Between U.S. and China, trade partly depends on Hong Kong

The twin tasks of improving relations between Washington and Beijing and shrinking the enormous U.S. trade deficit to a manageable size depend to a large degree on China importing more American goods and services.

That's partly the job of Donald Tong.

As Hong Kong's commissioner for economic and trade affairs in the United States, Tong has the task of building trans-Pacific ties and promoting that special Chinese administrative district as a destination for U.S. exports, not just a source of imports.

He was in Baltimore last week speaking to exporters, days after President Barack Obama complained to Chinese President Hu Jintao about "market barriers" keeping U.S. goods out of China.

The Baltimore Sun met with Tong at the downtown World Trade Center Institute to discuss imports, exports and where Maryland fits into the trade route.

Question: Americans think of Hong Kong and China as import sources. What is Hong Kong buying from the United States?

Answer: The U.S. is Hong Kong's No. 2 trading partner. And indeed, last year, U.S. exported over $21 billion worth of goods to Hong Kong, making Hong Kong the 13th-largest export destination for the U.S.

Q: That's not counting the Chinese mainland?

A: No. Just Hong Kong. As far as Maryland is concerned, we have imported around $121 million in goods last year. Within the past five years, Maryland exports to Hong Kong have increased by 50 percent. Mostly the products are in computers, high-tech and, most interestingly, fabric and textiles. But most important is information technology and computers.

Q: Can you be more specific?

A: Video games. Software. There are quite a number of IT services companies in Hong Kong. And as far as Maryland is concerned, many companies have offices in Hong Kong. Marriott International. Legg Mason. FTI Consulting is in Hong Kong. Laureate Education services has an office in Hong Kong.

Q: What's driving the growth of Maryland exports to Hong Kong?

A: Ninety-two percent of Hong Kong's gross domestic product now comes from the service sector. The most important economic pillars are trading and logistics. Shipping. Airport cargo. Financial services, professional services and tourism. And Hong Kong is famous for its telecommunications services. In order to do this, we have to count a lot on the use of high-tech products, particularly in information technology and computers.

Q: For Maryland exporters, is Hong Kong the final destination? Or are products being trans-shipped to the mainland?

A: I would say more likely than not, like many other U.S. products, it's a mix. So some would end up being consumed in Hong Kong. But there are certainly also some products which would be re-exported to the mainland.

Q: Traditionally Hong Kong was the only entry to the Chinese mainland. Has that changed?

A: Hong Kong remains an important gateway to the mainland. But as you point out, these days there are also companies that have chosen directly to go into the mainland, without going through Hong Kong. But there are certain advantages in Hong Kong. … If we look back over 10 years, the number of U.S. companies in Hong Kong has actually gone up. But Hong Kong is also serving as a gateway for the mainland Chinese companies to reach out. We are serving as a two-way conduit rather than a one-way street.

Q: What effect has the financial crisis had on Hong Kong?

A: It has hurt Hong Kong. At one stage our unemployment rate has gone up to more than 5 percent. But our economy has rebounded rather quickly.

Q: What's that doing to imports? Have they bounced back, too?

A: Imports have rebounded. For 2009, as a whole our economy has shrunk by 2.7 percent. Our exports dropped by 12 to 13 percent. But things have turned the corner since the second quarter of last year. In the first two months of this year, our exports increased by more than 20 percent. Imports increased by more than 30 percent.

Q: Last month, the Office of the U.S. Trade Representative issued a detailed report on Chinese trade barriers that it said discriminated against foreign goods and agricultural products. More recently, President Obama asked President Hu to remove "market barriers" that are impeding trade. How do you respond?

A: We can only speak for Hong Kong. It would not be appropriate for me to speak on the economic policy of the mainland government. But the most important thing is that the Chinese government continue to have a dialogue with the U.S. government. … And if there are indeed any issues — and I'm sure that there are always issues between trading partners — I'm pretty sure that we can address this issue amicably. The global economic crisis has taught us one key lesson, that everybody is now connected to one another. So trading partners need to work together.

Q: Many U.S. economists accuse China of manipulating its currency, of keeping the renminbi artificially low to increase exports. Obama asked Hu to adopt a more "market-oriented" currency policy. Would you expect the renminbi to rise against the dollar anytime soon?

A: I certainly hope I can tell you the answer! It's difficult to tell. But there's one thing for sure: The views of the U.S. have been related to China.

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