December 2020 / Hong Kong

9 Dicembre 2020

The Hong Kong Export Outlook for 2021: A Cautious, Fragile Recovery Awaits

The worst of the double whammy that has severely disrupted Hong Kong’s exports over the past two years – the China‑US trade dispute and the Covid-19 outbreak – seems to be gradually abating. While local businesses still have to contend with weakened global demand, disrupted supply chains and elevated protectionism, it is now expected that Hong Kong’s exports may rally in 2021, recovering by 5% year‑on‑year, albeit from a relatively low base.

As shown by the uptick in the latest HKTDC Export Index (conducted in mid‑November), Hong Kong exporter sentiment has now improved for three consecutive quarters across all major industry sectors and markets. In all, the Index rebounded from its record low of 16.0 in 1Q20 to 36.2 in 4Q20, although it still remains very much in contractionary territory. More specifically, while 29% of Hong Kong exporters anticipate their total sales to remain unchanged over the coming year, 27% of them expect an increase. The survey also indicated that a possible resurgence of the Covid-19 pandemic (cited by 55% of respondents) and diminishing global demand (24%) remained the two key concerns of exporters over the near‑term.

2020: Weak but Resilient Export Performance Globally, widespread business lockdowns and the shutting of national borders in a bid to contain the Covid-19 outbreak triggered the worst recession since the Great Depression of the 1930s. Already suffering on account of the ongoing China‑US trade dispute, the unprecedented pandemic, which seriously disrupted global supply chains and dampened worldwide demand, resulted in Hong Kong exports continuing to decline in 2020. Indeed, the first 10 months of the year saw total exports fall by 3.7% compared with the same period in 2019. The overall export performance has, however, been improving, rising to +1.3% in 3Q20 from ‑9.7% in 1Q20. Tellingly, it has also out‑performed the global average, while doing notably better than a number of neighbouring economies, underlining the resilience of the local export sector. Over the same period, for instance, South Korea’s exports were down by 8.2%, while Japan’s suffered a 13.7% decline.  
Summary of Hong Kong's External Trade



January-October 2020

HK$ mn

Growth %

HK$ mn

Growth %

HK$ mn

Growth %

Total Exports







    Domestic Exports





















Total Trade







Trade Balance




Source: Hong Kong Trade StatisticsHKSAR Census and Statistics Department
  In terms of export destinations, Hong Kong’s exports to mainland China increased by 3.4% in the first 10 months of 2020, a development driven by the resumption of manufacturing from the end of March onwards. Hong Kong’s exports to markets with strong supply chain connections, including Taiwan and Vietnam, also grew, increasing by 8.8% and 3.1% respectively.   Hong Kong’s Total Exports by Primary Destination



January - October 2020

HK$ mn

Growth %

HK$ mn

Growth %

HK$ mn

Growth %






















Developing Asia







    Mainland China














Latin America







Middle East







Emerging Europe














(1) Hong Kong Trade with E.U. will exclude United Kingdom due to Brexit.
Source: Hong Kong Trade Statistics, HKSAR Census and Statistics Department
  In terms of major industry sectors, electronics exports, which constitute about 70% of Hong Kong’s total exports, increased by 1.8% for the period January‑October 2020, was the only industry sector to record positive growth. Largely on account of both the well‑established electronic manufacturing production network in the region and strong inter‑regional trade, Hong Kong’s exports of electronics to mainland China rose by 5.5%, to Taiwan by 10.8% and to Vietnam by 34.4% in the first 10 months of the year.   Hong Kong's Total Exports by Selected Industry Sector



January - October 2020

HK$ mn

Growth %

HK$ mn

Growth %

HK$ mn

Growth %















Precious Jewellery







Watches & Clocks














Household Electrical Appliance







Source: Hong Kong Trade Statistics, HKSAR Census and Statistics Department
  Mainland China to Lead Recovery According to the IMF, the global economy will have contracted by 4.4% by the end of 2020, the worst outcome since the 2009 financial crisis. In 2021, however, global economic growth is expected to rebound to 5.2%. Such a rally, however, is contingent on a number of factors, including a revival in consumer and business confidence and government moves to protect jobs and boost demand. In the more advanced economies, growth is expected to slowly rebound as the initial shock of the pandemic dissipates, allowing business operations and daily activities to begin to return to normal. In the developing economies, by contrast, growth will only resume once external demand accelerates and global financial conditions ease.

Output Growth of Advanced Economies vs Developing Economies

Among its principal markets, mainland China, the first major economy to recover from the pandemic, has become the most promising driver of Hong Kong’s exports. The latest IMF figures indicate that the mainland’s GDP will have expanded by 1.9% by the end of 2020 and will then rise by 8.2% in 2021. In a bid to help facilitate this, the country’s 14th Five-Year Plan, which covers the period 2021 to 2025, advocates a new “dual circulation” development model aimed at reinforcing domestic demand as the main growth driver. Inevitably, this is expected to create increased opportunities for Hong Kong exporters, especially in the Greater Bay Area and within the Belt and Road economies.
Despite having the world’s highest number of confirmed Covid-19 cases and related deaths, the US, too, saw economic growth resume in the third quarter of the year. In all, its annualised GDP growth rebounded by 33.1% quarter‑on‑quarter, following a 5% fall in its GDP in 1Q20 and a massive 31.4% slump in 2Q20. Starting April 2020, retail sales and the unemployment rate both showed distinct signs of recovery. In the case of retail sales, these rebounded from ‑15.3% (year‑on‑year) in April to 8.5% in October, while the unemployment rate dropped from its post‑war high of 14.7% in April to 6.9% in October. Looking to the future, meanwhile, uncertainties created for local exporters by the newly introduced US Customs’ requirement that goods produced in Hong Kong must be marked ‘Made in China’ is seen as unlikely to have a significant impact as it affects just 0.1% of Hong Kong’s total exports. Such an outcome is supported by the findings of the most recent HKTDC Export Index survey, which showed that just 1.2% of respondents saw the requirement as a cause for concern. Turning to the EU, its economic activity picked up in the third quarter as containment measures throughout the bloc were eased. In all, EU GDP growth rallied to 11.6% (quarter‑on‑quarter) in 3Q20, having declined by 3.3% in 1Q20 and by 11.4% in 2Q20. In terms of forthcoming developments, the EU has agreed a €750 billion recovery plan tailored to tackle the pandemic‑related crisis. Currently negotiating its way through various legislative stages, the package is expected to be in place next year. In light of this, the European Commission’s Autumn 2020 Forecast predicts the EU economy will grow by some 4.1% in 2021. Crucially, as manufacturing within the bloc is expected to rise as more factories come back online, demand for Hong Kong‑sourced parts and components is also expected to rise. Looking to other key markets, in Japan the new Prime Minister, Yoshihide Suga, is widely seen as likely to adhere to many of the policies of his predecessor, Shinzo Abe, a development that will see the country’s highly accommodating financial conditions likely to persist. At present, Suga and his cabinet are said to be preparing a supplementary budget – the country’s third – for the current financial year with a view to putting in place an additional economic stimulus package in order to further mitigate the worst economic consequences of the pandemic. This is likely to boost both private investment and consumer demand, developments set to create enhanced opportunities for Hong Kong exporters. The disruptions to supply chains caused by the pandemic and the ongoing China‑US trade disputes have already incentivised Japanese companies to diversify their manufacturing facilities away from mainland China in favour of more competitive countries, a trend that has particularly benefitted the ASEAN bloc. Inevitably, this will lead to an increased flow of capital goods and components within the region. In other developments, however, the overall growth of the ASEAN bloc is expected to have stalled in 2020, largely on account of its vulnerability to supply chain disruptions. In 2021, though, this downturn is predicted to reverse due to the substantial raft of stimulus measures being put in place. At the same time, Hong Kong’s ties with the region are set to benefit from the Hong Kong-ASEAN Free Trade Agreement, which nine ASEAN member states are currently a party to. Apart from market opportunities, ASEAN is also seen as representing a diverse manufacturing and investment landscape. In another move, Hong Kong is expected to be among the first additional signatories to the Regional Comprehensive Economic Partnership (RCEP) agreement. With the 10 ASEAN member states already on board, as well as Australia, China, Japan, South Korea and New Zealand, the agreement is seen as all but certain to bolster investor sentiment and drive trade flows across the region, outcomes seen as highly likely to benefit Hong Kong. In the case of a number of other developing economies, it is anticipated that while the export outlook may improve in 2021, it will remain relatively subdued. This is borne out by the economy of Latin America, which the IMF expects to have shrunk by 8.1% for 2020 as a whole, the worst outcome of any of the developing regions. By contrast, a mild recovery of 3.6% is predicted for 2021, one driven by both resurgent overseas demand and an uptick in domestic economic activity. In an earlier development, the central banks of Brazil, Chile and Colombia all held the policy rate stable at a multi‑year low in a bid to jump‑start an economic recovery. Some of the region’s more debt‑laden and cash‑poor countries (such as Argentina) and its more industrialised economies (such as Mexico) are, by contrast, likely to face a tougher route to recovery, with a reduced global appetite for risk set to rein in fiscal policies and dwindling demand expected to stall production on a worldwide basis. Switching the focus to emerging and developing Europe, the IMF is expecting a 4.6% contraction in 2020, prior to a 3.9% rebound in 2021. While the Covid-19 outbreak has been contained in many of the region’s economies, the shocks to global supply and demand have taken a heavy toll, with both Poland and Hungary, for example, facing rising unemployment as their respective recessions deepen. More optimistically, the EU’s €750 billion stimulus package is expected to deliver much‑needed grants and loans to member states in the region, allowing them to ride out the worst of the pandemic’s legacy. The Middle East, too, has been subject to considerable economic turmoil, with the Covid-19 outbreak only adding to the already significant problems arising from the drastic decline in oil prices from the beginning of 2020 onwards. In the case of Saudi Arabia, the world’s largest oil exporter, this has resulted in severe economic contraction, triggering a scaling‑down of its Vision 2030 reforms and an increase in the local VAT rate to 15% from 5%. The UAE, the region’s logistics and export‑processing hub, has fared little better, with the global lockdown widely seen as having weighed heavily on its economy. In light of this, the IMF has forecast that total 2020 output in the Middle East and Central Asia region will have shrunk by 4.1% by the end of the year. It is, however, expected to rebound by 3% in 2021.
  Risks and Challenges: Resurgent Pandemic and Heightened Protectionism Overall, it is undeniable that the pandemic and its consequences remain the biggest threat to Hong Kong’s export outlook. This is confirmed by the latest HKTDC Export Index, which showed that 81% of exporters believed their businesses had already suffered on the account of the Covid-19 outbreak. By contrast, just 63% saw the ongoing China‑US trade dispute as posing a similar threat. Since late 2019, the pandemic has spread to more than 200 countries and territories. Although many governments have at least partially lifted their containment measures, the re‑emergence of Covid-19 is still seen as the key risk for many economies. Should such concerns become a reality, the problem of virus‑related global supply chain disruptions may be somewhat mitigated by the fact that many companies have already restructured their supply chains and sourcing networks in order to cope with the earlier outbreak. Despite this, the logistics bottlenecks created by border closures and reduced land, sea and air freight capacity could still have a negative impact on trade in terms of both monetary and time costs. In other concerns, protectionism is also seen as continuing to pose a threat to Hong Kong’s exports over the next 12 months. There is, however, some hope that the lingering China‑US trade dispute may come closer to resolution in the wake of January 2020’s phase‑one trade agreement. That aside, rising trade protectionism has prompted some companies to re‑consider their sourcing arrangements, including reviewing the viability of relocating their manufacturing facilities to their home countries, or to other ASEAN countries. Such developments are also seen as likely to create further uncertainties for Hong Kong exporters over the near term.
  Hong Kong Exports: Gleams of Hope in 2021 Due to the generally accommodating policy environment and improving responses to the pandemic, the world economy is expected to stabilise and rebound – albeit mildly and unevenly – in 2021. Similarly, Hong Kong exports are expected to return to moderate year‑on‑year growth over the next 12 months, although admittedly from a relatively low comparison base. Perhaps most reassuringly, it is anticipated that Covid-19 vaccines will become available in 2021, a development that will play a key role in the ultimate resumption of normal business operations and economic activity over the longer term. Taking into account all of these various global, regional and local factors, the HKTDC Research forecast for Hong Kong’s 2021 exports is year‑on‑year growth of 5%.   Growth Forecast for Hong Kong Exports


2020 (provisional)


2021 (forecast)


Source: Hong Kong Trade Development Council​​​​​​​
This forecast is in line with the latest HKTDC Export Index survey, which revealed that 55% of participating exporters saw a resurgent pandemic as the biggest threat to their export performance over the next six months (slightly up from the 52% recorded for the previous quarter). The survey also found that 29% of Hong Kong exporters anticipated that their total sales level would remain unchanged in the coming year, while 27% of them anticipated an increase.  

How do you expect the total sales to change in 2021 as compared to 2020?

With particular regard to the key industries, traders in the electronics sector – which accounts for 70% of Hong Kong’s total exports – are optimistic about growth opportunities in the coming year. Due to the implementation of social‑distancing measures and the wide adoption of work‑from‑home / e‑learning arrangements, manufacturers of a number of items – including computers, webcams, microphones and medical devices – have all seen growing demand.

The outlook among clothing exporters, however, is notably less upbeat. This is, in part, due to the fact that the continuing relocation of production facilities away from mainland China and towards South and Southeast Asia has led to a fall in Hong Kong’s clothing exports. In terms of product categories, with work‑from‑home expected to be the new normal, demand for formal business suits looks likely to be subdued, while smart casual and easy‑care clothing will see an uptick in sales.

More positively, the level of Hong Kong’s toy exports is expected to rise, buoyed by the increased demand stemming from the intermittent lockdowns of schools and other social‑distancing measures. Inevitably, this will see more children and teenagers staying at home and indulging in toy‑related leisure activities. At the same time, the growing popularity of electronic gadgets, e‑sports products / equipment and peripheral toy accessories are also seen as potential future drivers of Hong Kong’s toy exports.

In the case of the watches and clocks sector, this continues to be impacted by the ever‑widening adoption of smart, digital devices. This has seen smartwatches with health‑monitoring and built‑in fitness‑tracking functions become the key growth engine for Hong Kong watch exports, a development accelerated by the increased health consciousness spurred by the pandemic.

Finally, any growth in Hong Kong’s jewellery exports looks likely to remain sluggish at best, particularly in the case of high‑end items. The demand for luxury jewellery (including gold and diamond items) has been notably weakened, possibly on account of the mass cancellation / postponement of weddings and other celebrations triggered by the pandemic. It is, however, hoped that purchasing intent with regard to fashion jewellery and designer pieces may prove to be a little more resilient.

Full article:

11 Dicembre 2020

Hong Kong Issues Guidance on Taxation of Ship Leasing Activities

The Inland Revenue Department (IRD) has published its views and practice in respect of the profits tax concessions for ship leasing and ship leasing management businesses. The profits tax concessions were granted with the enactment of the Inland Revenue (Amendment) (Ship Leasing Tax Concessions) Ordinance 2020 in June 2020 and took effect from 1 April 2020.

In this regard, the IRD has issued the Departmental Interpretation and Practice Notes No.62 (DIPN 62) on 7 December 2020 that sets out in detail the various tax concessions available and the applicable conditions. DIPN 62 also provides additional clarification in specific areas, including the following:

  • ship leasing activity:
    • the meaning of different types of leases and financing agreements, including operating and funding leases, hire purchase agreements and conditional sale agreements; and
    • the requirement for a ship leasing activity to be carried out in the ordinary course of the qualifying ship lessor's business carried on in Hong Kong, in respect of which the tax authorities will examine the terms of the lease and financing arrangement and all other relevant circumstances to prevent artificial transactions structured with a view to shifting profits from other tax jurisdictions;
  • determining the tax base for a qualifying ship lessor: the operation of the 20% tax base concession in the case of operating leases, the calculation of net finance charges or interest payments for funding leases and the allocation of gross lease or interest payments where terms of the lease and other dealings are negotiated together resulting in non-market payments;
  • deduction of notional annual depreciation allowances for ships that are subsequently used in another trade, profession or business to produce chargeable profits;
  • consideration of the totality of facts and case law principles in determining whether a ship is a capital asset(the disposal of which is not taxable);
  • qualifying ship leasing managers and ship leasing management activities, and the application of the safe harbour rule on qualifying profits;
  • losses sustained in the year of assessment by qualifying ship lessors and qualifying ship leasing managers are generally not deductible against the assessable profits for any subsequent year of assessment;
  • ensuring a substantial business presence in Hong Kong by qualifying ship lessors and qualifying ship leasing managers under Action 6 of the BEPS Project on tax treaty abuse, determination of central management and control to qualify for the concessions, satisfying the substantial activities requirement (including qualified full-time employees, adequate operating expenditure incurred and others) under Action 5 of the BEPS Project on harmful tax practices;
  • anti-avoidance provisions including the arm's length principle, main purpose tests, anti-tax arbitrage, limitation of interest deduction and restriction of a lessee's capital allowances; and
  • advance ruling applications and issuance of residence certificates.

The full details of DIPN No.62 are available here.