An Interim Review of the Impacts on Hong Kong Economy due to the US-China Trade War

[Updated on 25 Apr at 1845 by adding Figure 2b]

Since Sep 2018, US-China Trade War has formally commenced. The Research Office of Legislative Council Secretariat (Legco, 2018) has prepared an Information Note on the estimation of “Trade conflict between China and the United States and its impact on Hong Kong’s economy.” Figure 1 shows the amounts of Hong Kong’s re-export amount for US and China trade, as well as the specific amounts of the impacts under Section 301 Investigation of the US-China Trade War. The estimated impact of Section 301 Investigation is about -5.1% of total exports (HK$195.3b).

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Figure 1 Hong Kong’s Re-exports Between China and the US. Source: Legco (2018)

After about 5 months of the implementation of tariffs, it may be time to stock take the actual impacts of the tariffs on Hong Kong economy. First of all, the most direct impacts are of course the import and export amounts of goods in and out of Hong Kong. According to the Census and Statistics Department (2019) data, the quantum indices of import and export of Hong Kong have been decreased continuously in the past 4 months, as shown in Figure 2a. There have not been any comparable drops in imports and exports of similar magnitude in the past 3 years, as shown in Figure 2b.

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Figure 2a Quantum Indices of Imports and Exports of Hong Kong. Source: Census and Statistics Dept (2019)
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Figure 2b Quantum Indices of Imports and Exports of Hong Kong YoY%, 2016 Mar— 2019 Feb. Source: Census and Statistics Dept (2019)

In comparison with the figures of Oct 2018, the quantum indices of imports and exports of Hong Kong in Feb 2019 have dropped substantially of 32.6% and 37.6% respectively, which are likely to be the consequences of the US-China Trade War, even though it may require a more robust empirical test to confirm the causality. The actual impact seems to be in line with the Legco’s (2018) estimates, although the figures in Oct 2018 might have been increased as a market response to buy more before the tariffs were imposed. The exact amounts of imports and exports in Oct 2018 and Feb 2019 are $428,142m, $383,651m, $277,508m and $228,674m respectively, as shown in Figure 3. In other words, so far both imports and exports have dropped by about $150b per month in comparison with the peak in Oct 2018, which is about -3.9% of total exports 2017.

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Figure 3 Amounts of Imports and Exports in Oct 2018 and Feb 2019. Source: Census and Statistics Dept (2019)

Furthermore, the US-China Trade War may also affect real estate prices, especially office and retail prices. Figure 4 shows the Rating and Valuation Department’s (2019) month-on-month % change of the Office Price Index (OPI) and that of the Retail Price Index (RPI), which shows that in the recent past 4 months, 3 of them reflect negative dips. The office price index points from Oct 2018 to Feb 2019 are 599.0, 568.5, 569.1, 543.7, and 525.5; it drops from the Oct 2018 by 12.3% already. The retail price index points from Oct 2018 to Feb 2019 are 600.0, 601.1, 593.0, 591.7, and 580.8; it drops from Nov 2018 by 3.4%.

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There can be other factors also affecting office price and retail price, including the interest rate and inflation changes. It requires further empirical tests to ascertain the extent of impacts of the US-China Trade War on real estate prices.

Have you observed any other plausible impacts of the US-China Trade War on Hong Kong Economy? For example, Census and Statistics Department would report the latest 2019Q1 GDP growth rate in early May, let’s see to what extent the Trade War would affect the GDP growth. The 2018Q4 GDP (in chained dollars) YoY% change is 1.3%. [The 2019Q1 GDP (in chained dollars) YoY% change is further reduced to 0.5%]

References

Census and Statistics Department (2019) Merchandise Trade Index Numbers — Imports and Exports, April. https://www.censtatd.gov.hk/hkstat/sub/sp230.jsp?tableID=071&ID=0&productType=8

Legco (2018) Trade conflict between China and the United States and its impact on Hong Kong’s economy, Information Note IN14/17–18, Research Office, Legislative Council Secretariat. https://www.legco.gov.hk/research-publications/english/1718in14-trade-conflict-between-china-and-the-united-states-and-its-impact-on-hong-kongs-economy-20180717-e.pdf

Rating and Valuation Department (2019) Monthly Office Price Index and Retail Price Index 2016–2019, Property Market Statistics. https://www.rvd.gov.hk/mobile/en/property_market_statistics/index.html

Written by

ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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