The Role of Hong Kong in International Trade - Research Paper Example

 The Role of Hong Kong in International Trade Overview This report aims at identifying the critical role that is associated with Hong Kong in terms of international trade and how this may have an effect in the business operations of the company. It will provide an investigation into the international businesses associated with Hong Kong and develop an analysis of this business so that the company can be able to make more informed business decisions regarding whether to expand or contract, or move into a different field of business as far as Hong Kong as an international trading hub is concerned. Hong Kong’s international trade The import and export sector in among the most internationalized industries in the globe and the associated activities such as sourcing and merchandizing assist in the exchange of goods through the international borders while supporting international trade and enabling the effective utilization of worldwide resources. “Oil is the most important single commodity in world trade, and oil-exporting countries have seen steady growth in exports” (Leonard, 2006). The imports and exports industry has been critical to the economic development of Hong Kong and has made immense contributions to the increase of Hong Kong’s GDP. Hong Kong remains to be a free port, which flourishes on free trade, and its open door policy has allowed it to be among the biggest trading economies on the globe as well as a global financial and commercial center that serves the Asia-Pacific areas as well as Mainland China. The greatest financial activity in Hong Kong is international trade and its government policies in terms of trade demonstrate its position as a hub for free trade. These policies comprise of minimum constraints and permits the market dynamics to standardize exportation and importation activities. It thus prohibits protective actions such as tariffs and rations as well as subsidizations as a method of circumventing deficits that may be experienced in balances-of-trade. “Much of the impetus driving the changing patterns of global trade since 1950 can be attributed to the role played by transnational corporations which are sometimes called multinational corporations” (Leonard, 2006). Development of Hong Kong’s import and export industry The activities associated with the import and export industry can be categorized as imports, domestic exports and re-exports and Hong Kong has embraced a free trade policy while erecting limited barriers to trade. “Adopting pro-export policy promoting exports through tax breaks, subsidies, and tariffs, and at the same time discouraging imports through taxes, duties, or quotas, is a common practice among emerging markets and developing nations” (Skousen, 2010). There is no imposition of tariffs in Hong Kong in regard to importing and exporting goods, and the licensing requirements are maintained at a minimum. The imposition of licensing only takes place in the event that there is a genuine need of meeting obligations that are undertaken by Hong Kong to its partners in trade, public health as well as safety and internal security requirements. Hong Kong was rated as the eighth biggest trading entity in the globe in 1997, but this ranking dropped to tenth in 2001 and further to eleventh in 2005.” In 2010 China became the second largest trading entity, while Hong Kong dropped to the tenth” making the plunging trend of Hong Kong as a worldwide trading entity clear (Wong, Luen-tim Lui & Lam, 2012). Nonetheless, the fast economic progress experienced in mainland China has led to considerable growth opportunities in regard to global trade. For more long-term survival, Hong Kong should be able to maintain a close relationship with the Chinese mainland through the facilitation of worthy movements and mobility of talents. “Since the late 1990s the important role of intermediaries in international trade has been increasingly recognized. ... Over half of China's exports in the 1990s intermediated through Hong Kong” (Sourdin & Pomfret, 2012). Based on its proximity to mainland China, the import and export industry lowers information costs along with other informal barriers to trade. The traders in Hong Kong concentrate in finding producers in mainland China who are able to meet the foreign quality standards as well as the location of buyers for the goods that have been made in mainland China while rewarding the traders with informational rents that accounts for the makeup they charge. This form of information costs provide an incentive for the import and export companies in Hong Kong to act as intermediaries between the mainland China suppliers along with their foreign buyers. These costs are incurred when the foreign buyers are not given clear information concerning the quality of suppliers or when the suppliers in mainland China are not given proper information concerning the requirements of the foreign buyers. In terms of trade intermediation, Hong Kong provides an array of value added services in connecting foreign buyers with suppliers in mainland China through sourcing of materials, merchandizing and quality assurance among others. The main type of commodities that are exported from Hong Kong include consumer goods and light manufactures with particular importance to clothes and attires, electrical equipment, fabrics, telecommunication equipment, jewelry and sports merchandises among other commodities. The main re-exports include consumer commodities, raw materials, semi manufacture as well as foodstuffs and fuel, while its core imports and mainly the same commodities that are re-exported. It is important to note that Hong Kong lost a huge part of its capacity to manufacturer when it reunified with the mainland China and its most significant local export trades became garments, textiles along with clothing that represented almost a half of its domestic exports in 1999. Hong Kong’s administration has made attempts of diversifying this sector through an encouragement of the sophisticated industry that has experienced growth in the past decade; however, the share it controls in the domestic market is still minimal. For instance, telecommunication equipment made up to two percent of the local exports at the turn of the century which were valued at almost half a billion dollars. Hong Kong’s main trading partners include China, the US, Japan, UK together with Taiwan and by 1999, it mainly exported commodities to China, US, Japan and United Kingdom. During the same period, it main source of imports included China, Japan, Taiwan and the US, and based on re-exports, mainland China has grown to be the biggest trade partner for Hong Kong. Trade (expressed in billions of US$): Hong Kong Exports Imports 1975 6.02 6.76 1980 19.75 22.44 1985 30.18 29.70 1990 82.16 82.49 1995 173.75 192.75 1998 173.99 184.50 From: IMF. International Financial Statistics Yearbook 1999. References Leonard, T. (2006). Encyclopedia of the developing world. London: Routledge. Skousen, M. (2010). Economic logic. Washington, DC: Capital Press. Sourdin, P., & Pomfret, R. (2012). Trade facilitation. Cheltenham, U.K.: Edward Elgar. Wong, W., Luen-tim Lui, P., & Lam, W. (2012). Contemporary Hong Kong government and politics. Hong Kong [China]: Hong Kong University Press. Read More