Fact File: China and Hong Kong

For U.S. exporters, China's commitment to a "one country, two system" policy with respect to Hong Kong translates into "one country, two markets." China and Hong Kong are expected to remain major--and separate--markets for U.S. agricultural products.

On July 1, after 155 years as a British crown colony, Hong Kong became a Special Administrative Region of the People's Republic of China. Agreement on the return to Chinese sovereignty was reached more than a decade ago in the 1984 Sino-British Joint Declaration.

Under that accord and the 1990 Basic Law adopted by the government of China, Hong Kong is granted a high degree of autonomy. China has pledged that the social and economic systems, lifestyle and rights enjoyed by the people of Hong Kong will remain unchanged for at least 50 years. Hong Kong is a modern, vibrant city and an international center for finance and commerce. Boasting one of the world's most open marketplaces, Hong Kong ranks as the fifth largest trading entity. Its container port is the world's busiest.

The dramatic change in Hong Kong's status is not expected to affect access to this dynamic market. As a Special Administrative Region and separate customs territory, Hong Kong retains its free-market economy, its own currency and its open trade policies.

A large market for food products in itself, Hong Kong also serves as a major re-export center into China and other countries in the region. By most estimates, a third or more of U.S. agricultural exports to Hong Kong are re-exported to China, and this role is likely to continue. As before, products moving from Hong Kong into the rest of China are still subject to the tariffs and import requirements of the central government and provinces of China.

The Chinese government is currently involved in discussions with the United States and other countries on the conditions for entry into the World Trade Organization (WTO). Accession to the WTO would require a more open market and significant trade policy reform in China.

Hong Kong is already a WTO member, and its membership is not affected by its new status. Under the reversion agreement, China has approved Hong Kong's continued participation in international organizations and trade agreements.

As markets for U.S. agricultural products, China ranked No. 7 and Hong Kong No. 8 among 1996's top export customers. For consumer foods, Hong Kong is the third or fourth largest U.S. market worldwide. The following three charts illustrate recent export trends and demand patterns for U.S. farm and food products in the two markets. All data are for calendar years.

Hong Kong has been a steadily growing market for U.S. agricultural products. Since 1990, U.S. exports have more than doubled from just over $700 million to around $1.5 billion. The market in China has been less predictable, declining steadily through the first few years of the decade and then surging back. U.S. agricultural exports climbed from a low of $374 million in 1993 to nearly $1.1 billion in 1994 and then to $2.6 billion in 1995, reflecting record Chinese purchases of corn, as well as cotton and soybean oil. Export value cooled to $2.1 billion in 1996 as China withdrew from the corn import market.

Bulk commodities dominate U.S. agricultural exports to China. In 1996, cotton, wheat, soybeans and other bulk products accounted for nearly $1.6 billion or 76 percent of total U.S. export value to the country. Intermediate (mainly semiprocessed) products, such as soybean meal, made up another 19 percent of the total. U.S. consumer food exports, with only a 5-percent share, topped $100 million for the first time last year. Led by poultry meat, these exports have increased nearly fivefold since 1990. However, high tariffs and other import restrictions continue to keep many value-added U.S. products out of the China market.

Hong Kong presents a sharp contrast with China. Consumer foods are, by far, the leading category of U.S. exports, reaching a record $1.2 billion last year. This was more than 80 percent of the total value of U.S. agricultural exports to Hong Kong. Within this category, new value records were set for U.S. poultry meat, fresh fruit, red meats, processed fruits and vegetables, tree nuts and several other products. A portion of these exports were destined for China and other markets. Hong Kong is a relatively small customer of U.S. bulk and intermediate products. By value, cotton is the leading U.S. bulk export, and hides and skins head the intermediate category.