By Thomas Schmid
On July 14, the US Administration by executive order revoked Hong Kong’s special trade status. This essentially meant that the territory became subject to the same quotas and import tariffs the United States already had imposed on Mainland China earlier. This was soon followed by a set of financial sector sanctions as well. The ongoing US-China trade war had finally crept up on the former British crown colony. The development sounded alarm bells among local tobacco industry players, of course, but worries faded rather quickly when it became clear that the impact would not turn out as severe as initially feared – or at least not yet.
Confusion among US customers
One effect so far seems to concern insecurities and confusion among US importers and buyers. “[US customers] have approached us with questions like, ‘In what currency should we remit order payments?’ and ‘Is it still safe to purchase goods through Hong Kong?’,” the technical sales manager of a major machinery supplier told Tobacco Asia under condition of anonymity*. The company in question manufactures in Mainland China but, like so many other firms, operates a trade office in Hong Kong. The technical sales manager also said some US customers had been asked for additional documentation for their Hong Kong remittance orders before the bank would accept them. “We even had a few cases where remitting bank staff called us to verify that we are a real company and that the transaction is legit,” he added. But, there is another implication that has tagged along with the trade status loss: goods shipped from Hong Kong to the US are now documented as being of Chinese origin. “This has somewhat eroded the leverage which we previously had, as importers in the United States appear to have suddenly developed an aversion to Chinese products,” claimed the technical sales manager. Yet he also insisted that Hong Kong still was a free port and that export procedures by and large continued to be “fairly easy and hassle-free even post-sanctions.”
Imports not affected
Importing raw materials and finished goods into Hong Kong – and including from the United States – does not appear to have been affected in any serious way, either. “Importers have been quite unfazed by [the trade status revocation], as the process is just as simple and straight-forward as it’s been before the sanctions,” asserted the technical sales manager. His observations were corroborated by a local entrepreneur and long-term foreign resident. Operating a cigar import-export company as well as a popular cigar lounge and retail store in the territory, he said that “it’s business as usual and nothing has changed for us.” But, he also cautioned that it could actually take “a few months” for effects to manifest. “We’ll just have to wait and see.” Meanwhile, tobacco product retailers in Hong Kong continue to be well-stocked and supply shortages are not apparent. Initial rumors that some of the multinational tobacco companies in the city were contemplating to relocate their offices to other regional countries could not be substantiated. Tobacco Asia’s attempt to secure a statement from PMI were unsuccessful. But. that doesn’t mean anything. “Although rumors about [potential relocations] were indeed ‘talk of the hour’ for a short while, I just don’t see it happening,” the technical sales manager said. “In my opinion, because of the continued ease-of-business situation in Hong Kong [multinationals] surely will be thinking twice before making a decision that could hurt them more than it would benefit them.”
Shenzhen vaping industry not worried
Immediately to the north of the territory lies the Mainland city of Shenzhen, the world’s undisputed “vaping industry hub.” There, worries concerning Hong Kong’s trade status loss did not materialize, either – despite the fact that many Shenzhen companies are either listed on the Hong Kong Stock Exchange (HKSE) or have heavily invested in Hong Kong’s business infrastructure. Speaking from nearby Macau, where he recently took on a director position with a local tobacco firm, a well-known personality in Shenzhen’s vaping sector told Tobacco Asia in no uncertain terms: “China’s vaping industry is growing at an unprecedented rate while, at the same time, global competition is declining. That’s why we are not overly concerned about what’s happening in Hong Kong.” The territory had never played an important role in exporting Shenzhen-made vaping products anyway. While the industry expert admitted that Hong Kong provided better air freight logistics than Shenzhen airport, the trade status revocation nevertheless carried “zero impact.” After all, the vast bulk of vaping products had always been exported through Shenzhen airport and port, and not Hong Kong.
“American firms only hurting themselves”
The expert also remarked that “the attitude of the [US] Administration” did not in the least affect the US market’s interest in and demand for Chinese vaping products. “The majority of products available in the United States today are factually local American brands, although they are manufactured in China,” he pointed out. The only factor that could potentially dent Chinese vaping companies’ business was “the declining buying power” of American companies. In the end, the expert warned, Hong Kong’s special trade status revocation would only cause American firms to hurt themselves, because many were heavily invested in the territory. “For years, American companies have consistently accumulated combined earnings of more than US$80 billion per annum through their Hong Kong accounts,” he said, citing a recent statement released by the Hong Kong government. “I am not sure these firms would like to see all of that evaporate.”
*Due to the relative sensitivity of the topic, all contributors to this article requested anonymity. Tobacco Asia has their identities on file.