HONG KONG is now finding its role as a gateway into China for foreign businesses to be a cause for concern since the trade row between the US and China continues to fester.
Products destined for China and the US passing through Hong Kong accounted for 10 per cent of its US$500 billion in exports in 2017, data from the Hong Kong Trade Development Council shows.
The import-export business overall represents one fifth of the domestic economy, and worsening sentiment on the mainland can spill over into the former British colony in other ways - most obviously tourism spending. Add the trade war threat to an already-inflated property market and Hong Kong's economy begins to look fragile, reports Bloomberg.
"These are the two biggest traders in the world and they trade through us with each other," said Hong Kong Trade Development Council research director Nicholas Kwan. "So when they are fighting, a lot of intermediaries get hurt and we are the most prominent intermediary between these two."
Government data shows that Hong Kong's gross domestic product increased by 3.5 per cent in the second quarter compared to a year ago, down from a revised 4.6 per cent growth in the first quarter. In September the Nikkei Hong Kong purchasing managers' index slipped further into contraction territory.
The HKTDC has lowered its forecast for city's 2018 export growth to three per cent from six per cent after its latest quarterly export sentiment index reading for September dived by a record amount, from 54.1 in the second quarter to 35.8 in the third quarter. Readings below 50 indicate a majority of exporters expect shipments to decline.
The results underscore the gloom surrounding Hong Kong's trade market, especially in the key electronics segment, which suffered the biggest overall drop to 35.4 from 55.2 in the prior quarter, the report said. The sector accounts for 70 per cent of total merchandise exports.
The trade woes come at a difficult time as the city navigates the impact of a slowing economy in China while borrowing costs are expected to increase in step with US interest rate hikes.
"We cannot rely on monetary policy," said ING Bank NV Greater China economist Iris Pang in Hong Kong. "We have to rely on fiscal stimulus and now is the right time for the Hong Kong government to spend its fiscal money."
Ms Pang lowered her 2018 economic growth forecast for Hong Kong to 3.6 per cent from 4.9 per cent in August due to the worsening trade row. Standard Chartered Bank and United Overseas Bank have also lowered their forecasts for this year.
Aside from the direct impact on ports and logistics industries, a protracted trade dispute could also impact retail sales and employment, Ms Pang said. She estimates up to one-third of economic activity in Hong Kong may be affected by the trade war, with local businesses running factories in China and exporting to the US especially vulnerable.