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Electronics Industry in Hong Kong

Overview

  • Hong Kong’s electronics industry is the largest merchandise export earner of the territory, accounting for 68.3% of Hong Kong’s total exports in 2018. A substantial portion of such exports, largely re-export business, are regarded as high-tech products, especially those related to telecommunications equipment, semiconductors and computer items.
  • According to the latest available statistics, Hong Kong was the world’s largest exporter of electronic integrated circuits; the second largest exporter of computer parts/accessories and video recording apparatus; and the world’s third largest exporter of telephones/mobile phones in value terms in 2017.
  • Hong Kong’s electronics exports rose by 10.7% in 2018. The major export markets were the Chinese mainland, the EU, the ASEAN, and the US. Exports to the Chinese mainland grew by 9.8% on the back of steady input demand of mainland’s outward processing production.

Industry Features

Hong Kong’s electronics industry is the largest merchandise export earner of the territory, accounting for 68.3% of Hong Kong’s total exports in 2018. A substantial portion of such exports are regarded as high-tech products, especially those related to telecommunications equipment, semiconductors and computer items. The Chinese mainland is both the major source and the major destination of Hong Kong’s trading in such electronic products.

According to the latest available statistics Hong Kong was the world’s largest exporter of electronic integrated circuits; the second largest exporter of computer parts/accessories and video recording apparatus; and the world’s third largest exporter of telephones/mobile phones in value terms in 2017. This is thanks to the huge re-export business handled through the territory, as Hong Kong is among the major trading hubs in the globe.

Parts and components constitute about three quarters of Hong Kong’s electronics exports, of which the majority are re-exported to the Chinese mainland for outward processing production. Finished goods constitute about one quarter of the exports, of which the majority are consumer electronics for domestic use, including a wide range of audio-visual equipment, computer products and telecommunications equipment.

Most Hong Kong manufacturers have relocated their production facilities to the Chinese mainland to reduce cost. Their Hong Kong offices now focus mainly on R&D activities, product design and development, management, logistic support, marketing, etc. Their setups in Hong Kong are largely classified as non-manufacturing establishments statistically, despite the fact that they have manufacturing activities across the boundary.

Against the fast changing markets and advancement in technology, Hong Kong companies emphasise quick response to ensure effective services to their customers. Also, many Hong Kong companies have further strengthened their quality assurance and environmental management systems, and are accredited with ISO 9000 – an internationally recognised standard for quality management system, ISO 14000 – a standard for environmental management system, etc.

Performance of Hong Kong’s Exports of Electronics

 20172018Jan-Mar 2019
HK$ bnGrowth%HK$ bnGrowth%HK$ bnGrowth%
Domestic Exports2.8-14.82.1-24.70.4-14.4
Re-exports2,564.6+9.32,839.8+10.7612.0-3.0
   of Chinese Mainland Origin1,599.5+7.71,727.9
+8.0371.6-3.9
Total Exports2,567.4+9.22,841.9+10.7612.4-3.0
Source: Census and Statistics Department

 

Total Exports by Major Markets20172018Jan-Mar 2019
Share%Growth%Share%Growth%Share%Growth%
Chinese mainland63.1+9.062.6+9.859.2-8.7
EU (28)7.8+7.98.3+17.99.4+14.8
   Netherlands2.0+13.52.0+11.42.1+13.7
   Germany
1.6+9.91.6+13.01.9+9.4
ASEAN6.4+13.96.2+7.37.3+14.8
   Singapore1.5+7.61.5+14.52.0+28.7
US
6.0
+2.9
6.2
+14.5
5.8-9.8
Japan2.7+15.02.5*2.7-5.5

*Negligible

Source: Census and Statistics Department

 

Total Exports by Categories20172018Jan-Mar 2019
Share%Growth%Share%Growth%Share%Growth%
Finished Products24.4+6.3
26.0+18.127.2+3.7
Parts & Components75.6+10.274.0+8.372.8-5.3
Source: Census and Statistics Department

 

Total Exports by Products20172018Jan-Mar 2019
Share%Growth%Share%Growth%Share%Growth%
Semiconductors, Electronic Valves & Tubes
38.313.740.216.240.5
-4.3
Telecom. Equipment & Parts23.21.521.63.022.910.4
IT Equipment & Parts15.710.715.810.915.1-11.6
AV Equipment & Parts6.77.66.1*5.5-12.4

*Negligible

Source: Census and Statistics Department

 

Hong Kong’s electronics exports rose by 10.7% in 2018. The major export markets were the Chinese mainland (accounting for 62.6% of the total exports in 2018), the EU (8.3%), the ASEAN (6.2%) and the US (6.2%). Exports to the Chinese mainland grew by 9.8% on the back of steady input demand of mainland’s outward processing production.

Distribution Channels

Hong Kong companies engaging in parts and components business are capable of producing on custom-made basis and offering total solutions for famous US, European and Japanese companies, e.g. parts and accessories of computers, RF modules for telecommunication purposes, chip-sets for LCD modules, etc. Meanwhile, standard components are usually exported directly to distributors and manufacturers in overseas markets, while some Hong Kong companies also have their own sales offices and/or representative offices on the Chinese mainland and other overseas markets.

Notably, Hong Kong is an important trading hub for electronic parts and components in Asia-Pacific. Many items from the US, Europe, Japan, Taiwan, and South Korea are re-exported via Hong Kong to the Chinese mainland, and vice versa. A number of multinational manufacturers of parts and components have set up their offices in Hong Kong, engaging in sales, distribution and sourcing activities in the region.

As regards finished items, Hong Kong companies mostly produce on ODM basis for reputable brand names in overseas markets. Some of these major buyers have set up buying offices in Hong Kong for direct sourcing. Hong Kong companies also sell to specialised importers and traders in North America and Europe, who distribute the merchandises under their own channels or re-sell to their clients for further distribution.

There are also a number of Hong Kong companies marketing electronic products under their own brand names, including Truly, V-Tech, Group Sense, Venturer, GP and ACL. Their sales network covers not only the advanced countries, but also economies like Latin America, Eastern Europe and various parts of Asia.

Promotion via participation in trade fairs is an effective way for Hong Kong’s electronics companies to explore market opportunities. Important trade fairs include the CES Show held in the US, CeBIT Fair and Electronica in Germany, Taipei International Electronics Show in Taiwan, CommunicAsia in Singapore and Hong Kong Electronics Fair organised by the Hong Kong Trade Development Council (HKTDC). Business missions organised by the HKTDC to the Chinese mainland and other emerging markets also provide opportunities for Hong Kong companies to establish connections with potential buyers.

CEPA Provisions

Since the implementation of the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III) in January 2006, all products of Hong Kong origin can be imported into the mainland at zero tariffs.

In December 2018, the Mainland and Hong Kong signed the Agreement on Trade in Goods, which further enhanced the arrangement for rules of origin (ROOs). Starting from 1 January 2019, goods of Hong Kong origin fully enjoy zero tariff when importing into the Mainland. In addition to the product-specific ROOs (PSRs), Hong Kong and the Mainland introduced a general rule of origin (General Rule) based on the calculation of the value added to the products in Hong Kong. Products without PSRs would instantly enjoy zero tariff upon importation into the Mainland subject to the fulfilment of the General Rule.

The CEPA origin criteria for Hong Kong items largely include: (1) change in tariff heading; (2) performance of specific manufacturing process in Hong Kong; or (3) fulfillment of the regional value content (RVC) requirement, under which the value of originating raw materials and component parts, labour costs, as well as the product development costs should account for at least 30% of the FOB value of the products when calculated by the build-up method, or the value of non-originating materials accounting for not more than 60% of the FOB value when calculated by the build-down method.   

For the Product Specific Rules of Origin for electronic products, as well as other detailed information, please visit the following webpages:
•    Product Specific Rules of Origin
•    Information Note of the Agreement on Trade in Goods

Compliance with Overseas Requirements

Hong Kong companies are capable of meeting the technical requirements of relevant authorities in overseas markets. These include the safety requirements of UL/ETL listing or equivalent in the US, as well as the relevant safety directives and CE requirements of the EU. With regard to electromagnetic compatibility (EMC), Hong Kong companies can well observe that products sold to the US require compliance with FCC standard, while EU’s CE-mark has also required the compliance with relevant EMC directives. As for sales in the China market, most electronic products have to be in compliance with the safety and other requirements of a unified compulsory product certification system known as 3C (China Compulsory Certification or CCC).

Meanwhile, Hong Kong companies are also attentive to the growing popularity of green consumerism in the marketplace. Especially in Europe, consumers are generally conscious of environmental protection. Not surprisingly, the EU has adopted a number of directives for environmental protection, which may have an impact on the sales of electronic products. These include the restrictions on batteries and accumulators that contain mercury, the Directive on Waste Electrical and Electronic Equipment (WEEE) and the Directive on Restriction of Hazardous Substances (RoHS).

The Chinese mainland has adopted similar environmental protection regulations. These include the already effective Management Methods on Prevention and Control of Pollution Caused by Electronic Information Products and the Management Methods on Prevention of Waste Electronic Equipment Pollution on Environment. The regulation on recycling and treatment of waste electrical and electronic equipment has also come into effect since 1 January 2011.

Product Trends

On the back of technological advancement and falling prices amid keen competition, conventional IT products like notebook computers have become mass products. Now, the industry is focusing on further technological enhancement to sustain their business. Notably, mobile devices with enhanced smart features are in demand in the globe.

Meanwhile, mobile communication has become part of the daily lives of consumers in most countries. In particular, sales of high-end smartphones are rising rapidly. Many models are now compatible with certain wearable electronics and other smart devices. This has lured demand especially from youngsters and high-income consumers.

As regards consumer electronics, one of the developments is digital imaging. In particular, large-screen digital TVs with connectivity for internet surfing with the so-called “smart TV” features and capability to communicate with mobile devices, as well as the ultra high definition TVs (UHDTVs) with display resolution of 4K or higher, are among the industry foci for further development.

In addition, some players are keen to promote their 3D printers in the market in view of the falling printing and other material costs. Also, the industry is keeping an eye on the development of certain niche items like action camcorders and drones, as well as those related to the Internet of Things (IoT) application, which are taken by some players as means to inspire the market and create new businesses. Smart homes will be one of the major IoT application areas that would elicit huge demand for related IT systems, hardware and devices.

Content provided by Picture: Doris Fung
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