Service exports shed light on trade gloom
It is easy to get worried about how poor our export performance has become in recent months and plenty of people are concerned.
The latest figures show the value of total exports from our shores declining by 9.8 per cent year over year on a six-month average basis and it is even worse for domestic exports, which are plummeting by 15 per cent on the same basis.
There has been precious little sign of any recovery here while Asia overall is now clearly showing signs of having turned the corner, with an average decline in April of only 3.1 per cent on a six-month average basis in US dollar terms, much better than the 8.5 per cent decline registered in September last year.
Some of the slump we are suffering can be attributed to these being value figures and, with export prices dropping by 4.5 per cent a year, we are not doing quite so badly in volume terms, although this argument can be made for the rest of Asia as well.
Some of it is also attributable to the mainland's exports being in decline at the moment, and this obviously brings down our re-export trade.
But the fact of the matter is that we will probably just have adjust to a longer-term decline in the importance of merchandise trade to our economy.
Manufacturing now accounts for little more than 6 per cent of gross domestic product and it will be even less in a few years time when the Multi-Fibre Arrangement is finally wound down and our textiles and garments producers will no longer be protected.
At the same time, the mainland will increasingly ship its exports from its own shores as its ports are developed. Sending them through Hong Kong is a much more costly process than shipping them directly once new ports have reached a minimum level of efficiency.
And it does not really matter. Look at the second chart and it is immediately obvious that service exports have become much more important to us than domestic merchandise exports. Not only are they now greater in straight value terms but the value-added content we provide to them is greater than for merchandise exports.
The real question is whether the recovery in service exports which materialised in the middle of last year can be sustained as domestic merchandise exports continue their inevitable decline.
So far we have figures only up to the end of last year, but all indications are that the services business has strengthened even further.
It essentially represents the merchandise trade we think we may have lost but have not really lost. The actual exports from the mainland may increasingly no longer touch our shores but much of the related design, management, marketing, legal and financing work still does and shows no sign of leaving.
Think services whenever someone mentions trade and ignore the trade figures if they do not include services. They are not reported as frequently and it is not always easy to put your finger on what they constitute, but they are the important thing.