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Standard Chartered SME Index for Q4 2015 at 44.4 - SME Business Outlook Remains Bearish

The "Standard Chartered Hong Kong SME Leading Business Index" (Standard Chartered SME Index) for the fourth quarter of 2015 reported a drop of 5.2 points to 44.4. Releasing the findings today (2 November 2015), the Hong Kong Productivity Council (HKPC) remarked that this is the lowest record in three years.

Sponsored by Standard Chartered Bank (Hong Kong) Limited ("Standard Chartered Hong Kong"), the quarterly survey features an Overall Index comprising five Sub-Indices. In this quarter, all the five Sub-Indices have dropped. Notably, the Sub-Index for "Investments" (48.9) has gone below 50 for the first time. The reading for "Global Economic Growth" slid 13.2 points to 27.1; while Sub-Indices for "Sales Amount" and "Profit Margin" have decreased to 43.3 and 41.3 respectively. "Staff Number" is the only Sub-Index that barely stays above the 50 no-change mark.

For sectorial findings, all the three major Industry Sub-Indices and their corresponding comprising indices are below the 50 threshold. Under the impacts of fluctuations in the foreign exchange markets and economic slowdown in China, the Manufacturing Sub-Index (42.9) and Import, Export & Wholesale Sub-Index (44.5) have decreased, by 5.0 and 2.4 respectively. Both readings on the "Staff Number" and "Investments" of both sectors are also below 50, an indication of their reservation towards additional investments. Despite that the last quarter is the traditional peak season for retailers, the Retail Sub-Index continues to fall further reaching 40.3 (down 2.8). This record low figure in three years reflects that the retail sector is not optimistic about the market situation.

Mr Kelvin Lau, Senior Economist of Standard Chartered Hong Kong, said, "We have just experienced a very volatile and uncertain 2015Q3 with RMB depreciation, stock market correction and a further slowdown in the Chinese economy. The fact that the US is hesitant to start hiking interest rates, and the likes of People's Bank of China, European Central Bank and Bank of Japan are still easing (or planning to ease further) their monetary policy, reflect a still challenging macro backdrop that needs plenty of policy support. We believe we are close to the trough of the cycle; things should start stabilizing as we enter into 2016. But for SMEs to feel better and more confident about their business, we would need to see consecutive months of macro data improvement. The recovery in sentiment takes time, and only then the pick-up in actual real economic activity can follow."

This survey also gauged SMEs' outlook of the local economy, and their ways to address the situation. About 61% of the respondents remarked that Hong Kong is in the "economic winter season", and 24% of them stated that the current business climate is even worse than the financial crisis of 2008. Among those who said that Hong Kong has entered the "economic winter season", 71% of them do not have any measures in place to address the challenges; while the rest may adopt various ways, such as "salary freeze/cut" (14%), "lay off" (8%), or even "closing down" (2%) under economic pressure. On a more positive note, some respondents expressed that they will "develop new business" (8%), "develop online sales/marketing channels" (5%), and adopt "staff redeployment" (4%) to face the economic downturn.

Mr Gordon Lo, Director (Business Management) of HKPC, said, "Under the impacts of the volatile global economy, the strong Hong Kong dollar and economic slowdown in China, local SMEs are hard hit. To ride out the adversity, SMEs should start with process innovation, by re-examining and streamlining their business processes and operation models in order to raise efficiency and seize new opportunities. One example is the 'Online-to-Offline (O2O)' business model which combines e-marketing with retail outlet channels for market expansion. SMEs can also apply innovative technologies, such as 3D printing, to inject new ideas to traditional business to develop new markets. HKPC consultants are on hand to assist enterprises, who can also visit our SME One centre for more support services and information."

Conducted between September and October 2015, the survey successfully interviewed 806 local SMEs. To download a report of the "Standard Chartered Hong Kong SME Leading Business Index", please visit the website: www.smeone.org. Results of the next survey will be released in January 2016.

To mark the third anniversary of the Standard Chartered SME Index, HKPC and Standard Chartered Hong Kong co-organized the SME Conference: "Seizing Market Opportunities, Unleashing Potential of Enterprises" today. With analysis on the trends of the Index and market outlook for 2016, as well as sharing of successful cases, the event aims to present SMEs with innovative ideas to chart new business strategies. Mr Gregory So, Secretary for Commerce and Economic Development of the HKSAR Government, attended the event as the Guest-of-Honour. Mr Stanley Lau, Chairman of HKPC; Ms May Tan, CEO of Standard Chartered Bank (Hong Kong) Limited; and various industry and business leaders also joined the event.

For more details about the Index, please contact HKPC's Kinson Leung at tel. (852) 2788 5795 or email: kinsonleung@hkpc.org. For other media enquiries, please contact Chloe Chau at tel. (852) 2788 6158 or email: chloechau@hkpc.org.

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About "Standard Chartered Hong Kong SME Leading Business Index"
The "Standard Chartered Hong Kong SME Leading Business Index" is a forward-looking survey on local SMEs' outlook on the overall business environment for the next quarter. For each quarterly survey, HKPC's professional team interviews more than 800 local SMEs from the manufacturing, import/export trade and wholesale, retail, accommodation and catering services, information and communications, finance and insurance industry, professional services, and real estate industries. It covers SMEs' outlook on their 'sales amount', 'profit margin', 'investments', 'staff number', and 'global economic growth' for the next quarter.

The Index is announced in January, April, July and October to provide a useful reference for the public and SMEs in making strategic decisions and resource allocation amid the changing business environment.

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Mr Jonathan Ho
General Manager
Corporate Communication and Marketing
Tel: (852) 2788 6390
Fax: (852) 2788 5056
Email: jonathanho@hkpc.org
Website: www.hkpc.org

2 November 2015

Mr Gordon Lo (centre), Director (Business Management) of HKPC, announces the survey results of the Mr Gordon Lo (centre), Director (Business Management) of HKPC, announces the survey results of the "Standard Chartered Hong Kong SME Leading Business Index" for the fourth quarter of 2015, accompanied by Mr Wilson Wong (left), General Manager (IT Industry Development) of HKPC; and Mr Kelvin Lau, Senior Economist of Standard Chartered Hong Kong.