Hong Kong’s exports have faced the largest decline in decades. Long-time trade in re-exporting electronic parts, particularly integrated circuits generating foreign currency, was likely impacted by U.S.-China trade sanctions and the U.S. restrictions on the Chinese Communist Party (CCP)’s semiconductor industry.
Figures released by the Census and Statistics Department in Hong Kong showed exports recorded negative year-on-year growth for the last eight months, with the December 2022 figure showing a year-on-year drop of 28.9 percent, the largest reduction since 1954. At the same time, imports to Hong Kong decreased by 23.5 percent, leaving a balance of payments deficit of HK$51.65 billion (approximately $6.58 billion). Exports for the whole year fell 8.6 percent, while imports dropped 7.2 percent.
Exports to mainland China, Hong Kong’s largest market, declined 12.9 percent in 2022 compared with a year earlier, the results have been negative for the last ten months, and figures for the months of October, November, and December show a decrease by 12.9 percent, 29.7 percent, and 30.4 percent respectively.
In July 2020, the United States abolished Hong Kong’s special tariff status and special economic treatment after the CCP imposed the Hong Kong National Security Law. The U.S. also announced a semiconductor export control order in October 2022, restricting the export to China of equipment for the manufacture of logic chips below 14/16 nanometers, DRAM memory chips below 18 nanometers, and NAND flash memory chips above 128 layers.
According to a report of Economic Daily News in Taiwan, NVIDIA, the renowned manufacturer of high-end graphics processing units (GPUs), and ASML, the Dutch semiconductor giant, plan to move their logistic hubs from Hong Kong to the Farglory free trade zone in Taiwan. Such moves could potentially weaken Hong Kong’s re-export role as the number of re-exports of components, such as integrated circuits (IC), account for a high percentage of Hong Kong’s imports.
In the past, due to Hong Kong’s independent tariff status and the preferential treatment given to goods labeled as Hong Kong origin, buyers tended to choose Hong Kong for their purchases. Under this practice, Hong Kong has been importing semiconductor components and re-exporting most of them for profit. For example, after purchasing semiconductors from TSMC, Nvidia, and AMD, they would ship their goods to Hong Kong for re-export to China or back to Taiwan.
Hong Kong, the Largest Integrated Circuits Re-Exporter Hub
According to the Hong Kong Trade Development Council (HKTDC) statistics in July 2022, Hong Kong’s electronics industry is the territory’s largest merchandise export earner, accounting for 72.6 percent of total exports in 2021. A substantial portion of this business, largely re-exports, are regarded as high-tech products, especially those related to telecommunications equipment, semiconductors, and computer items. In addition, according to the latest data, Hong Kong was the world’s largest exporter of electronic integrated circuits in value terms.
Drop in Integrated Circuits Exports From Taiwan to Hong Kong
The Bureau of Foreign Trade, Taiwan, showed that Hong Kong was Taiwan’s second-largest export market of IC Chips (second to mainland China). Although the aggregate amount of IC Chips exported from Taiwan to Hong Kong has increased in recent years, a drop in the second half of 2022 showed a downward trend compared with the same period YoY.
Observing the situation before and after the U.S. removed Hong Kong’s special tariff status, the amount of IC chips exported from Taiwan to Hong Kong was $26.74 billion in 2019; $32.99 billion in 2020; $44.68 billion in 2021; and $49.20 billion in 2022. The amount increased by 23 percent YoY in 2020 and 35 percent YoY in 2021; but significantly slowed down to a ten percent YoY increase in 2022.
Looking at data from specific months, the aggregate amount of exports of IC chips from Taiwan to Hong Kong dropped YoY from May until December 2022.
A worker handles smartphone chip circuits at a factory in Dongguan City, Guangdong Province, China, on May 8, 2017. (Nicolas Asfouri/AFP/Getty Images)
Parts Like Semiconductors Occupy Half of Hong Kong’s Air Imports
The data from the Hong Kong Census and Statistics Department for November 2022 shows that the category of thermionic, cold cathode, diodes, transistors, photosensitive semi-conductor devices, light emitting diodes, and parts thereof, to which semiconductors and other components belong, continues to be the largest single category in terms of overall export and import value of Hong Kong’s air cargo.
However, the import value of this category was only recorded at HK$104.76 billion ($13.36 billion) in November 2022, which was a drop of HK$121.16 billion ($15.45 billion) YoY, and still occupied over half of the air trade import value, HK$199.78 billion ($25.47 billion) in total.
However, the aggregate export value of this group for 2022 recorded an upward trend YoY.
Analyst: Decline May be Due to US Export Control Measures
In January, Tseng Chichao, Deputy Secretary-General of Taiwan Chinese Economic and Financial Association, said in an interview with Radio Free Asia that the U.S. intended to bind mainland China and Hong Kong together and weaken the re-exporting role of Hong Kong. He recently added that the drop in IC chips exported from Taiwan to Hong Kong might be due to the factories responding to the U.S. regulatory deployment and choosing not to re-export in Hong Kong.
In addition to Hong Kong’s special tariff status being revoked by the Trump administration, the Biden administration on Jan. 17 further imposed restrictions on the export of chips to Macau, which is also a region of China. The U.S. is concerned that high-end chips and chip manufacturing equipment will be transferred from Macau to other parts of China.
When the U.S. restricted chip exports in October 2022, the U.S. Department of Commerce stated that the export controls “restrict the PRC’s ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors. The PRC uses these items and capabilities to produce advanced military systems, including weapons of mass destruction; improve the speed and accuracy of its military decision-making, planning, and logistics, as well as of its autonomous military systems; and commit human rights abuses.”
