As the tensions between the U.S. and China regarding the enactment of the Hong Kong National Security law grow, their impact on the export of South Korea, which uses Hong Kong as the hub of intermediate trade, seems unavoidable.
Hong Kong is an important hub of South Korean businesses’ intermediate trade to reexport to China, the international trade and commerce research center of the Korea International Trade Association (KITA) reported on Friday. Hong Kong has easy access to mainland China and features various tax benefits, such as value-added tax refund, low corporate tax, and tax exemptions, as well as outstanding trade infrastructure, which is why logistics movement from South Korea to Hong Kong to China is very active at the moment. Last year alone, over 90 percent of exports from South Korea to Hong Kong eventually went to their destinations in mainland China. In addition, the U.S. has granted a special trade status to Hong Kong in terms of issuing visas, attracting investment, and enforcing laws since 1992, which has played an important role in the growth of Hong Kong as one of the major finance and logistics hubs in Asia.
However, once the U.S. strengthens sanctions against Hong Kong, the benefits mentioned above will disappear and a massive amount of foreign capital will leave the region as its advantages as a finance and logistics hub will be lost. “Under such a circumstance, direct export to China is the only available option, which will drive logistics costs and issues in securing direct flights to China for export,” the KITA predicted.
“Hong Kong is the fourth largest export destination of South Korea and offers values as an intermediate trade hub. If Hong Kong’s roles in finance, service, and logistics weaken, impact on South Korea’s export will be inevitable,” said a member of the KITA.