U.S.-China 'trade typhoon' could impact 7 percent of HK exports: official

By James Pomfret and Anne Marie Roantree

HONG KONG (Reuters) - Around 7 percent of Hong Kong's total exports could be impacted if the United States imposes a new round of trade tariffs on China, the city's commerce and economic development secretary told Reuters on Wednesday.

Edward Yau said Hong Kong, as the world's seventh largest exporter of merchandise trade, was highly exposed to what he described as the "biggest trade typhoon" now raging between the United Sates and China.

The U.S. administration is considering imposing tariffs on a further $267 billion worth of Chinese imports to the United States, on top of the $200 billion in imports primed for levies soon.

"We are the most open, free economy in the world, and also we live on trade," Yau told Reuters in an interview. "Hong Kong will be the first to suffer because of our vulnerability."

He said this potential new round of tariffs, if realised, would impact 7 percent of Hong Kong's trade in goods.

He declined to give specifics other than to say there is expected to be a dip in orders and shipments in the fourth quarter and early next year.

Yau, however, said the official 2018 GDP growth forecast of 3-4 percent was "still manageable".

"The spillover effects could be huge," he said.

"We're talking about the biggest trading partners in the world imposing sanctions on each other, so if it's not the biggest trade typhoon, what would it be?," he said in his office with a sweeping view of Hong Kong's iconic harbour and skyline.

Despite this, Yau said he was confident Hong Kong could stand up to the trade war given its economic strength, the stability of its currency peg to the U.S. dollar and its international stature.

The government has offered loans to small and medium-sized businesses and an export credit insurance plan to struggling firms, but few have sought assistance so far, Yau said.

Hong Kong's second quarter economic growth slowed to 3.5 percent from a year earlier, but was still underpinned by solid consumer sentiment.

REDUCED SHIPPING ROLE

Trade and logistics remain one of the pillars of Hong Kong's economy, and account for nearly one-fifth of its GDP, higher than the financial sector. More than 700,000 people are employed in the trade and logistics sector.

However, the city's importance as a shipping hub has diminished in past decades with the construction of ports and airports across China's Guangdong province.

The deputy chairman of the Federation of Hong Kong Industries (FHKI), Daniel Yip, said for the 32,000 active Hong Kong-invested factories operating in the Pearl River Delta, the trade war was forcing many firms to consider uprooting to other countries in the region, or to forge new markets.

"For any factories, they will need to make medium-term strategy decisions like relocating, or changing their market strategy. So the mentality of many factories is that this is a medium to long term turning point," Yip told Reuters.

Yau said the trade war would merely accelerate a trend of factories, especially those involved in low-end manufacturing, shifting from China due to higher operating costs.

The 10-member Association of Southeast Asian Nations (ASEAN) was now Hong Kong's second-largest trading partner, he added.

"They create a very strong demand for say, not just trade in goods, but also trade in services," Yau said.

Hong Kong's stock market, like others in the region, has been buffeted by factors including global economic uncertainty, shrinking capital flows from China and the trade war.

The benchmark Hang Seng Index, which closed down 0.3 percent on Wednesday, has dropped around 12 percent this year.

(Reporting by James Pomfret and Anne Marie Roantree; Editing by Simon Cameron-Moore and Richard Borsuk)