HK braces itself for fallout from firms leaving China
City’s financial hub status will shrink as trade row sees foreign firms move ops out of China
As officials say the escalating trade war between the United States and China will hit Hong Kong hard, observers see the ongoing uncertainty hastening the relocation of foreign firms from China.
And this shift will hit Hong Kong, the mainland’s main gateway to the world and the largest offshore yuan hub, which handles around 70 per cent of global yuan payment transactions.
Secretary for Commerce and Economic Development Edward Yau warned this week that the exportoriented port city will be “hit harder and more imminently”.
“The common worry is what happens next is going to hit us harder because it covers more consumer goods such as textiles, garments, food and electronics,” he said.
The Trump administration has threatened to impose further tariffs on US$200 billion (S$273 billion) of imports from China, on top of last week’s tariffs on US$34 billion of goods focusing on manufacturing parts.
Analysts told The Straits Times that rising costs on the mainland have seen foreign firms, especially in manufacturing, move to Asean countries, in particular Vietnam, where business costs are lower.
But the latest uncertainty is set to be a trigger for foreign companies that have not yet scaled down operations or moved part of their businesses out of China to reconsider their options, said Mr Louis Kuijs, head of Asia research at Oxford Economics. “China is so important for Hong Kong in terms of impacting its economy that anything that’s bad for China is bad for Hong Kong. That is true in the short term and also true in the longer term.”
Analysts said Hong Kong’s importance as a financial centre is set to shrink as foreign firms in China are likely to move part or all of their operations out of the country on the back of growing uncertainties.
Mr Brock Silvers, managing director of Shanghai-based Kaiyuan Capital, said: “If China were to lose importance as a global manufacturing and export hub, this would naturally reduce the available role for Hong Kong as well.”
When the US announced the first round of tariffs, the Hong Kong government noted about 17 per cent – or HK$60 billion (S$10.5 billion) – of Chinese exports in question passed through the city to the US.
About 9 per cent or HK$6 billion of US exports came through the city on the way to mainland China.
These exports account for 1.4 per cent of Hong Kong’s overall trade.
Mr Vincent Chan, head of Hong Kong and China research at Credit Suisse, believes in the longer term, Asean countries such as Vietnam and Malaysia “will be the biggest beneficiaries” of firms relocating.
Last Saturday, Hong Kong’s Finance Secretary Paul Chan said the short-term impact of the trade war would be limited to a dip in growth of just 0.1 or 0.2 percentage point, but the government stood ready to help local businesses if needed. China has also signalled a shift in its approach to foreign investment. This week, it agreed to a US$10 billion petrochemical project by Germany’s BASF that will be the first such plant in China to be wholly foreign-owned, not a joint venture, reports said, adding that China also gave the nod for a wholly-owned Shanghai factory for US electric car maker Tesla.