Moody's: China fuels Hong Kong's growth

Moody's ascribes the strength of growth in many Asian economies in recent years to the benefits of increased integration with China.

According to Moody's, the influence of the mainland is particularly obvious in Hong Kong, saying that it's increasing integration with Mainland China that is propelling growth and its favourable outlook.

The former British colony remains one of the world’s most globalised economies in terms of openness to global trade, capital movements, exchanges of technology and ideas, labour movements, and cultural integration.

The dramatic upswing in port container traffic to record levels last year was driven by increased trade with China, which accounts for more than 50% of total throughput. Chinese importers and exporters using Hong Kong’s ports as a gateway to southern China saw trade grow by more than 20 per cent in 2010. Meanwhile, an influx of tourists from the mainland continues to buoy retail trade, while Chinese investor interest in Hong Kong's property market has sent prices and transaction volumes soaring in the past 18 months.

New financial market products such as so-called dim sum bonds are the latest initiative in which Hong Kong is playing to its strengths. Rapid growth in the mainland combined with growing internationalisation of the yuan and foreign investor demand for Chinese exposure are fuelling issuance of dim sum bonds and other synthetic yuan-related products settled in alternative currencies, offering a lucrative new revenue source for Hong Kong's finance industry.

High frequency indicators suggest Hong Kong finished 2010 on a strong note. Record port throughput, expanding manufacturing, and robust retail sales should see an impressive December quarter GDP result in line with growth results recorded elsewhere in the region. Moody’s Analytics expects quarterly growth to have accelerated to 1.1 per cent in the final three months of the year, from 0.7 per cent in the September quarter.