Standard Chartered SME Index for Q2 2018 at 49.7 Business Sentiment Improving with “Greater Bay Area” being the Most Preferred Business Expansion Location

The “Standard Chartered Hong Kong SME Leading Business Index” (Standard Chartered SME Index) continues to improve with the Overall Index rising for three consecutive quarters, reading at 49.7 for the second quarter of 2018. Releasing the findings today (19 April 2018), the Hong Kong Productivity Council (HKPC) noted the mild increase of 0.3 points has pushed the Index closer to the 50 no-change mark. The proportion of SMEs who believe that Hong Kong’s economy is steadily improving has doubled to 30% over the past year, reflecting a more optimistic business outlook.

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, the Sub-Indices for “Staff Number” and “Investments” remain positive, reading at 54.9 and 51.9 respectively. The “Sales Amount” Sub-Index (50.2) rises above the 50 threshold for the first time in three years. The “Profit Margin” Sub-Index (45.5) has slightly increased 1.8 points, while the “Global Economic Growth” Sub-Index has dropped 4.6 points to 38.8.

For sectorial findings, the business sentiment of the retail sector has improved notably, with the industry sub-index rising for four consecutive quarters, hitting a three-year high. Retailers’ outlook for “Investments” (55.6) has also exceptionally turned positive. The Manufacturing (43.6) Sub-Index continues the growth momentum of last quarter, with a rise of 1.6 points. Dragged down by the “Global Economic Growth” and “Investments” readings, the Import, Export and Wholesale Sub-Index fell 2.4 points to 43.8.

Mr Kelvin Lau, Senior Economist, Greater China, Standard Chartered Hong Kong, said, “The timing of the latest survey coincided with the escalation in trade tensions between the US and China, explaining the 11% drop in the ‘Global Economic Outlook’ component. However, the fact that the headline SME Index still managed to climb in Q2 and edge close to the 50 neutral mark shows that the economy fundamentally remains on an improving trend. We see full-blown trade war as only a tail risk, but any prolonged uncertainty could still weigh on local sentiment. The good news is that a combination of still-solid global demand and a tight local labour market should continue to provide much needed offset, the latter best illustrated by the jump in the retail sub-index this time”.

This survey also gauged the business expansion plan among SMEs. Nearly 33% of the surveyed SMEs have already developed or plan to tap foreign markets, such as Mainland China (62%), Southeast Asia (32%) and the United States (25%). For business expansion on the Mainland, Guangdong-Hong Kong-Macao Bay Area (51%) is the most preferred location, followed by first-tier cities (Beijing, Shanghai, etc.) (32%). Only 7% of respondents chose “One Belt, One Road” related cities. For those SMEs with no desire for foreign expansion, “Focus on local businesses” (67%), “Unfamiliarity with business environment” (18%), “Unfamiliarity with regulations (7%) and “Unfamiliarity with tax policy” (4%) are their main reasons for the lukewarm response.

Mr Gordon Lo, Director (Business Management) of HKPC, said, “Hong Kong SMEs should proactively tap foreign markets and in particular grasp the opportunities brought by the Belt and Road initiative and the Guangdong-Hong Kong-Macao Bay Area development. On top of differences in business culture, laws and taxation systems, funding is another factor that deter SMEs from business expansion outside Hong Kong. Actually, there are various funding schemes available for SMEs on this front. For instance, the HKSAR Government announced in its latest Budget to extend the geographical scope of the Enterprise Support Programme under the BUD Fund from Mainland to include the ASEAN countries to help SMEs seize new economic opportunities and enhance competitiveness.”

The survey also explored the budgeting of SMEs in the fiscal year 2018-19. “Salary” (27%) and “Rent” (17%) are the major expenditures, while the budgets for “Information Technology” (7%) and “Marketing” (6%) are relatively low. In general, SMEs will spend about the same amount on both digital and traditional marketing in the coming year. Among all industries, the retail sector tends to invest more on digital marketing, with the forecasted expenditure covering 60% of the total marketing budget.

Conducted during the second half of March 2018, this survey successfully interviewed 830 local SMEs. To download a report of the “Standard Chartered Hong Kong SME Leading Business Index”, please visit the website: www.smeone.org.

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.

* * *

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 aims to provide a useful reference for the public and SMEs in making strategic decisions and resource allocation amid the changing business environment.

* * *

David Pun
Senior Manager
Corporate Development
Tel: (852) 2788 5045
Fax: (852) 2788 5056
Email: davidpun@hkpc.org
Website: www.hkpc.org

19 April 2018

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 second quarter of 2018, accompanied by Mr Wilson Wong (left), General Manager (Information Technology) of HKPC; and Mr Kelvin Lau, Senior Economist, Greater China, Standard Chartered Hong Kong.