'GDP factoring volume penetration increased in 2020' in Hong Kong

The COVID-19 pandemic dealt a heavy blow to global and local economies in the first half of 2020, and Hong Kong was no exception, says Samantha Hiu Kwan Wong, Head of Receivables Finance, Global Trade & Receivables Finance, HSBC Hong Kong, in the regional article about the Hong Kong factoring market development included in the most recent edition of World Factoring Yearbook.

The economic consequences of the pandemic together with some lingering factors such as difficulties in China-US relations and geopolitical tensions, resulted in a weak export performance in the first half of the year, with a seven per cent decrease in export volume compared to the same period of 2019. Yet, thanks to the progressive global roll out of COVID-19 vaccines during late 2020, plus the support from various Hong Kong government measures, we saw a rebound in exports of 5.4 per cent in Q4 2020. In fact, in December 2020 exports even posted a double-digit growth of 11.6 per cent compared to December 2019. Exports to mainland China accelerated notably, and those to the US and Europe also saw faster than expected recovery. All of these factors impacted factoring activity in Hong Kong in 2020 which recorded a five per cent decrease in volume compared to 2019.

(Source: FCI)

Industry Environment

China and the US remained the largest export markets for Hong Kong. However, export volumes of goods and services to these two markets in 2020 took very different paths. Exports of goods to the US saw a noticeable decline of 17.9 per cent in 2020, as a result of the COVID-19 pandemic and escalating trade tensions. Exports to the US in 2020 represented seven per cent of the total value of Hong Kong’s exports, compared to eight per cent in 2019. By contrast, exports to China increased by 5 per cent in 2020, accounting for 59 per cent of the total value of Hong Kong’s exports. Transactions with Chinese e-commerce companies continued to build in momentum in 2020, as they played a major role in keeping supplies flowing and supporting people in quarantine during lockdowns.

Exports of goods to the EU were hit hard by the COVID-19 pandemic because Europe’s traditional retail sectors, which are the end point for many of Hong Kong’s exports, were suffering from governments’ preventive measures including lockdown, curfew or other restrictions in 2020.

Hong Kong’s top three export sectors are: industrial machinery and electrical appliances; manufacturing; and IT and telecoms equipment. Together they accounted for 81 per cent of exports in 2020, a similar percentage to 2019 (79 per cent). All three sectors will continue to be the major contributors to Hong Kong’s exports and the factoring industry which supports them.

The export of textiles and clothing - which are still key products for factoring - declined significantly by 27 per cent in 2020, compared to 2019. Due to the COVID-19 pandemic and the ensuing social distancing measures, customers avoided crowding into stores to buy these goods. The shift to online purchasing has greatly accelerated the changing patterns of global retail consumption. This change in buying habits has hit traditional retail markets, such as department stores, apparel and specialty retailers, leading to a wide spectrum of firms experiencing liquidity shortfalls and near insolvencies. Responding to this change in purchasing patterns, quite a number of large retailers turned to digital sales in Q4 2020. We have seen a mild rebound of this sector as a result of growing digital sales.

(Source: Census and Statistics Department, Hong Kong)

(Source: Census and Statistics Department, Hong Kong)

Market Performance and Supply

The Hong Kong economy contracted by 6.1 per cent in 2020 as a whole, which was the sharpest annual decline on record. The factoring market mirrored the economic trend of Hong Kong in 2020, with a substantial year-on-year contraction in the first half of 2020, but a narrower contraction in the third and fourth quarter, partly thanks to an improved external environment and partly due to the Government’s supportive measures for Hong Kong’s exporters. As a result, GDP factoring penetration actually increased, reaching 14.95 per cent in 2020 compared with 10.30 per cent in 2019


To read the whole article and much more, order World Factoring Yearbook 2021 here.