HONG KONG: Industrial production in Hong Kong shrank further in the third quarter, reflecting the impact of the global economic downturn as well as a continuing northward shift in manufacturing activities.

The industrial production index for the manufacturing sector as a whole decreased by 8.6 percent in the third quarter compared with a year earlier, latest data from the Census and Statistics Department indicated.

"The fall in industrial production mainly reflected the negative impact of the global economic downturn," said Daniel Chan, a senior investment strategist at DBS Bank.

Earlier official data showed that the value of Hong Kong's total exports of goods dropped by 16.2 percent in the first nine months this year from a year ago, with exports in September alone falling 8.6 percent, after consumers in the US and the Europe, two key export markets for Hong Kong exporters, tightened their belts following the onset of the global financial tsunami last September.

In the same period, the value of domestic exports, as distinct from re-exports, plunged by 40.8 percent from a year earlier.

The latest drop of 8.6 percent in industrial output followed a 9.5 percent year-on-year decline in the second quarter and a 10.1 percent drop in the first, indicating a downward trend in terms of percentage fall.

The downward trend may be attributed to higher comparative bases in the first and second quarters of last year, DBS Bank's Chan said, noting that the financial tsunami began in September last year.

"It won't surprise me if the fall eases further in the fourth quarter as a result of a lower comparative base in the same last year, and because overseas retailers placed some short orders after draining most of their inventories in early months this year," he said.

However, industrial production in the city is doomed to continue to slip in the future, even after the negative impact of the global economic downturn is neutralized, as the process that sees exporters shifting their manufacturing activities northward to the mainland to save operating costs persists.

"You may describe the continuous fall in industrial production as a structural phenomenon as well, because manufacturers continue to move their factories northward, contributing to the shrinking of manufacturing activities locally," Chan said.

Industrial output is increasingly playing a less important role in the city's economy, accounting for only 2.5 percent of GDP output last year compared with a 92 percent share for the service sector.

"Hong Kong is not an industry city. The industrial output figures are attracting less and less attention nowadays," said Paul Tang, chief economist at Bank of East Asia.

The government also announced yesterday that Hong Kong's gross national product (GNP) for the third quarter dropped 5.8 percent from a year ago to HK$430.7 billion at current prices, compared to a 2.0 percent decline in the GDP.

GNP is defined as the market value of all goods and services produced in one year by a nation, including overseas output of its domestic firms, while excluding domestic output of foreign firms.Compared with the GDP, the GNP value is larger by HK$9.1 billion, representing a net external factor income inflow of the same amount, and equivalent to 2.2 percent of GDP.

In real terms, the GNP for the third quarter dropped 6.2 percent year-on-year, compared to a 2.4 percent decrease in the GDP.

(HK Edition 12/15/2009 page4)