Business Environment Project Report

India’s trade with Hong Kong

Program & Batch: PGDM 2017-2019

Term: 1
Course Name: Business Environment
Name of the faculty: Ratna Vadra
Topic/ Title : India’s trade with Hong kong
Original or Revised Write-up: Original
Group Number: 10
Contact No. and email of Group Coordinator: Shubham Singh
9876769428
Group Members: Sl. Roll No. Name
1 170101126 Achyut Murarka
2 170103097 Kartik Ganesh
3 170101103 Latika Chopra
4 170102121 Rishabh Pandey
5 170103195 Samta Arora
6 170103229 Shubham Singh
1. Introduction
India’s relations with Hong Kong are historical and date back to the 1840s when Hong
Kong became a British colony after the Treaty of Nanking as the result of the First
Opium War. From trading ties established in the middle of the 19th century, relations
today span sectors such as investment finance, services, maritime, shipping, logistics,
culture, education and trade. The Commission for India in Hong Kong was set up in
1951 and it was re-designated as Consulate General of India on 15 October 1996 in
advance of China’s assumption of sovereignty over Hong Kong on July 1, 1997. The
Consulate also has accreditation to Macau, which reverted from Portuguese to Chinese
sovereignty on December 19, 1999. Recent years have witnessed keen interest from
Hong Kong in India’s economic growth and its status as one of the fastest growing
economies in the world. Expectations here are that with deepening of economic
reforms in India in the coming years, India-Hong Kong relations should deepen, and
trade and economic ties should expand. After India initiated reforms and started
opening up its economy the degree of economic integration with other Asian countries
picked up pace which is evident by the increasing levels of bilateral trade – both by
volume and value. There is also a move to initiate trade agreements (PTA/FTA/RTA)
with other Asian countries. T Tigers have a highly educated and skilled workforce and
have specialized in areas where they had a competitive advantage. For example, Hong
Kong and Hong Kong became world leading international financial centres, while
South Korea and Taiwan became world leaders in information technology and
manufacturing. India shares lot of synergies and constructive business ties with all the
Asian Tiger countries especially Hong Kong

Hong Kong General Trade Policy

The Hong Kong Special Administrative Region (HKSAR) of the People's Republic of
China is firmly committed to an open market policy. This policy applies to all trade, as
well as to all investments in the HKSAR.

Hong Kong has become a Special Administrative Region of the People's Republic of
China since 1 July 1997. The "One Country, Two Systems" principle provides the
HKSAR with a high degree of autonomy in economic, trade, financial and monetary
matters. This is guaranteed by the Basic Law, the mini-constitution of the HKSAR,
which ensures that the important elements making Hong Kong a regional business and
financial centre will extend well beyond 1997, including continuation of capitalist
economic and trade systems, free movement of goods and capital, and status as a free
port and separate customs territory. Tariff preferences and other similar arrangements
obtained by the HKSAR will be enjoyed exclusively by the HKSAR. The Basic Law
also provides that the HKSAR may participate in relevant international organizations
and international trade agreements under the name "Hong Kong, China".

In 1986, Hong Kong became a separate contracting party to the General Agreement on
Tariffs and Trade (GATT). Hong Kong was one of the original members of the World
Trade Organization (WTO) when it was established on 1 January 1995. Hong Kong
also became a member of the Customs Cooperation Council (subsequently renamed as
the World Customs Organization) in 1987 and the Asia-Pacific Economic Cooperation
 (APEC) in 1991. The status of the HKSAR in these and other international
organizations remains unchanged except that our participation is now under the name
"Hong Kong, China".

2. Objectives and Research Methodology

The objective of this report is to analyse the present status of bilateral trade relationship
between India and Hong Kong. Trends in export and import are analysed from period
1991 to 2016. The paper also studies the investment and other areas of economic
cooperation between India and Hong Kong. The data on trade is taken from CMIE
database.

3. Literature Review
There is not much review of literature available on India-Hong Kong trade. With higher
shares in world merchandise trade and improvements in product quality, China is better
positioned than India in the near term for influencing global trade. (Vadra 2015) The
more rapid growth in East Asian economies can be associated with much greater
openness. Both exports and imports grew about twice as fast in East Asian economies
as they did in Latin America, a discrepancy similar to that of the relative GDP growth
in the two regions. In addition, East Asian economies have maintained much high ratios
of exports and imports to GDP. (Natana Pho-Ubol). Gunnar Myrdal’s Asian Drama,
written in the 1960s, painted a bleak picture of Asia then M and its prospects. This was
a continent hobbled by colonial exploitation, trapped in unequal commercial exchange
with the West, and mired in myriad market failures. Only massive infusions of Western
aid, Soviet-style planning and import-substituting protection could kick-start
industrialization, growth and development. (Razeen Sally,2006)

In Hong Kong (after the end of its experimentation with import substitution in the early
1960s), openness was achieved by ending all restrictions on imports and giving free
rein to the export sector. Hong Kong is a very open economy and it has been operating
at a zero per cent tariff rate. On the other hand India‟s economic reform/ liberalisation
process started in early 1990s. India has to go a long way. India can learn may lessons
from Hong Kong, particularly about sequencing and schedule of different steps of
liberalisation process.(Mehta, Rajesh , 2003).

The influence of issues such as past association, trust, communication, control and
culture as well as the relevance of theories including the bargaining power theory,
transaction cost theory and organizational learning theory on newly industrializing
economies firms’ partner selection process were also examined. This qualitative study
revealed that newly industrializing economies firms’ partner selection criteria are often
influenced by firm characteristics, country and industry-related factors as well as one
or more of the examined issues and theories. South Asia, the region with the next
smallest share of primary exports, achieved much less success in manufactured exports
than in the Four Tigers, while much of Southeast Asia has recorded rapid growth in
manufactured exports despite the relative natural resource abundance in Hong Kong,
Indonesia, and the Philippines (Radelet, 1997).
4. Recent Economic Developments in India and Hong Kong

Recent years have seen relations between India and Hong Kong expand rapidly. Hong
Kong companies also have been increasingly looking at India as an investment
destination. Many Hong Kong companies have huge presence in India. This includes
China Light and Power (CLP), Li & Fung, Jardines, Shangri La, Kerry Logistics and
Johnson Electric to name a few. Hong Kong is host to many Indian professionals in
banking, IT and shipping. Eleven public sector banks and three private sector banks
from India are currently operating in Hong Kong. Numerous global financial majors,
investment institutions and fund managers operating in India have their regional
headquarters in Hong Kong. Hong Kong is also a major sourcing centre for Indian
companies. It has emerged as a major re-exporter of items it imports from India to
Mainland China. The regional office of Air India is located in Hong Kong. Hong Kong
occupied 16th position in FDI equity inflows into India with cumulative FDI amount
of US $ 1.976 billion (April 2000 to September 2016). Hong Kong is major hub for
exhibitions and conferences. Trade fairs in Hong Kong are an important opportunity as
they provide a platform for the buyers and sellers across the globe to come together and
interact. Annually, more than 60 fairs are held in Hong Kong. India also participates in
many of these exhibitions to promote its strengths, mainly through export promotion
councils and sectoral promotion boards. Hong Kong Trade and Development Council
(HKTDC) has made India as its focus point this year for promoting business and trade
linkages between India and Hong Kong. With the focus on SMEs, HKTDC conducted
a Seminar on the Latest Market Opportunities in India in September 2016, and paid
special focus on India during the World SME Expo held in December 2016. They have
conducted series of researches, which may be useful and relevant for Hong Kong
companies planning to invest in India. In November 2016, a business delegation from
Confederation of Indian Industry (CII) led by its President Dr. Naushad Forbes visited
Hong Kong. This was a return visit to that of the business delegation which had
accompanied Hong Kong Chief Executive CY Leung (CE) during his visit to India in
February this year. Several other high-level visits to Hong Kong include that of
Secretary (Investment & Public Asset Management) in September 2016 with focus on
Foreign Institutional Investors (FIIs) and that of high-level Gujarat delegation in
October 2016 to promote Vibrant Gujarat Global Summit 2017

5. Data Analysis
A comparison of the major economic indicators of India and Hong Kong is in Table 1
and 2. The population of India is 1,309 million whereas that of Hong Kong is the 7.34
million. The GDP growth rate of India is around 6.8% in 2016 and that of Hong Kong
is 2.0% in 2016. Hong Kong has had one of the best economic records in Asia, with
GDP growing an average 8.5% annually from 1957 to 2005. In 2016, the GDP per
capita (PPP) was $43,500
Table 1: Major Economic Indicators of India

Table 2: Major Economic Indicators of India

The table 3 shows the Export of Hong Kong to India. In 2016, India was India was the
third largest export market for Hong Kong in the first seven months of 2017. Hong
Kong’s total exports to India experienced strong growth of 40.2% YOY to US$11.9
billion during this period. Major export items included pearls, precious and semi-
precious stones (US$5,474 million, 46% share, +50.2% YOY), telecom equipment &
parts (US$3,361 million, 28.3% share, +12.9% YOY), silver & platinum (US$1,198
million, 10.1% share, +366.7% YOY), parts & accessories for office
machines/computers (US$205 million, 1.7% share, +136% YOY) and computers
(US$192 million, 1.6% share, -13.1% YOY).

On the other hand, India was Hong Kong's seventh largest source of imports in the
first seven months of 2017. Hong Kong's imports from India expanded 23.3% YOY to
US$8.4 billion for the period. Major import items included pearls, precious & semi-
precious stones (US$5,168 million, 61.2% share, +14% YOY), jewellery (US$2,587
million, 30.6% share, +52.9% YOY), petroleum oils (other than crude) (US$130
million, 1.5% share, +39.2% YOY), leather (US$111 million, 1.3% share, -15.6%
YOY) and telecom equipment & parts (US$67 million, 0.8% share, +36.2% YOY).

Table 3: India’s Trade with Hong Kong

India was Hong Kong’s 4th largest export market destination in 2015 (after China, US,
Japan) and Hong Kong is India’s 3rd largest export market (after US, UAE) in FY 2015-
16. India-Hong Kong trade in 2015 was US$ 23.7 billion. During 2015, India continued
to retain its position as the 7th largest trading partner of Hong Kong. The total trade in
Jan-Oct 2016 has increased by 12.1% to 20.22 billion USD this year as compared to last
year, despite the decline in Hong Kong’s global trade. Indian exports to Hong Kong
primarily include Pearls, precious & semi-precious stones, Leather, Electrical
Machinery, Cotton, Fish & crustaceans, Machinery, Articles of apparel, Organic
chemicals, , Optical & medical instruments and Plastics while Indian imports from Hong
Kong include Pearls, precious and semi-precious stones, Electrical machinery,
Machinery, Optical & medical instruments, Clocks & watches, Plastic and articles
thereof, Special woven fabrics, Miscellaneous manufactured articles, Organic
Chemicals and paper. The average annual growth rate in bilateral trade between Hong
Kong and India was 25% from 2006 to 2016. The bilateral trade between Hong Kong
and India increased by 39% from HK$104.9 billion in 2009 to HK$146.2 billion in 2016
(vis-à-vis an increase of 24% for Hong Kong's total trade in 2010 against 2016).
 Hong
Year World USA UAE Kong
1991-92 100 16.35 4.13 3.44
1992-93 100 18.97 4.39 4.13
1993-94 100 17.98 5.21 5.62
1994-95 100 19.07 4.81 5.75
1995-96 100 17.36 4.49 5.73
1996-97 100 19.59 4.41 5.57
1997-98 100 19.43 4.83 5.52
1998-99 100 21.67 5.62 5.66
1999-00 100 22.83 5.66 6.78
2000-01 100 20.96 5.86 5.97
2001-02 100 19.43 5.69 5.4
2002-03 100 20.67 6.31 4.96
2003-04 100 18 8.03 5.11
2004-05 100 16.48 8.8 4.42
2005-06 100 16.83 8.33 4.34
2006-07 100 14.93 9.52 3.7
2007-08 100 12.71 9.59 3.87
2008-09 100 11.47 13.11 3.61
2009-10 100 10.93 13.41 4.41
2010-11 100 10.08 13.46 4.12
2011-12 100 11.36 11.75 4.22
2012-13 100 12.04 12.1 4.09
2013-14 100 12.42 9.7 4.05
2014-15 100 13.68 10.64 4.38
2015-16 100 15.37 11.54 4.62
2016-17 100 15.31 11.3 5.12

Table 3: Total Exports by Countries

% share in total : 1991-92 to 2016-17

6. Conclusion

India‟s trade with Hong Kong has improved over the last decade. Both the exports and
imports have increased almost in the same proportion. Thus, we can infer that the growth
rate trade of East Asian tigers with India increased rapidly during the study period. India
is a significant trading partner of Hong Kong. In 2016, India was Hong Kong's 7th largest
trading partner; 5th largest market for domestic exports and 3th largest market for re-
exports; and 3rd largest source of imports. With Narendra Modi’s Look east policy
India’s trade relations with Hong Kong are set to grow.

Optimism about the global economy's rebound continues to improve although it remains
fractured, with Asia, especially China, seeing growth while the western economies lag.
The upswing in emerging Asia is expected to remain relatively strong over the coming
quarters although the trade-dependent economies will probably be held back by the long-
drawn-out recoveries that are likely in the developed world.
7. References

Vadra R. India’s Trade with Asian Tigers; Journal of Marketing and Management, 1 (1),
49-69, November 2010 49

Vadra R. Surge in bilateral economic relationship: India-Malaysia trade; Int. J. Indian

Culture and Business Management, Vol. 11, No. 3, 2015

Abe Sh., Plummer M.G., (1998), On the Myth of Asia‟s Miracle. – In: East Will the East
Asian Growth Miracle Survive? Ed. by F.G.Adams and S. Ichimura. Westport (Conn.), L.:
Praeger.

ADB (Asian Development Bank), 1999. Key Indicators of Developing Asian and Pacific
Countries 1999, Volume XXX. Hong Kong, Manila: Oxford University Press.

Paul Krugman: The Myth of Asia's Miracle

Paul Krugman: What ever happened to the Asian miracle?

Sally, R. (2007b), Looking East: the European Union's new FTA negotiations in Asia, Jan
Tumlir Policy Essay no.3, European Centre for International Political Economy, Brussels,
available at: www.ecipe.org.

Vogiatzoglou, Klimis,(.n.d..),\ “East Asian Tigers, the Chinese Giant and Other
Emerging Economies in the World Trade System: Implications for Global Trade and
Specialization Patterns”, Centre of Planning and Economic Research

CMIE Database

Word Bank Economic Indicators