What you should know about Hong Kong-Asean trade flows

Domestic exports lagged big-time.

With negotiations for a Hong Kong-Asean free trade agreement now underway, it has been asked what the prospects for greater trade flows between the two regions are?

According to a research note from DBS, in a word, it's excellent.

However, the report noted that as with most ‘intra-Asian’ trade, the surge in HK-Asean flows and the outlook for the future really have more to do with Asean-China trade than with Hong Kong per se.

Hong Kong will continue to benefit greatly from the rapid growth in trade but mainly as a provider of services related to it rather than as producer of, or final market for imports and exports.

Here's more from DBS:

But Hong Kong’s ‘domestic’ exports – things it produces with local inputs and local labor – have fallen from US$30bn / yr back in the early-90s to only $7bn / yr as of 2013.

That’s a tiny 2% of GDP today compared to 50% of GDP twenty years ago.

How can exports matter when they only account for 2% of GDP? They can’t.

Manufacturing – and the jobs that go with it – disappeared long ago. Manufacturing used to account for 25% of GDP; today it accounts for only 1.5%.

Of course, cause and effect can run in either direction and in Hong Kong’s case most agree it is the fall of manufacturing – fortuitously brought about by higher incomes and wages – that led to the decline in domestic exports, not vice-versa.

But the point remains: why fret over Hong Kong - Asean trade when it accounts for so little of GDP?