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Policyholder Survey – Concerns on Credit Risks Persist amid Trade Conflicts between the US and Mainland China

In view of the trade conflicts between the US and Mainland China, the global market may continue bouts of volatility under the uncertain outlook of Hong Kong export trade. HKECIC’s recent survey revealed that policyholders regarded rising credit risks and decrease in orders as the main challenges while they maintain a wait-and-see attitude towards business development prospects.

Chart: Business outlook for next 12 months
Chart: Business outlook for next 12 months

Between December 2018 to February 2019, the HKECIC interviewed 454 policyholders on the challenges ahead and their business outlook. All these policyholders are from industries including clothing, electronics, toys, jewellery, plastics and electrical appliances. The proportion of policyholders identifying the increase in credit risks as the major challenges were 28.6%, increased 2.4 percentage points when compared to previous three months (September to November 2018), while 21% of policyholders identified decreasing order as the major challenge which decreased 4.8 percentage points. Meanwhile, 19.9 % of policyholders regarded increase in raw material cost as the major challenges which increased 1.2 percentage points when compared to previous three months.

Regarding the business forecast for the coming year, the survey revealed that 82.8% of respondents anticipating their business to remain stable. Policyholders expecting their business to increase or decrease accounted for 4% and 4.2% respectively. The statistics indicated that policyholders’ attitude towards their business development remained cautious.

For respondents expecting an increase in business, the proportion of placing hope on improving global economy sharply decreased 44.8 percentage points to 8.3% when compared to the previous three months (53.1%). On the other hand, the proportion of increasing orders accounted for 68.1%, higher than that of previous three months (40.8%).

Chart: Challenges faced by the Hong Kong exporters
Chart: Challenges faced by the Hong Kong exporters

HKECIC’s Advice

The trade conflicts between the US and Mainland China created uncertainties to the global trade. If such conflicts are to continue, the global economy and Hong Kong's exports would face more notable downward pressures.

Policyholders are advised to:

  • Maintain close contact with the buyers and confirm whether the products are affected if contracts have been signed;
  • Clarify the Incoterms adopted in connection with the delivery of goods, as well as the obligation of buyers and sellers so as to define the tariff payment obligation if the products are included in the list of goods that are subjected to tariff; and
  • Incorporate terms in the contracts stating the obligation of buyers and sellers to safeguard their interest if contracts have not been signed.
Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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