Businesses must upgrade, transform amid trade war
The Sino-US trade war has escalated further following the announcement by US President Donald Trump on Sept 17 to impose a 10-percent tariff on $200 billion worth of Chinese goods, which took effect from Sept 24 and will rise to 25 percent on Jan 1, 2019. Since the beginning of the trade war, many parties are hoping that China and the United States can resolve the dispute through talks, but the US remains adamant and unyielding.
I exchanged views on the current trade war with members from the political and business sectors in the past few months. Initially everyone adopted a wait-and-see attitude considering that the list of tariff on $50-billion Chinese goods announced in April predominantly targeted products from high-end manufacturing industries, such as machinery, transport, electronic equipment, etc. The impact on Hong Kong enterprises operating on the mainland was then limited. It also came to their relief that subsequent tariffs were levied merely on $34 billion worth of Chinese goods. However, they are starting to feel the pinch when the US went on to release a tariff list on an additional $200 billion of Chinese exports. Those who are affected begin to seriously contemplate strategies to cope with the potential risks, whereas their unaffected counterparts are worried that eventually they will not remain unscathed.
The escalation of trade disputes between the two largest economies in the world has put many businesses in a vulnerable position where they can only react to risks that may be too formidable for them to handle. Nevertheless, some business owners believe there are inherent opportunities behind the risks, with which they are deploying short-, medium-, and long-term strategies to cope.
The tariffs imposed on Chinese products have prompted some US buyers to explore the possibility of procuring similar products from other countries. Even if the tariffs are lifted in the future, it will be difficult for them to return to Chinese sellers. The business sector will be more inclined to reducing the price to retain US buyers. Therefore, they hope the central government will, on one hand, suspend measures that would have a negative impact on business, such as regulations related to tax, labor, environmental protection and other relevant laws; and, on the other, relax the requirements on subsidies and loans for private enterprises so that they would have sufficient funds to weather the trade war.
China has recently taken initiatives to move low-end, low-skilled and highly polluting industries out of the country. To grapple with the effect of the trade war in the medium term, one of the strategies for Hong Kong enterprises that have a production chain on the mainland is to leverage the Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund) provided by the special administrative region government to acquire advanced technologies for transforming and upgrading their operations, which could help businesses improve efficiency and reduce operating costs.
The trade war has sent a warning signal to the business community that it is extremely risky to rely on a single market in the long run. The commercial sector will have to actively explore opportunities on the mainland, in emerging markets along the Belt and Road routes such as countries in Central Asia or in more mature markets among ASEAN countries. As another risk diversification approach, they should concurrently conduct their own research and development works and develop proprietary brands in order to expand their direct sales channels like online stores and factory-to-consumer transactions.
Although the trade war between China and the US has sent shock waves across the business community, the commercial sector in Hong Kong can take this opportunity to upgrade, transform and diversify their businesses so that they will stand firm and walk further in the face of any political or economic turmoil in the future.
The commercial sector will have to actively explore opportunities on the mainland, in emerging markets along the Belt and Road routes such as countries in Central Asia or in more mature markets among ASEAN countries.