Sliding greenback boosts HK economy
As the US dollar tumbles, the city's exports are becoming slightly more competitive as costs and prices drop
The US dollar's deepening slide against the euro and other main currencies is having a slight, but positive, effect on Hong Kong's economy, business leaders and economists say.
The dollar, which has recently fallen to its lowest levels in years, would make Hong Kong more competitive in that it would lower costs and prices, economists said. But the effect is likely to be limited as most exports are headed for the mainland or the United States, which basically have pegged exchange rates.
A spokesman for the government said the situation was being followed closely and that a report on its view of the weaker dollar and other economic events would be released at the end of this month. Last year, 40 per cent, or $613 billion, of Hong Kong's exports went to the mainland, while 21 per cent, or $333 billion, headed to the US. Germany and Britain accounted for just 3 per cent each, worth about $50 billion.
On a microeconomic scale, the experience of Mainland Headwear is typical. The company, which makes baseball caps in Shenzhen, does 90 per cent of its business with the US and the rest with Europe. While sales have been growing steadily, company spokeswoman Linda Oei said she 'did not see any particular effect because of the currency'.
That seemed to be the story with most exporters, said Cliff Sun Kai-lit, chairman of the Hong Kong Exporters' Association. 'We are not seeing our customers placing orders more easily just because they have stronger buying capability with the euro,' he said.
Since the start of the year, the euro has risen 12 per cent against the dollar and during the past 12 months it has gained 28 per cent. The Canadian dollar hit a six-year high last week against the US dollar, while the Australian dollar has been the second best-performing currency since the start of the year, rising 17 per cent.
Investors have been selling greenbacks since US Treasury Secretary John Snow hinted that the US government was abandoning its strong-dollar policy to boost economic growth.
One of the few companies to benefit from the strengthening euro, which is at a four-year high against the US dollar, is global trading powerhouse Li & Fung. The company, which sources products in Asia for big retailers in the United States such as Wal-Mart, had seen a boost in business from Europe, said spokeswoman Nancy Chen.
'In Europe, we are seeing better business as customers have higher purchasing power because of currency movements. That's the general feedback we're getting,' Ms Chen said.
Still, Li & Fung, like many exporters, does most of its business with customers in the US. Ms Chen said about four out of five orders went there, while most of the other 20 per cent went to Europe.
The effect of the dollar's weakness on Hong Kong 'doesn't hurt, but the advantages are going to be limited', said David O'Rear, chief economist at the Hong Kong General Chamber of Commerce.
'So much of what we do is related to the US and China and those exchange rates are not moving. If you net out that effect, you're not left with very much,' he said.
Hung Wan-sing, associate professor of economics at Hong Kong Baptist University, agreed, adding that pressure on the currency's peg to the US dollar would only be slightly eased if exports picked up.
Neither would Hong Kong's persistent deflation improve with higher prices for imported goods. Again, most of Hong Kong's imports are from the same places its exports go to.
'It depends on where we're importing from. Just look around the marketplace and try to guess how much doesn't come from the US and China,' Mr O'Rear said. That includes items such as Australian wine, French cheese and Japanese noodles. 'Pretty small stuff,' he said.