Hong Kong's exports are expected to rise up to 9% this year, surpassing the previous forecast of 6%, the Trade Development Council says. It follows a 10.1% rise in exports during the first seven months of the year, mainly driven by 14.4% growth in Mainland demand.

The Mainland's stronger-than-expected economic performance, its need of machinery to produce goods for export and its industrial upgrading programme are the chief factors behind the rise in Hong Kong exports to it, the council's Chief Economist Edward Leung said.

Mr Leung urges Hong Kong companies to focus more on ASEAN markets, since the China-ASEAN Free Trade Area is likely to mean closer trade ties between ASEAN and the Mainland. Although Hong Kong is not the agreement's signatory, its exports to ASEAN have already been beneficial.

Exports to ASEAN countries, up 13.1% in the first seven months this year, account for a 6% share of Hong Kong's total export market.

The opportunities are particularly good in Vietnam, Malaysia and Cambodia. Along with their consumer market potential, the countries can also serve as alternative production bases to the Mainland, Mr Leung said.

Slowing down

Mr Leung forecasts a slowing down in exports to follow, as Mainland manufacturers expect further changes in the export processing trade arrangement in the second half of the year, they placed more orders for machinery and raw materials to be shipped through Hong Kong in the first few months.

Mr Leung said the new rules will likely have an adverse effect on Mainland shipments through Hong Kong. The renminbi may further appreciate, and coupled with growing protectionism overseas, it will have a knock-on effect on exports of Hong Kong products. He said the Central Government may enhance efforts to cool the economy and ease inflation.

Hong Kong's exports to the European Union grew 6.4% in the first seven months this year, largely because of the strong euro. Sub-prime mortgage problems in the US, however, may increase EU financial volatility in the coming months.

Regulatory measures

Mr Leung advises Hong Kong exporters to keep a close eye on possible changes in EU regulatory measures, adding that the EU's textile quota arrangement with the Mainland ends this year.

Hong Kong exports to the US rose 0.9% in the first seven months. Further corrections in the US housing market, plus the country's sub-prime mortgage problems, are likely to bring about a slowdown in consumer spending, he said.

Growing protectionism in the US and the nation's preoccupation with the upcoming presidential election are other obstacles Hong Kong may face.

Exports to Japan rose 1.1%. Mr Leung said the country's uneven economic recovery has had an adverse impact on consumption.

Troubled by product recalls, Hong Kong's toy exporters expect a slowdown in business, following a 36% rise in the first seven months this year. During the same period, Hong Kong jewellery exports rose 15%, followed by watches and clocks (4.5%), clothing, textiles and footwear (0.9%) and electronics (0.6%).