Here's why Hong Kong's exports are the "darling of the economy"

Import-export sector earns 6.5cents per dollar of trade.

It has been noted that while greater trade flows between Hong Kong and Asean have excellent prospects, the surge in HK-Asean flows and the outlook for the future really have more to do with Asean-China trade than with Hong Kong per se.

According to a research note from DBS, in line with this, important questions arise: what’s an export worth to Hong Kong? Also, how much income does an import generate?

The report noted that historically, the import/export sector earns six and half cents for every dollar of trade that goes through the country.

Again, though, this is direct income, the report said. Add in ports and logistics and finance and so on and each trade dollar generates something closer to 10 cents of GDP, which has been identified as good business.

The question the report raised, though, is, will it last? DBS said that it reckons it will, and that trade and the importance of it to Hong Kong’s economy are likely to go nowhere but up in the years ahead.

Here's more from DBS:

The short answer is trade growth depends on GDP growth and Asia is now where most of the world’s economic growth is being generated. In the four years following the collapse of Lehman Brothers, while the US, Europe and Japan ran sideways, Asia continued to grow at a 7-plus percent rate, nearly its long-term average.

In so doing, it generated US$3500bn of new output, an amount equal to Germany’s GDP.

Think about it: in the middle of the worst global crisis in 100 years, Asia ‘added’ an entire Germany to the world’s economic map, right here in Asia. And it did it with zero help from the US, Japan or Europe.

How was this accomplished when, back in 2007, most said any such thing was impossible? There’s no magic here, no hocus-pocus, except perhaps for the ‘magic’ of compound growth – you put a dollar in the bank today and ten years later it’s worth more. Fifty years later, it’s worth a lot more. That’s it.

Asia grew at a rapid rate for 50 years and it’s bigger now than it used to be. China today is 30 times bigger than it was back in 1978 when Deng Xiaoping started to open things up.

The Asia-10 is 14 times bigger. Today the Asia-10 is every bit as big as the US. And it’s still growing rapidly.

That’s how Asia put a Germany on the map in four years. When it comes to driving global growth – that is, putting more new demand on the table than anyone else – it’s size and speed that matter.

More precisely, it’s size times speed that matters. Consider the new demand that the US and the Asia-10 generate in a given year.

GDP of both regions is about US$16trn. If the US grows at a 2.5% rate, it would generate $400bn of new demand in a year. What about Asia? If it grows at a 6.25% pace, as it’s done for the past three years, it would generate $1000bn of new demand.

For every dollar of new demand the US puts on the global table today, Asia puts out $2.50. That gap allows Asia to create new Germanys while the US (and Europe) run sideways.

Asia has slowed, of course, and it will continue to slow in the years ahead. But here’s the thing: even with slower growth, it doesn’t take Asia 4 years to ‘add’ a Germany anymore. It only takes 3.5 years today because the base is bigger.

Five years from now, it will do the deed in three. Even with slower and slower growth in the years ahead, the time it takes for Asia to ‘add’ a Germany will grow shorter and shorter. Compound growth – magic or not, it’s powerful.

What happens if you stretch this out over, say, the next 25 years? You stop talking about Germanys and start talking about Eurozones. By 2039, even with ever slower growth, Asia will have put three Eurozones on the map. Imagine it: take out your map of the world.

Look at Europe. Multiply it by three and plop the result down on top of Asia. That’s what the world’s economic map is going to look like in 25 years.