The Hong Kong Trade Development Council (HKTDC) estimates that Hong Kong exports in 2012 will grow by only one per cent in value, while dropping by three per cent in volume as growth slows in Europe and the United States.


HKTDC Chief Economist Edward Leung today presented his export forecast in a press conference, noting that the HKTDC Export Index dropped to 40.6 in the fourth quarter, reflecting the prevailing pessimism in the city’s export sector. The HKTDC Export Index is designed to monitor the export performance of Hong Kong traders and gauge their near-term prospects. A reading below 50 indicates a pessimistic sentiment during the quarter and signals contraction in Hong Kong exports over the short term.


“This is the second consecutive quarter with a reading below the watershed of 50. The decline in export sentiment is across the board,” Mr Leung said. “While all major industries reported their lowest readings in two years, the sub-index for the Chinese mainland also fell, to 49.5 – below 50 for the first time in two years.”


Consumption Concerns
Looking ahead, Mr Leung warned that import demand in most traditional markets would be subdued. US growth will remain hesitant, and fiscal austerity will be ubiquitous in Europe, even if there is a workable solution to the current crisis. The production environment on the Chinese mainland is also daunting. Hong Kong companies will continue to confront higher wages on the mainland, as well as an appreciating renminbi.


 

“The mainland’s export price index began to rise in May 2010, and the trend is likely to continue. Hong Kong exporters, who mainly manufacture on the mainland or source there, will find it increasingly difficult to remain profitable while maintaining their price competitiveness,” Mr Leung said. “They will be unable to transfer all cost increases to buyers.” Mr Leung estimated that the total volume of exports would drop by three per cent because of weakening demand in overseas markets, with the total value barely edging up one per cent as a result of higher unit values.

 

Silver and Emerging Markets Hold Promise

In view of Hong Kong’s export challenges, Mr Leung recommended that local companies tap the opportunities offered by emerging markets, as well as such niche sectors as pet supplies and products for seniors in traditional markets. Regarding the senior, or silver market, Mr Leung said Japan, the US and most Western European countries are aging fast. But seniors in these countries are more affluent today. They are, he noted, more ready to spend for their own well-being, and on both health and non-health related products. “The silver sector offers a good chance to Hong Kong companies, which excel in product quality and service reliability,” said Mr Leung.

 

In addition, “Asian countries with huge domestic markets, such as India, Indonesia and especially the Chinese mainland, hold particular potential,” said Mr Leung. “These three countries had a combined GDP of $8 trillion in 2010, more than half that of the US economy. They also managed to maintain a fast average economic growth of six per cent to 11 per cent in real terms between 2006 and 2010.” Such commodity-exporting nations as Russia, Brazil and some Middle East countries, which are slated to benefit from sustained commodity prices, also offer opportunity, according to Mr Leung.

Innovate, Upgrade


In light of the lingering cloud hanging over the global economy, Mr Leung called on Hong Kong companies, especially small- and medium sized enterprises, to embrace these new market opportunities. They should be aware that the mainland’s export model has evolved from short production chains to an emphasis on items such as efficient supply chain management, quality assurance and the enhancement of features.


“Exporters should develop their ability to innovate and upgrade, so as to maintain their competitiveness and contain unit labour cost increases and renminbi appreciation in the long run,” said Mr Leung.