ENG-2005 — Page 83

The Economy 53

flow into the Mainland. Hong Kong's role as a service hub for the Mainland will continue to strengthen. Hong Kong has carved its own lucrative niche it both partners foreign enterprises seeking to enter the Mainland market and provides them with business support services. In addition, as more Mainland enterprises seek to extend their businesses outwards, Hong Kong can also help them to gain access to overseas markets.

The Economy in 2005

External Trade

Notwithstanding the surge in oil prices, the return of global interest rate hikes and the strengthening US dollar during the year, merchandise exports performed well. Total exports of goods (both re-exports and domestic exports) recorded double- digit growth for the third year in a row, at 11.4 per cent in real terms, following a 15.3 per cent surge in 2004. Re-exports remained the key growth driver of exports, rising by 11.6 per cent in real terms in 2005, after a 16.3 per cent surge the previous year. The pace of growth was maintained evenly throughout the four quarters, thanks to the sustained expansion in the global economy and the Mainland's strong trade flows. The robust

robust performance in re-exports also

also reflected the external competitiveness of Hong Kong as a trade conduit for both the Mainland and the region.

Domestic exports picked up further, growing 7.6 per cent in real terms in 2005, from a 2.4 per cent growth in 2004. However, their growth profile over the four quarters was very volatile with marked decreases in the first two quarters followed by a sharp rebound in the ensuing two quarters. Heightened uncertainties over possible US and EU safeguard measures against the Mainland's T&C exports prompted some increase in clothing production in Hong Kong later in the year. Domestic exports recovered but it was not entirely due to T&C because there were also exports of such non-clothing items as office machines, electrical machinery and appliances, and telecommunications equipment. The recovery indicated that Hong Kong manufacturers had established certain niches in the international market, despite the relatively high labour cost.

In 2005, the Mainland and the United States were the two largest markets for Hong Kong's total exports (including domestic exports and re-exports), accounting for 45 per cent and 16 per cent respectively. Other major markets included Japan (5 per cent), Germany and the United Kingdom (both at 3 per cent), Taiwan (2 per cent), the Republic of Korea (2 per cent), and Singapore (2 per cent).

Imports rose again by 8.5 per cent in real terms in 2005, following a 14.1 per cent increase in 2004. While imports for re-export surged throughout the year, growth in retained imports also picked up steadily along with the increasingly entrenched economic recovery. Retained imports edged up by 0.8 per cent in real terms in 2005, as the decline in the first half was more than offset by the increase in the second half of the year. Retained imports of capital goods surged during most of the year, particularly towards the end as many companies replenished or upgraded their machinery and equipment to cater for the expansion of production capacity and