modest revival, while Russia is expected to gain from reviving oil and other commodity prices as the world economy continues to recover. 

In terms of products, consumer electronics are expected to see a stronger rebound. Similar to the trends perceived in toys and clothing – demand will focus on value, and centre on low-priced and energy-efficient models with fewer functions. On the other hand, sales of jewellery and high-priced timepieces will continue to suffer amid a shift away from lavish consumption. 

“When crafting their business strategies for 2010, Hong Kong exporters must take note of the latest developments in the global trade environment,” Mr Leung said. “While the trend of trading down will prevail, quality remains critical in the buying process. Eco-friendly products are also an area of interest.” 

“As lavish consumption in the mature market will still be eclipsed by ‘trading down’ to practical, durable and value-for-money products, the sales outlook for competitively priced products that are stylish, safe and environmentally friendly appears more encouraging,” said Mr Leung, noting that Hong Kong exporters excel in the production of such items. 

Future Risks and Challenges
Mr Leung also warned of future risks and challenges, including concern about overseas protectionism. Although a full-scale trade war appears unlikely for the moment, the tide of protectionism is expected to linger as unemployment and overcapacity will persist after the recession. Threats of protectionism may even increase as the danger of global recession subsides, and politicians turn their attention to local politics from international cooperation.

Another threat is renewed upward pressure on the Chinese currency. Given increasing use of mainland components and materials by Hong Kong companies operating on the mainland, appreciation of the renminbi would inevitably have a bigger impact on Hong Kong suppliers than before.

A possible re-tightening of regulatory controls and rising costs in Guangdong will also be a major challenge for Hong Kong exporters and manufacturers. While overall business in traditional markets appears unlikely to return to pre-crisis levels in the near future, Mr Leung advised Hong Kong exporters to look into emerging markets even if those economies may exhibit lower rates of growth than before. While capable Hong Kong companies should take a holistic approach to deepen their penetration in the mainland market, they should also consider strengthening their presence in South and Southeast Asia.

For the full text of Hong Kong’s Exports Outlook for 2010, please clickhttp://www.hktdc.com/info/mi/a/ef/en/1X06IUH1/1/Economic-Forum/Hong-Kong-S-Export-Outlook-For-2010-Challenges-Amid-A-Slow-Global-Recovery.htm

A supporting video interview is also available at:
http://www.hktdc.com/info/webcast/v/en/en/1X04AINV/HK-Export-led-to-moderate-rebound-in-2010.htm and broadcast quality sound bites can be downloaded from www.thenewsmarket.com/HKTDC

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

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

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, www.hktdc.com

 

 

 

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