Imports from Hong Kong on the rise as trade gap with China narrows

Hong Kong has emerged a beneficiary of the India-China conflict, with Indian importers increasingly sourcing their requirements from the Special Administrative Region (SAR), which has a separate jurisdiction under the World Trade Organisation (WTO).

India’s trade deficit with China is on a downward trajectory, and hit a 5-year low in FY20 due to lower imports and higher exports, but trade deficit with Hong Kong continues to rise.

In FY20, the same increased to a record high of $6.3 billion (annualised basis), from $5 billion a year ago. This was driven by a sharp rise in imports and a steady decline in exports to the SAR.

The FY20 data is based on the commerce ministry’s trade statistics for the April 2019-February 2020 period.

In the last five years, imports from HK have more than tripled — from $5.6 billion in FY15 to $17.1 billion in FY20. In the same period, exports declined by 20 per cent — from $13.6 billion in FY15 to $10.8 billion (annualised) in FY20.

India had a trade surplus with Hong Kong till two years ago. Exports to Hong Kong in FY18 exceeded imports by $4 billion, which turned into a trade deficit of $5 billion the following next year.

In contrast, trade deficit with China declined to a 5-year low of $47 billion in FY19, from a record high of $63 billion in FY18. In FY20, imports from China were down 3.6 per cent to $68 billion (annualised) from $70.3 billion a year ago, while our exports were up 1.2 per cent year-on-year to around $17 billion.

Analysts however say that mainland China and Hong Kong should be seen together as latter is a Special Administrative Region (SAR) of China and economic gateway to the mainland. A significant portion of China international trade passes through Hong Kong port.

Higher imports from China has blunted reduction in India's trade deficit with China. India combined trade deficit with China and Hong Kong is expected to $57.4 billion in FY20 marginally down record high of $59 billion in FY18 and $58.5 billion in FY18.

There are also a lot of similarities between India trade with China and that with Hong Kong. For example electronics and electrical equipment are India's biggest import from both mainland China and Hong Kong followed by power generation equipment such as boilers and reactors. In the first 11-months of FY20, India imported $18 billion worth of electronics and electrical equipment from China accounting for nearly a quarter of imports. In case of Hong Kong the figure was around $8.2 billion accounting for half of all imports from the city-state.