THE ECONOMY
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With continuing reform and liberalisation of the Mainland economy, particularly after China's entry into the World Trade Organisation, more foreign investment can be expected to flow into the Mainland. Hong Kong's service hub role for the Mainland will continue to strengthen. Hong Kong possesses a strong niche in partnering with as well as in providing various business support services to foreign enterprises seeking to enter the Mainland market. In the other direction, as more Mainland enterprises seek to extend their business outward, Hong Kong can also help them to gain access to the overseas markets.
The Economy in 2003
External Trade
External trade was buoyant throughout 2003, sustaining strong growth in all four quarters of the year. This was attributable to the generally improved global economic environment during the year, enhanced price attractiveness of Hong Kong's exports stemming from the exchange rate movements and the domestic cost adjustments, as well as the rising competitiveness of Mainland products as the main source of Hong Kong's re-exports to the overseas markets. The war in Iraq and the outbreak of SARS had inflicted only brief and limited impact on Hong Kong's exports. The growth in exports in the third and fourth quarters remained distinct even against a higher base of comparison in the same period a year earlier.
Total exports of goods (comprising re-exports and domestic exports) surged by 14.0 per cent in real terms in 2003, after an already notable growth of 8.6 per cent in 2002. Performance was favourable all through the year, with year-on-year increases by 19.1 per cent, 14.3 per cent, 9.8 per cent and 14.2 per cent respectively in real terms in the four quarters. On a seasonally adjusted quarter-to-quarter comparison, total exports of goods rose by 3.4 per cent, 1.9 per cent and 1.5 per cent respectively in real terms in the first three quarters of 2003, and then picked up more sharply to a 6.2 per cent leap in the fourth quarter. Analysed by major market, the Mainland remained the largest market for Hong Kong's total exports of goods, accounting for 43 per cent of the total value in 2003. This was followed by the United States (with a share of 19 per cent), Japan (5 per cent), the United Kingdom (3 per cent), and Germany (3 per cent). Re-exports remained the key driver of the overall export growth, surging by 16.1 per cent in real terms in 2003, considerably up from the already impressive growth at 10.9 per cent in 2002. Double-digit increases took place in all four quarters of 2003. On the other hand, the ongoing structural shift towards re-exports and offshore trade continued to impinge upon domestic exports, which contracted further by 7.4 per cent in real terms in 2003, though more moderate than the 11.3 per cent plunge in 2002. Imports of goods were likewise robust, soaring by 12.8 per cent in real terms in 2003, also sharply exceeding the 7.8 per cent rise in 2002. Year-on-year growth was most distinct in the first quarter of 2003, at 18.7 per cent in real terms. It remained strong in the second quarter, at 10.6 per cent, upon sustained expansion in re-export trade and even with the spread of SARS severely dampening import intake for local use. Then, with the moderation in re-export growth in the third quarter partly offsetting a revival in import intake for local use, imports of goods had a slower growth by 7.9 per cent in the third quarter. This was followed by a re-accelerated growth at 15.0 per cent in the fourth quarter, as re-exports picked up again while import intake for local use rebounded noticeably. On a seasonally adjusted quarter-to- quarter comparison, imports of goods rose by 2.9 per cent in real terms in the first