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No Significant Change in SME Business Operating Environment Index for the Second Quarter, Survey Shows

According to the latest findings of a survey conducted by the SME Centre of the Hong Kong Productivity Council (HKPC) in April 2006, the overall index on business operating environment for local small and medium-sized enterprises (SMEs) for the second quarter stood at 6.8%.

The survey on "Business Operating Environment Index for SMEs", initiated by HKPC in 1998, is conducted quarterly to gauge the views of Hong Kong's SMEs in the areas of market opportunities, financial and investment situation, operating costs, human resources and risk assessment. In the latest survey, a total of 563 SMEs were interviewed, of which 347 came from the services sector and 216 from the manufacturing sector.

Commenting on the survey findings, Mr Vincent Li, General Manager (Enterprise Value & Logistics Consultancy) of HKPC said, "Compared to the first quarter's findings, no significant change was reported in the overall index which stood at 6.8%. Local SMEs, on one hand, are positive towards Hong Kong's business operating environment as the economy continues to sustain a solid growth, and on the other hand, remain vigilant of the external environment that may affect Hong Kong's economic situation such as the increase in oil prices, rising US interest rates and possible outbreak of the avian flu."

Sub-indexes covering market opportunities, financial and investment, and human resources all reported no marked variance for the second quarter of 2006, with the indexes scoring -6.6%, -8.0% and 16.0% respectively. "As local SMEs are generally taking a 'wait and see' attitude towards the market outlook, they do not expect major changes in human resources situation and tend to be cautious in making major investment in the coming months," Mr Li explained.

"The risk assessment index recorded a moderate decrease of 4 percentage points (from 15.6% to 11.8%), reflecting anticipation of a more risky environment as compared to the last quarter. Concern over the rise in prices and interest rates are the contributing factors for the decrease," he said.

"A slight increase of 2 percentage points (from 22.0% to 24.6%) in the operating cost index was noted, reflecting SMEs are still able to control operation cost under the present economic situation, yet the rising trend still calls for attention," Mr Li added.

In terms of sectoral differences, the overall business operating index for manufacturing industries recorded a decrease of 3 percentage points from 8.4% in the last survey to 5.1%; whereas the services industries' slightly increased 2.2 percentage points from 5.7% to 7.9%, reflecting that the sector has benefited from the robust external trade, increasing domestic demand as well as exports of services.

"A closer look at individual industries revealed that the business services sector is most positive about their business prospects," he said.

Regarding SME's projection on their business performance in the coming 12 months, the expected average increase was 1.8%, a slight drop of 0.8% percentage point.

The survey also looked into SMEs' back-office operations and found that majority of them have relocated their "production" arms to the Mainland. In addition, "warehousing" and "product development" were considered the key functions to be relocated to the Mainland over the next two years, followed by "marketing" and "procurement".

With funding from the Innovation and Technology Fund (ITF) of the HKSAR Government, the SME Centre was established in December 1997 as a one-stop service centre to provide local SMEs with an easy access to a network of service providers including experts from HKPC and other relevant organizations covering the areas of banking and finance, information technology, forwarding and shipping, telecommunications and insurance, etc.

For media enquiries, please contact:
Ms Betty Lee
General Manager
Corporate Communications & Events
Tel: (852) 2788 5036
Fax: (852) 2788 5056
E-mail: emilyc@hkpc.org
Website: www.hkpc.org

HKPC
29 May 2006

Remark:
Index = % of respondents holding a positive outlook - % of respondents holding a negative outlook