India Offers Long-term Business Relocation Opportunities
HONG KONG –The economic headwinds facing Hong Kong’s exports have eased in the early part of 2017, reflecting a broad improvement across major industries. The Hong Kong Trade Development Council (HKTDC) today released its latest Export Index for the first quarter of 2017 (1Q17), which monitors the sentiment of Hong Kong traders and gauges near-term export prospects. The Export Index rose to 47.1, an increase of 13.4 from the fourth quarter of 2016, marking the biggest jump in recent years, although it remains below the watershed mark of 50.
“Despite the still challenging global trade environment, the HKTDC Export Index rebounded strongly to 47.1 in 1Q17, from 33.7 in the fourth quarter of 2016 (4Q16). Export confidence is on the mend. We forecast export volume to increase 0.5 per cent and export value to remain flat in 2017,” said Nicholas Kwan, Director of Research, HKTDC. “Overall, exporters have been much less pessimistic with regard to their likely export performance over the short-term, yet the reading below 50 might still indicate sluggish export performance.” The Export Index gauges exporter confidence, with a reading below 50 indicating a pessimistic sentiment during the quarter and signaling a contraction in Hong Kong exports over the short-term.
Broad improvement across all the major industries
The indices reflected positive changes in export sentiment for major industries. The indices for machinery, electronics, toys, jewellery and timepieces recorded a moderate increase. The best-performing industry, the machinery sector, reported the highest reading of 50, a rise of 15.1 from the previous quarter. All other industries reported higher readings but remained in negative territory, with significant gains seen for toys (48.3), electronics (48.2), jewellery (45.1) and timepieces (41.7). “The clothing sector index rebounded to 38 for 1Q17, but remained the most pessimistic among the major industries,” said Mr Kwan.
Export confidence on the rise in 2017
Despite a guarded outlook last year on global economic growth, the world economy has gathered steam in the first quarter of this year. “Export confidence was up with regard to all major markets. Of these, the United States saw the highest level of confidence in the first quarter of 2017 (50.3), followed closely by Japan (49.8) and the Chinese mainland (49.5). Coming in with 48.7, the European Union was the worst performer,” said Daniel Poon, Principal Economist (Global Research), HKTDC.
Meanwhile, the events of Brexit and the threat of protectionism from the US under the Trump administration failed to have much impact on export performance. “Eighty-six per cent of respondents (83% for 3Q16) reported no impact so far from Brexit, while 13 per cent (17% for 3Q16) said it had caused a negative impact. Among those affected, most said they would respond by developing new markets, downsizing the company and hedging against counterpart default risk,” said Mr Poon. “As for the likely impact from protectionism, 71 per cent of respondents said they expected no impact on their export performance, while 27 per cent said it would have a negative impact. Those affected said they would respond by boosting the development of markets outside the US and by increasing the added value of the products to enhance competitiveness.”
India offers opportunities for production relocation
With land, labour and other production costs rising on the Chinese mainland, companies are seeking alternative manufacturing bases in the region. The HKTDC’s Research Department organised a recent visit to India to learn more about the opportunities and challenges, as well as assess the country’s market potential and suitability as an alternative production base.
Dickson Ho, Principal Economist (Asian and Emerging Markets), HKTDC remarked that India remains the fastest-growing major economy in the world with robust economic growth of 7.6 per cent projected in 2017, attracting many foreign companies to tap into the Indian market. The Indian government has also implemented a number of business-friendly policies to encourage foreign direct investment (FDI) in a wider range of industries. Together with the rising productivity of labour; there is a trend for foreign investors to set up production units or assembly plants, in particular the electronics/mobile products sector. In February, Apple announced plans to produce iPhones in Bangalore.
“The HKTDC Research team visited more than 10 major states in India. Gujarat and Maharashtra in West India, as well as Telangana and Andhra Pradesh in South India are identified as states with better potential for industrial relocation and business opportunities,” said Mr Ho. He advised Hong Kong companies that they can initially consider relocating factories to the industrial parks of these regions. He spoke highly of Andhra Pradesh, Telangana, Gujarat and Maharashtra, which hold leading positions in the Ease of Doing Business (EODB) Reform Rankings. Andhra Pradesh and Telangana in particular are high on the EODB list by providing a single-window system to businesses, enabling the issuance of construction permits and streamlining environmental registration.”
In contrast, he said despite abundant cheap labour and lower land and utility costs in East Indian states West Bengal and Odisha, economic development in these two states is relatively slow and there is a lower awareness about increasing manufacturing and attracting foreign direct investment when compared with West and South India. He also noted that while first-mover advantage in these East Indian states may present potential, the business environment there is very challenging. “Very few industrial parks have been set up and utilities as well as logistics infrastructure need modernising to support future economic development,” he said.
Reference
– HKTDC Research website: http://research.hktdc.com/
– Hong Kong Export Index 1Q17: http://bit.ly/2mlZ2yI
– HKTDC Business-Stat Online: http://bit.ly/1yTSj0d
– Podcast: http://bit.ly/2mlJMSQ
– Photo Download: http://bit.ly/2nhi88L
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