HONG KONG'S global trade in services could produce a surplus in excess of $60 billion this year, more than double the likely annual deficit on the merchandise trade account. Preliminary indications are that exports of services this year could grow by a nominal 18 per cent (15 per cent real) to around $168 billion, while imports should expand by 11 per cent (nine per cent real) to $107 billion. These growth figures are higher than the latest Government forecasts for the whole year - 10 per cent real growth in exports and 8.5 per cent real growth in imports of services. But they are less than the nominal growth rates which were achieved in the first quarter of the year, and are in line with the rates achieved in the whole of 1992. If, as expected, these figures hold for the whole of this year, the services trade balance would be a positive $61 billion. This is more than enough to cover the expected merchandise trade deficit for the full year, perhaps slightly in excess of $30 billion. In the first six months of this year, the merchandise trade deficit was about $28 billion, slightly higher than the $26 billion recorded in the opening seven months of last year. But small monthly merchandise trade deficits are likely to continue sporadically through to the end of the year, adding to the annual surplus, as will the imports of gold for commercial use. In the first quarter of this year, total merchandise exports were valued at $223 billion and total imports at $233 billion, producing a merchandise trade deficit of $10.2 billion. But, according to the Government's own figures, services exports are estimated to have produced a surplus in excess of $12 billion, giving a overall surplus of $2 billion for the first quarter of the year. This figure is likely to be revised upwards as more accurate estimates become available and, in any case, the first quarter is the slowest of the year and also includes the break for Lunar New Year holidays. The overall expansion of the territory's services trade figures reflects the growing dependence of the local economy on the provision of services, not just for the domestic market but also for offshore consumption. It also gives an indication of the economy's reliance on services for its positive balance with the rest of the world, at least as far as trade in goods and services is concerned. For the whole of 1992, Hong Kong's merchandise trade, or visible trade balance, was $33.5 billion (including gold imports) with total exports of $925 billion and imports of $958.5 billion. But this was more than balanced by the record surplus on trade in services of $46.3 billion, with services exports reaching $142.8 billion (up 17.5 per cent) and imports $96.5 billion (up 12 per cent). Merchandise trade is still the lifeblood of the Hong Kong economy, and the wider economic entity of Hong Kong and the manufacturing hinterland of South China. But with the territory's economy having shifted increasingly towards a service base, it is only reasonable to take greater account of the services component of the territory's trade. The lower profile given services trade is not helped by the fact that there are no regular monthly figures for this sector. Instead, the Government makes quarterly and final annual estimates for services trade and its rate of growth. From the quarterly estimates it is possible to make interim and probably conservative assessments of the role played by services in Hong Kong's trade for the year. For a complete balance of payments picture, capital flows should also be taken into account, but because Hong Kong does not measure and publish this information they must be left out of the equation. But the goods and services trade figures underline the importance to Hong Kong of the increasing trade in services to its overall economic health. OVER RECENT years, their annual growth has been second only to re-exports, promoting them to a key role in the territory's overall trade balance in goods and services. A review of the figures shows that the export of services grew more than six-fold in the period from 1980 to 1992, from $22.2 billion to $142.8 billion. Over the same time-span, growth in re-export trade was a massive 23 times, from a mere $30.1 billion to $690.8 billion - far in excess of still substantial services growth. But the expansion of domestic exports for the period was a mere 3.4 times, from $68.2 billion to $234 billion, and most of that came in the first half of the decade. Growth in services exports has also shown less volatility than either domestic exports of merchandise or merchandise re-exports. The provision of services - everything from tourism to transport, from communications to financial management - has always been vital to the local economy. But with the transfer of a large part of Hong Kong's manufacturing capacity across the border, even more attention has been paid to the development of the domestic services sector. Within the local economy, the provision of services now accounts for about 80 per cent of Hong Kong's total gross domestic product (GDP), up from less than 75 per cent 10 years ago. Global trade in services is now a key factor in the overall health of Hong Kong's external account - its financial position with the rest of the world. Tourism is the most prominent Hong Kong services trade, with spending by tourists designatedan exported service. But trade in services includes shipping, air transportation, communications, financial assets dealing, broking, insurance, the production and distribution of films and television programmes, hotel management advertising, marketing research and news transmission. Ten years ago, the export of services accounted for only a quarter of total domestic exports of goods and services. Today, they account for more than one-third. The export of services is now a vital factor in keeping Hong Kong's international trade balance in the black. Impressive though these figures may be, services are often not given the recognition they warrant in any discussion of the territory's burgeoning trade performance. The Hong Kong General Chamber of Commerce's affiliate organisation, the Coalition of Service Industries, is playing a key role in highlighting the importance of the services sector. Despite the dominant role of merchandise re-exports in the territory's broad trade picture, the growing importance of services - especially in the make-up of Hong Kong's domestic or ''home grown'' exports - should not be discounted. Services are a potentially far more stable base for the local economy, especially for employment, than the re-exporting of merchandise manufactured elsewhere. The import of services have grown 6.5 times since 1980, rising from $14.9 billion to $97 billion. But the increase in the overall value of the services trade has enabled Hong Kong to maintain a healthy trade surplus in the services sector. This growth reflects the greater sophistication of the Hong Kong economy, and the growth and development of the territory's domestic services base. It is no longer merely replacing some formerly imported services, but is adding to the territory's overall export income. Ian Perkin is chief economist with the Hong Kong General Chamber of Commerce. The views expressed in this column are his own and may not necessarily reflect Chamber policy.
