ENG-2006 — Page 79

Chart 7

Hong Kong's visible trade

(year-on-year rate of change in real terms)

Per cent

20

The Economy 51

15

Total exports

of goods

10

LA

5

0

-5

-10

-15

M

Re-exports

Imports

of goods

/Domestic exports

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Merchandise exports attained another year of double-digit growth in 2006, the fourth year in a row.

The Mainland continues to be a most attractive market for Hong Kong whose exports to that market picked up further in 2006 after very robust growth in 2005. This bright situation owes much to the Mainland's vibrant trade flows, including strong imports spurred by its buoyant domestic demand. Renminbi's appreciation during the year also helped increase imports into the Mainland. As a result, Hong Kong's shipment of goods to the Mainland for processing for re-export and for consumption continued to show robust growth.

Hong Kong's exports to countries in Asia continued to grow in 2006. This was due partly to their economies performing generally well, aided by flourishing intra- regional trade and the strengthening of many Asian currencies during the year. In contrast, the slowdown in exports to Japan since the fourth quarter of 2005 continued into 2006, due mainly to the weak yen.

However, Hong Kong's exports to its conventional markets in Europe and the US fared less well. Notwithstanding the economic upturn in EU in 2006, exports to this market slowed rather significantly during the year, mainly because of its moderating import demand and the lagged effect of a weaker euro in late 2005 and early 2006, and also because of the high base effect of the surge in textile and clothing exports to these markets in the first three quarters of 2005. Exports to the US market registered only a small increase in 2006, likewise affected by the textiles and clothing export surge of 2005. The increasing trend for Mainland products to be shipped directly from Mainland ports to overseas markets was probably another contributing factor.

Imports racked up a 10.2 per cent growth in real terms in 2006, from an 8.5 per cent increase in 2005. Import of goods intended for re-export maintained strong growth during 2006 in tandem with the robust re-export growth. The further pick-up in domestic demand also saw retained imports record a notable 8.4 per cent growth in real terms in 2006, after a meagre 0.8 per cent rise in 2005. Retained imports of