A leading economist in Hong Kong advised Chinese companies to look to their domestic market and other developing economies for growth in 2011, noting that U.S. and Japanese consumers will remain frugal.
Edward Leung, chief economist for the Hong Kong Trade Development Council, said that after a strong rebound in 2010, Hong Kong exports are set to moderate. Eight per cent growth is expected in 2011, reflecting slower global economic recovery and easing demand for electronics, according to a new Hong Kong Trade Development Council (HKTDC) report, “Hong Kong Export Outlook for 2011.”
Leung said the inventory-rebuilding cycle in developed markets had almost been completed and that consumer demand was not expected to be as strong in 2011.
Prospects for Hong Kong exporters in the fourth quarter of this year fell to 53.6, signaling a slower rate of export expansion in the near term, according to the latest HKTDC Export Index, which is based on a quarterly business confidence survey covering Hong Kong’s major industries. While still in expansionary territory, the Index has edged down for two consecutive quarters.
Exporters, however, were optimistic about sales to the mainland, with related figures up more than two points, to 54.1. The indices for the United States and the European Union, however, were at about 50, indicating that sales to these major markets are likely to remain flat.
The frugal consumer
“While recovery in the developed world will continue in 2011, households in those countries remain cautious about spending, despite a general quantitative easing of government policy,” said Leung. “Most households in developed countries have yet to restore their balance sheets.”
Leung said frugal buying habits are likely to prevail in the US, boosting sales prospects for products that are well-priced, stylish and safe. A number of surveys also show a gradual consumer shift to green products.
Leung said that while fiscal tightening will increasingly hinder economic growth, prospects for individual EU member states are diverse. Among larger member states, Germany will remain a bright spot, benefiting from the sustained recovery of its trading partners, said Mr Leung, noting that the country relies on capital goods’ exports.
Japan’s backlash against rampant consumerism is expected to continue. The HKTDC report indicates that the general public bears the brunt of the country’s economic malaise. Retailers and importers are likely to remain selective in the near term, sticking to sources that can offer quality goods at low prices.
Emerging markets
In contrast to lukewarm demand from developed markets, good opportunities are seen in a number of emerging markets. The HKTDC report singled out commodity exporting nations such as Chile, Brazil and Russia, as well as oil exporters in the Middle East, which are slated to benefit from sustained growth in developing Asia.
Of more importance are countries with huge domestic markets, such as China and India, which may serve as a cushion against slowing demand elsewhere.
“Mainland initiatives to encourage income redistribution and consumption, coupled with efforts to transform and upgrade industry structure, will spawn huge demand for consumer goods, as well as technology, including green technology, which may not be available on the mainland,” said Leung. This, he emphasized, should be of interest to Hong Kong companies.
Rising costs
Hong Kong exporters must take note of the challenges as well as the opportunities ahead, Leung said. “Consumer conservatism in overseas markets will translate into downward price pressure on Hong Kong exports. And the juxtaposition of a sustained revaluation of the renminbi, skyrocketing labor and related costs on the mainland, and stubbornly high commodity prices will make the business environment more difficult for Hong Kong’s exporting industries.”
Leung advised Hong Kong exporters to adjust their business strategies to cater to changing consumer behavior in the developed markets and to diversify into emerging markets. For the mainland market, he suggested that companies capitalize on government efforts to promote high-tech sectors such as environmental protection and new energy, by acting as a partner to match overseas technology suppliers and mainland enterprises.
With regard to soaring production costs, Leung said Hong Kong companies should explore the possibility of relocating part of their manufacturing activities to areas beyond the Pearl River Delta region even outside the mainland.
“More important, they should upgrade their product structure, shifting from simple processing to high value-added activities and high technology,” he said. “It is time for them to step out of their comfort zone to avoid being crowded out.”
