Feb. 26 (Bloomberg) -- Hong Kong’s exports plunged by the most in 50 years as the global financial crisis slashed demand for Chinese products shipped through the city.

Shipments fell 21.8 percent in January from a year earlier, the government said today on its Web site, after shrinking 11.4 percent in December. The median estimate of 9 economists surveyed by Bloomberg News was for a 20.5 percent decline.

Hong Kong’s government pledged yesterday to refund taxes and boost spending on infrastructure as deteriorating trade threatens to drive the economy into its first-full year contraction since the 1997-98 Asian financial crisis. The global recession has ravaged Asia’s export-dependent economies, with Japan, South Korea and Taiwan reporting record drops in shipments in January.

“It’s not just Hong Kong, the financial crisis is dragging down the whole of Asia,” said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. “The trade environment is going to get worse.”

The export decline was the biggest since March 1958. Imports fell 27.1 percent in January from a year earlier, resulting in a trade surplus of HK$7.2 billion ($930 million) last month, the government said.

A slump in the U.S. housing market has caused more than $1 trillion of losses at financial institutions globally, triggering a global recession and driving down demand. World trade will shrink in 2009 for the first time in more than 25 years, the World Bank predicts.

Shrinking Economy

Hong Kong’s declines were also due to the timing of the Chinese Lunar New Year holiday, which landed in January this year and February in 2008.

The city’s economy will probably shrink 2 percent to 3 percent in 2009, after a 2.5 percent expansion last year, Financial Secretary John Tsang said yesterday. Gross domestic product contracted 2.5 percent in the fourth quarter of 2008 from a year earlier.

“A slowdown in exports leads to a loss in incomes for businesses and households, stalling investment and consumption,” said Sean Yokota, an economist at UBS AG in Hong Kong. “We won’t see a recovery in Hong Kong’s economy until global demand and exports start to stabilize.”

On a quarter-on-quarter basis, the city has been in a recession since the third quarter. GDP shrank a seasonally adjusted 2 percent in the fourth quarter from the previous three months.

Hong Kong will spend HK$1.6 billion on a program aimed at creating 62,000 jobs and internships, Tsang said yesterday.

The government plans a 50 percent cut in salaries tax for 2008-09, with a ceiling of HK$6,000, benefiting 1.4 million taxpayers and costing about HK$4.1 billion, Tsang said. Property rates will be waived for two quarters.

Capital-works spending will be “very high,” including HK$39.3 billion in 2009-10, the government said.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net

Last Updated: February 26, 2009 05:11 EST