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Hong Kong exports vulnerable to "biggest trade typhoon"

Hong Kong exports vulnerable to

Hong Kong is vulnerable to the "biggest trade typhoon" caused by conflict between the world's two leading economic forces.

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By Noah L. Wilson 14.09.2018

Hong Kong is vulnerable to the “biggest trade typhoon” caused by conflict between the world’s two leading economic forces. It could see 7% of its exports affected if a new wave of tariffs takes place later this month.

This is the view of Hong Kong’s Commerce and Economic Development Secretary, Edward Yua, who believes that the region’s position as the “most open, free economy in the world” means that it will be first in line to feel the impact of any spillover from the ongoing trade war between China and the United States.

New tariffs seem almost certain to arrive in the coming weeks, with an initial round of levies on Chinese goods worth $200bn proposed by US President Donald Trump and the possibility of a further $267bn in tariffs soon after, which would cover nearly all of China’s imports.

Yua said on Wednesday that the first wave of tariffs could affect a significant portion of Hong Kong’s goods trade. While he did not divulge any specific details or data about the impact, he believes that a drop-off in both orders and shipments is likely during the fourth quarter of the calendar year and into 2019.

“The spillover effects could be huge,” Yua said. “We’re talking about the biggest trading partners in the world imposing sanctions on each other, so if it’s not the biggest trade typhoon, what would it be?” While the conflict is a pressing economic concern, Yua still expects Hong Kong to hit its 3% to 4% target for GDP growth for the year, adding that achieving this aim remains “manageable.”

Yua said that Hong Kong has the fundamentals in place to absorb many of the side effects of a protracted trade battle between China and the US. In particular, its economic strength will stand it in good stead, and a stable currency against the US dollar and its stature as an international commerce hub will also help.

The government in Hong Kong has been doing its part in recent months to stimulate growth, making it easier for SMEs to secure loans and rolling out export credit insurance plans for those struggling to stay afloat. However, Yua noted that the take-up on these initiatives has been low thus far.

Hong Kong’s economic growth did cool slightly during the second quarter, but consumer sentiment remained robust. Trade is an important facet of the region’s economic health, as it is now seventh-largest in the world in terms of merchandise trade exports. Trade and logistics account for around 20% of GDP, bringing in more than the finance sector and employing 700,000 people in either part-time or full-time positions.

Trade tensions are having an impact on Hong Kong’s business landscape. It is no longer a prime shipping hub due to China’s airport and maritime links, and Federation of Hong Kong Industries (FHKI) Deputy Chairman Daniel Yip recently revealed that many enterprises are considering moving operations overseas or entering new markets to weather the storm.

“For any factories, they will need to make medium-term strategy decisions like relocating or changing their market strategy. So, the mentality of many factories is that this is a medium- to long-term turning point,” Yip said in an interview with Reuters. Yua expects worsening trade tensions to accelerate this trend, though blossoming relations with the ten-member ASEAN will ensure that demand for goods and services remains “very strong.”

Hong Kong’s stock market has taken the brunt of the damage from rising global economic uncertainty and the trade battle. The Hang Seng Index fell 0.3% on Wednesday and is now down 12% for the year. 

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