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Local SMEs Cautious towards Business Operating Environment

Under the pressure of the Mainland's new processing trade policy and the volatile global financial markets, the confidence level of local small and medium-sized enterprises (SMEs) for the third quarter of 2007 dropped slightly, according to the latest findings of a survey conducted by the SME Centre of the Hong Kong Productivity Council (HKPC) in July 2007.

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 562 SMEs were interviewed, of which 310 were from the services sector and 252 from the manufacturing sector.

Commenting on the findings, Dr Vincent Li, General Manager (Productivity Training Institute) of HKPC, said: "SMEs have become cautious towards the overall business environment in the third quarter, mainly due to adverse outlook on external risk factors. The overall index slipped from 13.8% in the last quarter to 12.7%. Despite a strong showing in the market opportunities sub-index, all other factors displayed a negative trend."

"Due to uncertainties related to the Mainland's new processing trade policy and a volatile US sub-prime mortgage market, the trading, logistics, garment and plastics sectors are more cautious in their forecast. In the garment sector, in particular, SMEs with a negative outlook exceeded those with a positive view," he added.

In this study, the SMEs were also asked about their views on the Mainland's new "Enterprise Income Tax Law", which will come into effect on 1 January 2008. 81% of the respondents said they were not sure about the impact of the new taxation system and 41% claimed their operation would be affected. Among the latter, 71% expected the operational costs to rise while 58% anticipated a drop in profits.

In addition, the introduction of a 25% standard tax rate for all enterprises and unified tax deduction policies were considered to be the two most crucial changes that would affect SMEs' business.

However, only 31% have made plans to deal with the change such as investing in environmental facilities and advanced technologies in order to enjoy the new tax preferential policies; reducing their Mainland investment; or relocating their operation to other areas with lower costs.

"SMEs are urged to plan ahead and prepare for changes in Mainland's policies and unpredictability in the external environment. They need assistance from technology and management experts in order to respond promptly to the new challenges," Dr Li said.

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

24 August 2007

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