"Thru-trade" is booming in Hong Kong

HK's a vital conduit to China's trading.

It has been observed that Hong Kong will continue to benefit greatly from the rapid growth in trade involving Asean, but mainly as a provider of services related to it rather than as producer of, or final market for imports and exports.

According to a research note from DBS, it has been asked why Hong Kong - Asean trade is something to fret over about when it accounts for so little of GDP.

The report noted that the answer is that Hong Kong’s total exports have continued to grow rapidly.

It may not ‘produce’ much at home anymore, at least in the traditional sense of the word, the report said, but Hong Kong is a vital conduit of trade between China and the rest of the world.

Flow trade – the import and re-export of goods – amounts to almost two times GDP.

And the income generated by flow trade makes it the biggest sector of the economy today, according to DBS.

As to the question of what flow trade is and how it generates income, conceptually, it’s identical to the wholesale & retail sectors run domestically.

The report explained that it's similar to a person opening a store for groceries, for instance. The person brings in product, sells it to consumers. The person's profit is his/her income and it is duly recorded in the GDP accounts under services rendered.

The main difference with import/export trade, the report said, is that the suppliers and consumers come from different countries.

Here's more from DBS:

And the fellow running the ‘shop’ may never put the goods on a shelf. More likely, imports enter Dock 1 and exit Dock 2 a couple of days later. These days, the goods may never touch Hong Kong soil at all.

Globalization and international trade growth have turned Hong Kong’s import/export industry into the largest sector of the economy today.

Directly, it accounts for 20% of GDP, up from 9% in 1980. If one includes the income earned from sea and air ports, logistics companies and banks and insurance providers, the total contribution of import/export services runs closer to 30% of GDP.

In terms of employment, the sector directly employs 12% of the workforce – more than the finance, insurance and real estate sectors combined. Add in the indirect employment in those sectors and the import/export business probably accounts for close to one-in-five Hong Kong jobs today.