Service exports aid growth

FAST growing external trade in services - in which Hong Kong sells far more to the world than it buys from it - is helping underpin local economic growth and produce a positive current account balance.

Early estimates by the Hong Kong General Chamber of Commerce suggest that Hong Kong had a record surplus on external trade in services of $62 billion last year.

The figure is more than enough to counter the deficit of $26 billion on merchandise trade last year and produce a current account surplus of $36 billion, closing in on the record $40 billion achieved back in 1989.

But while recent growth in services exports has been rapid, overall services trade still plays a smaller proportionate role in Hong Kong's total external trade than it did 10 years ago. That is a result of the tremendous growth in re-exports over the same period.

The growth in services trade also highlights the role Hong Kong is playing in servicing China's economic development, providing many of the services that the economy needs domestically and in its trading role internationally.

Services trade includes such things as tourism, transportation, freight and insurance, other financial services, communications and marketing.

Estimates suggest that services exports last year rose by about 15 per cent to a record $164 billion from $143 billion in 1992.

Service imports grew at a far slower rate of five to six per cent costing Hong Kong some $102 billion for the year, up from about $96 billion the previous year.

Figures already available from the Government suggest that services trade produced a surplus of $52 billion in the first nine months of last year, and there would have been a further $10 billion surplus in the final quarter.

One of the key factors in the growth in services sector exports has been the continued rapid growth in tourism and travel, with 8.8 million visitors coming to the territory last year, up 12 per cent on 1992.

Together, they probably contributed something like $60 billion to the economy in the year just completed.

China, too, has played a role in this with 1.7 mainland visitors coming to the territory last year, up 20 per cent in 1992.

The other major factor in growing service sector export receipts is transportation, including sea and air cargo, which contributes substantially more than tourism to overall services income.

Again, this has a China dimension, with cargo shipped through Hong Kong into and out of China providing the basis for these earnings.

Other factors in the services export performance are insurance, banking and financial services, communications, hotel management, advertising and marketing and other services.

Hong Kong's biggest imports of services involve Hong Kong residents' expenditure as travellers abroad, transportation costs, insurance and other miscellaneous services.

The territory's exports are doubling every five years or so and with domestic merchandise exports stagnating it could well be that service exports will have a higher value than domestic merchandise exports in three or four years.

Imports of services have grown more slowly, suggesting that Hong Kong will maintain its healthy surplus on services trade for the foreseeable future.

Surprisingly, Hong Kong's services trade now accounts for 11.1 per cent of its total trade in goods and services, down from 15.1 per cent 12 years ago. But this relative decline overall is explained by the massive expansion of re-export trade in the intervening period.

Services trade now accounts for 13.5 per cent of exports and 8.7 per cent of imports, down from 18.2 per cent and 12.1 per cent respectively in 1981.

Again, this is due to the surge in re-export trade throughout the 1980s and early 1990.

On the other hand, domestic exports have slipped to just 18.4 per cent of total exports of goods and services, down from 54 per cent 12 years ago.

Exports of services are now equal to 74 per cent of the level of domestic exports, whereas they were only 34 per cent 12 years ago.

World exports of commercial services passed the US$1,000 billion level in 1992, with growth in that year estimated by the General Agreement on Tariffs and Trade (GATT) at 12 per cent - twice the rate of growth for merchandise trade.

Global services trade now accounts for slightly more than one-fifth of total world trade in goods and services.

Hong Kong's exports of services are growing at a faster rate than the world average, which is in line with the faster rate of service trade growth in Asia.

It is figures like these on trade in services which have helped Hong Kong to keep its economic growth basically in line with Hong Kong Government forecasts.

The Government now has a surprisingly good chance of making its forecast for Gross Domestic Product (GDP) growth of 5.5 per cent for the 1993 calendar year.

It now only needs a 5.6 per cent outcome for real growth in the final three months of the year, or a further revision of previous quarters, or both, to hit its target rate.

The third quarter growth figures showed GDP rising by a real annual rate of 5.6 per cent.

This would appear to give the Government a good shot at 5.5 per cent for the full year, especially if there are upward revisions of the second and third quarters.

However, one key to the better than expected figures is the Government's capital spending programmes, especially infrastructure projects, which have helped push the economy along at a faster pace.

The Government acknowledged this on release of the figures when it pointed out that Gross Domestic Fixed capital formation had growth of 5.8 per cent in the third quarter.

The big increase in this sector is in keeping with the Government's commitment to try to keep public sector capital spending on target so as not to have the ''under-spending'' evident in the past couple of years.

The construction figures for the third quarter showed total construction work of $19.2 billion for the third quarter of last year, up 13.2 per cent on a year earlier.

But while private sector construction was down 8.7 per cent to $7.2 billion for the quarter, public sector construction was up a huge 49 per cent to $6.4 billion.

Reflecting this, construction work on transport projects was up a massive 128.6 per cent to $3.6 billion in the third quarter.

Similar figures are likely for the fourth quarter with the Government's intention of keeping its spending on target and outlaying the funds to help keep a burgeoning budget surplus under control.

At Budget time last year, for example, the Government was forecasting public sector building to grow by just eight eight per cent for the year.

But infrastructure spending picked up as the year progressed, increasing the expected contribution of this sector of the economy to GDP, while other sectors fell back.

Government capital spending, as well as private sector trade in goods and services, is therefore helping to underpin overall economic growth.

Ian Perkin is chief economist at the Hong Kong General Chamber of Commerce. The views expressed in this column are his own and may or may not reflect chamber policy