Hong Kong 2016 Mid-Year Export Assessment
Room for improvement in major industries is the motto, particularly in the clothing sector
Hong Kong’s export performance during the first four months of 2016 was well below expectations, even against the backdrop of a choppy world trade environment. While a downturn was predicted, few could have expected the extent of the contraction. Total exports for the first quarter plummeted by 5.6 % year-on-year, with an across-the-board decline among all major product categories. Electronics, the largest export item, fell by 4.5 %, and other major products, namely clothing, toys, timepieces and jewellery, displayed even bigger falls. However, the external environment is expected to stabilise gradually and become slightly more conducive to Hong Kong exports. The sales outlook for these products should therefore improve somewhat in the medium term, although different industries will still have their share of difficulties and challenges.
Hong Kong 2016 Mid-Year Export Assessment
Room for improvement in major industries is the motto
Hong Kong’s export performance during the first four months of 2016 was well below expectations, even against the backdrop of a choppy world trade environment. While a downturn was predicted, few could have expected the extent of the contraction. Total exports for the first quarter plummeted by 5.6 % year-on-year, with an across-the-board decline among all major product categories. Electronics, the largest export item, fell by 4.5 %, and other major products, namely clothing, toys, timepieces and jewellery, displayed even bigger falls. However, the external environment is expected to stabilise gradually and become slightly more conducive to Hong Kong exports. The sales outlook for these products should therefore improve somewhat in the medium term, although different industries will still have their share of difficulties and challenges.
Electronics: Steadier performance in the medium term
Reversing the 2.4 % increase in 2015, Hong Kong’s electronics exports contracted by 4.5 % year-on-year during the first four months of 2016, to constitute 63 % of total overseas sales. Such poor showing was a reflection of the subdued world trade environment on the one hand, and the increasingly saturated global demand for smartphones and personal computers on the other. Declines of varying extents were recorded for most major markets and products. Most notably, sales to the Chinese mainland were down by 6.3%, due mainly to the waning appetite for electronics parts and components for export production.
Looking ahead, Hong Kong’s electronics exports should see more stable growth for the rest of 2016 and 2017, with the global electronics market expecting an upturn amid an improvement in the world trade environment. According to the Buyers’ and Exhibitors’ Survey for the 2016 Hong Kong Electronics Fair (Spring Edition), a majority of electronics-industry players expect steady sales for the coming year. Yet buyers are generally less optimistic than exhibitors, as 76 % of buyers and 94 % of exhibitors anticipate their sales to either remain unchanged or to increase in 2016. This absence of a shared view may reflect the fact that the uncertain global economic environment is clouding the immediate prospects for the electronics market.
Regardless of this, there is a degree of consensus in terms of the most promising markets. Overall, North America is rated as the most promising of the traditional markets for 2016, with 49 % of respondents seeing it as “very promising” or “promising”. The next most promising is seen as Western Europe (45 %), followed by Australia and the Asia-Pacific region (43%). In terms of emerging markets, the Chinese mainland is rated by 51% of respondents as having the highest potential, followed by ASEAN (37 %) and other Asian countries (32%).
Product-wise, electronic/electrical accessories and audio-visual products have usurped mobile devices and related accessories as the products seen as having the best growth prospects in 2016. This is mainly due to the fact that demand for mobile items has levelled off after years of continuous growth. For now, certain virtual reality (VR) gears, which are closely related to audio-visual applications, are hot topics among industry players. The wearable electronic items are also expected to enjoy massive growth, while smart home items are regarded as a major area for future development. Regarding lighting, energy-saving apparatus and smart lighting are some of the products the industry is focusing on.
On the regulatory front, sales of a wide array of products will receive a boost from the landmark deal to expand the World Trade Organization’s Information Technology Agreement (ITA). Under the expanded ITA, tariffs on more than 200 additional products, amounting to USD 1.3 trillion and 7 % of global trade, will be eliminated over a transition period. GPS devices, video-game consoles, video cameras, loudspeakers, touchscreens and IT testing instruments are among the additional designated products. The first tariff cuts are set to take effect by July 2016, covering 65 % of the tariff lines that account for about 88 % of the exports of covered products. Most of the remaining tariffs will be phased out in annual stages through July 2019, although some will not be removed for five or even seven years.
Clothing: another dull year ahead
Following a 10 % slide last year, Hong Kong’s clothing exports continued to slacken in early 2016. Lacklustre economic performance in the US, the EU and Japan, coupled with intensifying competition from other production bases, has had an impact on Hong Kong’s clothing-export performance. In the first four months of the year, sales to the US, the EU and Japan – the three largest markets, representing about two-thirds of the total – saw year-on-year declines of 11%, 19% and 5.7%, respectively. Meanwhile, exports to the mainland, Hong Kong’s fourth-largest clothing market, posted a 2.5% decrease in line with a slower Chinese economy. Taken together, Hong Kong’s clothing exports fell 12% in the first four months of 2016.
In particular, continued belt-tightening has made consumers in the EU and Japan largely conservative about spending on imported fashion items that could be seen as lavish during an economic funk. To survive consumer cautiousness, fashion retailers have had to consider offers that are competitive and attractive with regard to every aspect of their products, such as price, function, design, quality, safety and environmental friendliness. They have also had to adapt their business models to catch up with the latest shopping habits, such as online price comparison and group-buying behaviour.
On the other hand, the trend among fashion buyers to stay away from sourcing bases with rising labour costs has further fuelled the shift from such increasingly costly production bases as China. Preferential market access given by mature markets has also helped to persuade an increasing number of clothing manufacturers to relocate their production of lower-end and mass products to Asian countries such as Vietnam (thanks to the Trans-Pacific Partnership trade pact), Cambodia, Indonesia and Bangladesh, thus impairing the competitiveness of Hong Kong and mainland clothing manufacturers.
For their part, most emerging economies remain largely unassuming. As the leading emerging market for Hong Kong’s fashion exporters and an increasingly important consumer market in its own right, the Chinese mainland has failed to yield positive results amid the slowing economy and subsequent setback in spending. Elsewhere, although the overall market share of the emerging economies is comparatively small, demand from Saudi Arabia in the Middle East, Mexico in Latin American and ASEAN countries such as Vietnam in Asia has been rising.
In terms of prospects, uncertainties in the global economy will continue to cloud Hong Kong’s clothing exports in the medium term. However, provided that consumer confidence strengthens amid a stronger US economy, a more accommodative monetary stance in the EU and a more sustained Japanese yen, Hong Kong’s clothing exports to the developed world are likely to improve. Furthermore, demand from emerging markets should provide renewed business opportunities for Hong Kong’s apparel sector, as long as China’s rebalancing and the stabilisation of oil and commodity prices do not derail economic growth.
Product-wise, when they resume spending on fashion and accessories, consumers are likely to prefer more down-to-earth items. Kids’ clothing and male fashion will continue to be the major driving forces of the clothing market, particularly in the online marketplace. Parents are usually more willing to spend on their children’s well-being, while men have become more regular users of online shopping across the board. As a result, these areas are less subject to economic ups and downs.
As for sourcing and production, the trend of supply-chain revamps in China and the ongoing relocation outside of the country will continue to reshape global clothing trade and logistics. Meanwhile, the trend among clothing companies from traditional markets such as the US and Europe to shift some of their overseas manufacturing back to near-shore locations for better stock and delivery management will continue to deserve closer attention.