Hong Kong Export Assessment for Mid-2021: Strong Recovery but Mixed Pace

Export business

With the gradual easing of epidemic prevention and control measures in several major economies and the implementation of increasingly aggressive monetary and fiscal stimulus policies, Hong Kong’s exports rebounded sharply by 30.8% in the first four months of 2021 compared to a year earlier, and international trade also grew strongly by 10% in the first quarter of 2021. The International Monetary Fund forecasts that the global economy will grow by 6% this year, and by 4.4% in 2022. The World Trade Organization also predicts that world trade volumes will grow by 8% in 2021. However, threatened by the emergence of new strains of the virus and the lack of vaccine supply in less developed economies, the pace of global economic recovery is expected to be very mixed, and the situation is feared to be exacerbated by continued tensions between the United States and China and unpredictable geopolitical changes. The latest HKTDC Export Index of 48.7 represents a sharp rebound from its historic low of 16 in Q1 2020, indicating a continued improvement in exporters’ perceptions across key sectors and major markets. In light of the improved market sentiment and strong export performance, the HKTDC Economic and Trade Research has revised its export growth forecast for 2021 from 5% to 15%, albeit from a low base of comparison.

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It has been more than a year since the outbreak of the new crown, but the economic performance of many major economies remains very mixed and unstable. Some economies are recovering at a faster pace due to the gradual reduction of newly diagnosed cases, but others have to tighten their preventive and control measures due to the rebound of the local epidemic. Hong Kong’s relatively effective anti-epidemic measures, coupled with the government’s massive financial support, led to a return to real growth in gross domestic product (GDP) in the first quarter of 2021, up 7.9% from a year earlier, ending six consecutive quarters of contraction. During the same period, GDP in the Mainland grew by 18.3%, while GDP in the US also edged up by 0.4% over the same period last year, although GDP in the EU and Japan fell by 1.7% and 5.1% respectively over the same period last year.

Hong Kong’s exports rebounded strongly in the first four months of 2021 as a result of the recovery in major markets, even if unevenly, and a low base of comparison. In the first four months of 2021, Hong Kong’s exports of final consumer goods grew by 32.2% over the same period last year, while exports of raw materials and semi-manufactured goods rose by 41.1%.

Overall, Hong Kong’s export performance was in line with a number of neighboring economies, indicating a general rebound in supply chain activity across major Asian economies. Specifically, in the first four months of 2021, Hong Kong’s total exports grew by 30.8% over the same period a year earlier, while exports from Mainland China grew by 44%, Japan by 13.1%, South Korea by 18.8%, Taiwan by 28%, and Singapore’s non-oil exports also recorded a significant increase of 14.6%.

Hong Kong’s exports to a number of major markets recorded significant growth from January to April 2021 due to a rebound in demand. Among them, Hong Kong’s exports to the Mainland surged 34.2%, while exports to the European Union and the United States also surged 20.2% and 19.9% respectively. As for Taiwan and Vietnam, which are closely linked to the supply chain, Hong Kong’s exports also grew by 45.3% and 30.7% respectively.

Industry, electronics exports account for about 70% of Hong Kong’s total exports, the first four months of 2021 than the same period last year, an increase of 32.8%. Due to Asia’s well-established electronics manufacturing production network and strong intra-regional trade, Hong Kong’s electronics exports to Mainland China, Taiwan and Vietnam all grew significantly from January to April 2021, up 37.3%, 38.2% and 33.2% respectively.

Exports from all major sectors performed well, with only a slight decline in exports from the garment sector, down 2.3%. However, as most Hong Kong garment companies have set up offshore production facilities, mainly in mainland China and Southeast Asia, and offshore trade is not recorded in the traditional trade data, so the above export data may not fully reflect the actual export business of Hong Kong companies. In fact, the recent HKTDC Export Index survey shows that sentiment among apparel exporters has improved, with the index rising from 36.1 in the first quarter of 2021 to 43.3 in the second quarter, an increase of 7.2 points. Thus, while Hong Kong’s apparel exports have apparently fallen, they do not necessarily accurately reflect the industry’s actual situation. Given that in the first four months of 2021, apparel exports from Mainland China and Vietnam grew by 51.7% and 10.7% respectively over the same period of the previous year, the actual situation of Hong Kong’s apparel export industry is likely to be much brighter.

Mainland China leads the recovery

The new crown epidemic led the world into a severe recession in 2020, but Mainland China’s preventive and control measures were effective and cushioned the downturn. In fact, the mainland recorded 2.3% GDP growth in 2020, one of the few economies in the world to do so, and by all indications in the first four months of 2021, this upward momentum is expected to continue.

Looking ahead, some developed economies have begun to record growth again as city closures and other preventive and control measures are gradually lifted. Business activity is slowly returning to pre-epidemic levels, and many local governments are providing financial support to different sectors to stimulate economic growth. Other countries, especially developing economies, have been hampered by the rebound of the epidemic and the shortage of vaccine supplies, among other issues. Now, in addition to the negative impact of the epidemic, many developing economies may have to endure additional challenges such as tightening global financial conditions and volatile external demand. The International Monetary Fund said in April that vaccination programs are expected to drive economic recovery in the second half of this year, with the global economy estimated to rebound by 6% this year and slow to 4.4% in 2022.