LET ME SEE NOW. If the US dollar is dropping against the euro and the Hong Kong dollar is pegged to the US dollar then Hong Kong-made goods should be cheaper in the European Union (EU), which means that we should be able to sell more of them to Europe, right? Obvious thinking and obviously the sort of thinking behind a story we ran yesterday on this equation - 'Sliding greenback boosts HK economy'. Fortunately, a sub-heading that we also ran on this story said it would only make our exports 'slightly more competitive'. Put the emphasis on 'slightly'. The immediate problem is that we may have a formal link to the US dollar but most of the world's currencies have informal ones and are still not deviating much from them, particularly in Asia where even yen strength has not amounted to a performance of real muscle. Look around the world for the currencies that are up against the dollar and you get the euro, obviously, and then things like the Australian dollar and the Canadian dollar. Now put on your thinking cap. What other major currencies can you think of that show real strength against the US dollar at the moment and thus allow additional competitiveness for Hong Kong dollar denominated exports? Sterling perhaps but Britain is part of the EU and so we will just lump this sterling strength in with euro strength when looking at exports to the EU. Then another difficulty intrudes. We do not export much in the way of goods truly made in Hong Kong, only half of what we did eight years ago. Over the past 15 years our domestic exports have declined from the equivalent of 50 per cent of our gross domestic product (GDP) to only 10 per cent. Put all of this together and the story that the bar chart tells you should be no surprise. Where in 1987 exports to the EU were the equivalent of 11.3 per cent of our GDP, last year that figure was only 1.6 per cent. Throw in Japan, Canada, Australia and New Zealand and you get a grand total of only 2.1 per cent of GDP in the value of domestic exports last year to countries where we could expect currency movement to give us an export edge. Now look at things a different way. The red line in the second chart shows you the value of the mainland's exports to the EU over the past 15 year with the blue line showing you Hong Kong's domestic exports to the EU for contrast. The story is obviously in what the mainland does, not what Hong Kong does, and while the mainland can indeed expect an additional edge in exports to the EU, we must be content with the crumbs that fall from the mainland's table, which means to our export service industries such as transport, financing and management input. I do not have a breakdown of our service exports by country for which the attached export of goods is destined but I doubt I would really need one. The Hong Kong Monetary Authority may increasingly favour the euro these days for investment of our reserves but our service industries still work with the US dollar. A very small proportion of the billings may go out in euro these days but I doubt there are any in Canadian dollar or Australian dollar. So yes, Hong Kong's Europe related service exports should go up too if mainland exports to the EU rise further. But bear in mind here, in contrast to what the red line in the second chart may lead you to believe, that mainland exports to the EU have remained static at about 15 per cent of its total exports despite 15 months of euro strength. Bear in mind also that anything we get is secondary strength and mostly still priced in US dollars. Bear in mind further that if the decline of the US dollar leads US consumers to tighten their belts and stop importing goods at their current furious rate then declining exports to the US may offset the boost that we get from growing mainland exports to the EU. Bear in mind most of all to make use of that word 'slight' when talking about how greater export competitiveness may boost our economy and let us emphasise that word 'may' as well.