Monthly Archives: July 2010

Trading Trends in China & Hong Kong

Posted on by
Reply

It’s useful to keep track of what Hong Kong companies are selling in China, since they are positioned to respond rapidly to demand changes in their huge hinterland market.  A recent survey by the Hong Kong Trade Development Council confirms that China is becoming more of a consumer market.

Only 27% of Hong Kong’s traders actually sold goods in China in 2009.  Most of these sales are fairly small, only 29% of those who sell in China reporting 2009 sales of more than HK$10 million (US$2.86 million).  The small percentage of Hong Kongers actually selling in China makes one wonder if profit margins from helping China export are so much higher than from selling to the Chinese?  Possibly.  Or is pushing product in China simply a tough sell?

Previous HKTDC surveys showed China’s demand to be primarily for raw materials, semi-manufactures, parts and components.  Clearly, Hong Kong was supplying Chinese factories.  But the mix has changed rather suddenly.  Industrial materials have dropped to 45% of Hong Kong’s China sales and light consumer goods are challenging for the lead with 44% of the total.  What’s more, most of the respondents expect that light consumer goods will be the trend for at least the coming three years.

Just another Chinese seaport?

Most of Hong Kong’s trading companies are focused on producing or buying goods in China and then exporting them to overseas markets. Of total goods sold by Hong Kong companies worldwide, an astonishing 83% were sourced in China, only 6% from Hong Kong itself.  The mere 11% made elsewhere raises questions about whether Hong Kong’s former attraction for taking products into China still holds.  Are more Western or Asian companies going to China directly now?  Will they be doing more joint ventures with Taiwan companies (as the Japanese are doing) now that the China-Taiwan FTA is in place?  All this makes me wonder if Hong Kong’s historic entrepôt role is ending and the city is becoming merely another Chinese seaport.

Brian Ng, HKTDC’s Director for China, made some clarifying comments that suggest that consumer and business services are where Hong Kong’s growth in China sales will come.  Ng sees impressive opportunities in China for Hong Kong companies in consumer businesses such as catering, retail and beauty services, as well as for sales of automobiles, appliances and construction materials.  The latter makes me wonder if a Chinese DIY market is developing, as some of my friends in China have suggested.  Ng also emphasizes business support services such as brand management, logistics, design, marketing and financial services.  He cites green technologies as a growth area for Hong Kong in China, mentioning systems development and consulting services in environmental protection and remediation, energy conservation and emissions control.

Might be some lessons there for non-Hong Kongers.

A Welcome To Arms

Posted on by
Reply

We’ve just had the Farnborough Air Show, so much of the world’s media has been writing about the aviation industry, all the contract announcements, and especially about military aircraft sales (Farnborough’s real specialty).  Much of it is simply hype by the companies.  You don’t really believe that all those contracts were actually done at the show, do you?  Billion dollar aircraft deals aren’t impulse buys.  But the show is still immensely important for getting things started, and meetings and displays at this year’s Farnborough may lead to the contracts announced at Farnborough 2012 (or Paris, Berlin or Singapore).

The Wall Street Journal published an interesting summary last week of the export dependence of U.S. arms and aircraft builders.  Assuming the Obama Administration really can extricate America from Afghanistan, U.S. defense expenditures may drop swiftly in coming years and U.S. suppliers, accordingly, are positioning themselves to expand their share of the worldwide armaments market.  The WSJ quoted the CEO of Lockheed Martin as seeing “significant” potential for export sales in the Middle East and Asia, and noted Boeing’s goal of upping the foreign share of its defense sales from 16% today to 25% in 2015.  This will require some creativity since the generally low-tech opponents that governments are likely to face obviate the need for such items as high-end stealth fighters.  The real action may be in lower-tech equipment and drones.

Some big deals have gone down already this year: United Technologies’ sales of helicopters to Australia ($2.1 billion) and Taiwan ($3.1 billion).  Boeing may get a $5.8 billion sale of cargo aircraft to India, and Canada is spending $377 million on mobile radars, radios and vehicles.  That said, defense budgets are getting leaner in many countries, especially Europe, so expanding overseas sales may be a good trick.  And non-U.S. competition is never to be underestimated.

Austrian Blackhawk (photo: Markus Gattringer)

We long wrestled with the ethical issues of arms sales when I was in the U.S. Commercial Service.  At times, we had instructions not to help sell weapons systems, but we would be told that assisting non-weapons sales to foreign militaries was OK.  It was sometimes hard to tell the difference and we often worked with U.S. companies to compete against foreign suppliers once a foreign government decided it had to get new weapons.  And some supposed “weapons systems” are actually dual-use.  I worked for two years to help United Technologies sell Blackhawk helicopters to the Austrian military.  Yes, a Blackhawk has offensive capabilities, but the real selling point was that the Blackhawks could do heavy lifting in the high Alps during avalanche season.  This was brought home pointedly to the Austrians during a disaster when they had to rely on U.S. Army Blackhawks flying in from bases in Germany to help trapped victims on mountain tops.  So, was selling Blackhawks to the Austrians a weapons sale – or a humanitarian program?  It counted as a foreign military sale in the export statistics.

Apologies to Ernest Hemingway for the headline.

Breaking Waves

Posted on by
Reply
  • Turkey has a new export promotion program that I find kind of interesting.  Turkish companies can apply for a 50% reimbursement for up to three years for their membership fees on electronic commerce websites.  The stated intent is to help sell Turkish products in foreign markets.
  • China is trying once again to join the WTO Agreement on Government Procurement.  This was a requirement of China’s accession agreement upon joining the WTO, but in 2007 the existing signatories of the procurement agreement said China’s offer wasn’t good enough.  The new offer from Beijing is better and answers many of the 2007 questions, but insiders say that it still may not be sufficient (meaning that China isn’t offering enough open access to its own government purchases to justify the other members letting China into their procurements).  One of the big sticking points will be that China’s offer doesn’t include their many thousands of state-owned companies.  But it’s a negotiation, and this is only a starting position.
  • Asia Times had an article up this week about how the new trade agreement between China and Taiwan is changing how Japanese and South Korea companies do business in China.  Korean firms are pressing Seoul to launch FTA negotiations with China to minimize expected competition from Taiwan firms in the China market.  The Japanese, however, are doubling efforts to do manufacturing joint ventures in Taiwan so that the resulting products will qualify as Taiwanese and enter China under the new agreement.  Interesting to see the Japanese adopt a strategy that many U.S. companies have pursued for years.