ENG-2016 — Page 71

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The Economy

Shenzhen-Hong Kong Stock Connect in December 2016 opened up another major corridor for global investors to access the A-share markets through the platform in Hong Kong.

Economic cooperation has also been enhanced continuously through the broadening of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA). The Agreement on Trade in Services under CEPA came into effect in June 2016, extending the geographical coverage of basic liberalisation of trade in services to the whole Mainland. There are now 153 sectors which the Mainland has fully or partially opened up to the Hong Kong services industry, accounting for 95.6 per cent of all the 160 services trade sectors.

During the year, the construction of several major cross-boundary infrastructure projects continued, including the Hong Kong Boundary Crossing Facilities and Hong Kong Link Road under the Hong Kong-Zhuhai-Macao Bridge project, and the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link. Upon completion, these infrastructures will facilitate the flow of people and goods, thereby further deepening the economic and trade relations between Hong Kong and the Mainland.

The Economy in 2016

External Trade

The global trading environment showed improvement during the course of 2016. Total exports of goods, on the external merchandise trade statistics basis, reverted to a slight growth of 1.4 per cent in real terms in 2016 from a 1.7 per cent decline in 2015. With the more acute risks waning and global demand reviving modestly, merchandise exports reverted from a 4.2 per cent year-on-year decline in the first quarter of 2016 to growth of 1.4 per cent and 1.8 per cent respectively in the second and third quarters. The growth accelerated to 5.9 per cent in the fourth quarter amid broad-based improvement in regional trade flows (chart 6). Analysed by major market, exports to Asian markets generally picked up over the course of 2016, as the relative stabilisation in global demand during the year led to increased intake of raw materials and semi-manufactures in the region. Exports to the Mainland rebounded modestly. Exports to Taiwan surged, those to Singapore grew solidly and exports to South Korea reverted to a slight growth. The Indian market displayed notable growth for the fourth consecutive year. In stark contrast, exports to major advanced economies remained subdued amid low economic growth there, with exports to the US, EU and Japan all registering declines.

Imports of goods grew marginally by 1 per cent in real terms in 2016, reversing the 3.2 per cent decline in 2015 on the back of an improved re-export trade and a much smaller overall decline in retained imports. Retained imports, meaning imports for domestic use, accounted for about one-quarter of total imports. Such imports fell in the first half of 2016 from a year earlier amid the weakness in local investment spending and retail sales, which reduced the related intake in imports. In the second half of the year, retained imports bounced back visibly, leading to only a marginal decline of 0.6 per cent in real terms for 2016 as a whole, much smaller than the 7.4 per cent in 2015. The upturn went in tandem with the visible pick-up in domestic demand and the relative improvement in the retail market.

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