Re-export trade in for rough ride

money-glitz | Staff reporter 6 Jul 2020

Hong Kong could lose its competitiveness as an international transit hub as the United States has begun to eliminate the special status of the city with the implementation of the national security law, market watchers forecast, while local logistics operators and manufacturers are speeding up relocations ahead of further sanctions.

The US Commerce Department has said it will suspend preferential treatment for Hong Kong, including the availability of export license exceptions, adding that further actions are being evaluated.

Washington has ended exports of defense equipment to Hong Kong and would take steps to end export of technologies with both commercial and military uses, said the US Secretary of State Mike Pompeo.

US lawmaker is also seeking to ban Chinese companies from the US capital markets if they engage in spying, human rights abuse, or support China's military.

Market watchers suggest caution on possible new tariffs between the US and Hong Kong or further financial sanctions.

Stephen Chan King-che, former president of Hong Kong Logistics Association, points out that around 70 percent of the throughput of Hong Kong container terminals is generated from re-exported goods, and the transit trade will be unsustainable if tariff gaps between Hong Kong and the mainland no longer exist.

Hong Kong fell to the eighth busiest port globally in terms of container throughput last year, surpassed by mainland city Qingdao. Chan predicts Hong Kong could fall out of the top 10 soon.

He notes that there are around 1,000 freight forwarding agents in Hong Kong, but few of them have the funds or experience to enter other Southeast Asian markets.

Many of those firms may shut down eventually at the end of this year or the start of 2021, despite the support of the employee subsidies from the government recently, Chan says.

Danny Lau Tat-pong, honorary chairman of the Hong Kong Small and Medium Enterprises Association, says some Hong Kong manufacturers had already moved their production lines out from the mainland during two years of Sino-US trade tensions. However, those who had no intention at first to relocate also changed their minds recently after the proposed US sanctions, he says.

Over half of nearly 300 members of the HKSMEA export their products to the US, which include food, automobile components, home appliances, and heavy-duty generators.

Lau learned that some lighting manufacturers set up factories in Heyuan, Guangdong, where they have been producing intelligent lamps that are exempt from additional tariffs from the US. But some of them are decamping to other Southeast Asian countries, meanwhile, renting out their factories in the mainland as a supplement income, Lau says.

Also, some companies transport their mainland-made goods to Hong Kong for further processing, and then export them to the US taking advantage of tariff exemptions, which may no longer work, according to Pam Mak, president of the HKSMEA.

High-tech equipment and auto component makers are expected to bear the brunt of trade sanctions, market watchers say.

European automakers, in general, provide vehicles and components to US clients at lower prices, so agents in Hong Kong usually import components from the US first, and sell them domestically or export to other markets, according to Ringo Lee Yiu-pui, president of the Hong Kong Automobile Association.

Those companies may have to purchase from European suppliers directly once new tariffs are imposed between Hong Kong and the US, he says.

For the technology industry, the worst-case scenario would be import bans on high-end computers and detecting instruments, and restrictions on Hong Kong firms to purchase US technologies.

He suggests local tech firms buying equipment as early as possible in case imports are suspended.

Leo Tong, vice president of Hong Kong Innovative Technology Development Association, forecasts that possible US moves will have limited effect on Hong Kong tech companies, as their clients are mainly from the mainland or other Asian markets. But he reminds local start-ups that US venture capital and investors may become more cautious, or reduce investments in Hong Kong.

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