ECONOMy OUTLOOK
Sluggish growth to persist for HK in 2017 Analysts say the mainland’s sluggish trade outlook will continue to weigh on the territory.
T
he clouds have not lifted over Hong Kong, which once again faces a dim outlook for next year as it tracks weak growth prospects in mainland China and the United States — its two largest trading partners. Property correction has also led to tighter government regulation, hampering the development of new real estate projects and denting investor and consumer sentiment. Hong Kong posted a real GDP growth of 1.9% year-on-year (y-o-y) in Q316, bringing growth for the first three quarters of the year to 1.4%. Export growth has also accelerated 1.1% y-o-y in the same quarter, up from 0.6% y-o-y. However, the rebound is expected to be temporary and the full-year forecast of 1.2% is down from 2.4% for 2015. Chua Han Teng, senior Asia country risk and financial markets analyst at BMI Research, believes that the Special Administrative Region (SAR) continues to face significant external
6 HONG KONG BUSINESS ANNUAL 2017
“Hong Kong’s trade sector is dominated by imports and re-exports to and from China, with re-exports totalling HK$2,873.4b for the first 10 months of 2016.”
economic challenges. “Hong Kong will have to deal with the structural slowdown in the mainland economy, and an uncertain global environment, which could see protectionist policies from newly elected US President Donald Trump,” he says. Teng explains that the mainland’s sluggish trade outlook will continue to weigh on the territory, which serves as a key port for Chinese exports and imports. The mainland’s export growth, in turn, will likely remain slow due to a weak global environment, particularly weak investment outlook and poor factory output in the US. He sees global trade outlook turning even bleaker should Trump pursue protectionist policies and impose tariffs on Chinese imports. China’s structural slowdown Teng also believes that China is in a midst of a long-term structural slowdown. Even as it grapples with rising labour and rental costs, the mainland economy’s structural
weaknesses — such as the dominance of inefficient state-owned enterprises and rising corporate leverage — continue to persist, and in the case of the latter, has even deteriorated. Hong Kong’s trade fortunes are largely informed by China’s economic performance, as it has long ceded the bulk of its manufacturing operations to the mainland. Hong Kong’s trade sector is dominated by imports and re-exports to and from China, with re-exports totalling HK$2,873.4b for the first 10 months of 2016 — a massive 98.8% of the territory’s total exports of HK$2,908.9b. Whilst trade flows have improved gradually since the bottom in March 2016 — with overall exports growing by 0.8% y-o-y (on a three-month average basis) in October and growth in imports printing at 2.5% y-o-y — it will continue to be affected by China’s economic slowdown. Overall export and import forecasts, meanwhile, are