Chairman's Message
Chairman's Message - Impact of Trade Dispute Escalation on Hong Kong Businesses

Dr Jonathan CHOI Koon-shum (Chairman of the 50th terms of office) July 2018


CGCC will actively perform its function as a bridge to help members overcome the various challenges. We will continue to assist members to explore new areas of market development through extensive participation in regional cooperation and reduce the impact of single market fluctuations on the business community.


With the escalation of China-US trade disputes adding uncertainties to the global economy, Hong Kong obviously cannot remain unaffected as it is a highly open externally-oriented economy and an important entrepot for China-US trade. The business community must pay close attention to the developments, especially the impact on the business environment and the flow of funds. CGCC will also assist members in feeding back their concerns to the HKSAR Government and actively seek multilateral regional cooperation opportunities to offset the negative impact of trade frictions as much as possible.


Worrying impact on industrial supply chain

Last month, the US announced that it would impose 25% tariffs on USD50 billion worth of Chinese goods, which will affect more than 1,100 products. Tariffs that affect over 800 Chinese products have come into effect on July 6. It also threatened to impose extra tariffs on USD200 billion worth of Chinese goods. The measures will inevitably affect Hong Kong’s function as an important entrepot for China-US trade, and Hong Kong businesses in the Mainland that are engaged in processing, trade and export to the US will bear the brunt.


According to the HKSAR Government’s preliminary estimate, about 19% of the Mainland’s exports to the US via Hong Kong are products included in the first batch of tariff increases and amount to HKD53 billion. This estimate does not include goods shipped directly to the US from the factories of Hong Kong businesses in the Mainland. If the US implements an extra 10% tariff on USD200 billion worth of Chinese goods and the Mainland adopts a series of counter-measures, a higher number and wider range of products will be involved and the impact on Hong Kong’s trade may even be greater.


In fact, the additional tariffs will not only directly push up Hong Kong businesses’ operating costs of trade, these companies will also face the risks of overseas buyers stopping orders and turning to other supply markets. Due to the chain effect, Hong Kong’s shipping, logistics, warehousing, finance, insurance and other related industries will be implicated, and the stable development of the entire industrial supply chain may even be affected.


Keeping an eye on credits and funding

As trade frictions intensify, the US may further curb investments involving China, which will in turn affect Hong Kong’s flow of funds. The Hong Kong stock and foreign exchange markets have continued to fluctuate since the US announced the tariff increases. Coupled with factors such as rising interest rates, asset prices may enter a correction period and affect the stability of Hong Kong’s financial system. The banks may also further tighten credit approvals, which will increase the borrowing costs of businesses, particularly subjecting SMEs to enormous operational pressures since they have relatively tight liquidity.


Since trade disputes may increase the loan and credit risks for Hong Kong’s SMEs, we are pleased to see that the Hong Kong Export Credit Insurance Corporation has introduced timely special measures to enhance the support and protection for our exporters. CGCC will also pay close attention to the impact of these developments on member companies and reflect their views and difficulties to the HKSAR Government in due course. We hope that the HKSAR Government will explore launching a special contingency fund for SMEs to provide low-interest or interest-free loan guarantees for affected Hong Kong businesses, setting up a one-stop information and support platform as soon as possible to help Hong Kong businesses keep up to date with the latest developments, as well as providing comprehensive support for the affected enterprises.


New model for regional cooperation

Trade protectionism not only undermines the interests of individual industries and consumers, but also weighs on the steady growth of the economy. The country’s leaders have repeatedly stressed the importance of maintaining multilateralism and the free trade system. They also reiterated that they will persist in reform and opening-up and promote the liberalization of the global economy, trade and investment. In fact, the Central Government attaches great importance to the “Belt and Road Initiative” and the soon-to-be-introduced Guangdong-Hong Kong-Macao Bay Area development. These regional cooperation platforms will bring a more diversified market space for Hong Kong businesses. Earlier on, the HKSAR Government held the first Belt & Road Joint Conference with Central Government bodies to discuss the direction and strategy of Hong Kong’s full participation in “Belt and Road Initiative”. Last month, the Legislative Council passed the bill for the co-location arrangement after the third reading. This will provide an important foundation for comprehensively deepening the cross-border linkage of transportation infrastructures in the Bay Area and deepening integrated regional development.


Hong Kong’s industrial and commercial sector must be fully prepared as the dark clouds of global trade protectionism expands. CGCC will also actively perform its function as a bridge to help members overcome the various challenges. Last month, we organized an economic and trade delegation to visit Paris and held a local trade forum to discuss the opportunities for regional cooperation between Hong Kong, the Mainland and France via platforms such as “Belt and Road Initiative”. We will also hold the CGCC World Chinese Entrepreneurs Summit in Hong Kong in August, inviting Chinese business leaders from all over the world to discuss new business opportunities for regional cooperation. Going forward, we will continue to assist members to explore new areas of market development through extensive participation in regional cooperation and reduce the impact of single market fluctuations on the business community.