HKPC SME Support Announces “Standard Chartered SME Index” Q4 2023 Slightly Rebounded to 47.6 SME Conference to Share Market and Business Opportunities in the Guangdong-Hong Kong-Macao Greater Bay Area

(Hong Kong, 7 November 2023) The Hong Kong Productivity Council SME Support (HKPC SME Support) today announced the “Standard Chartered Hong Kong SME Leading Business Index” (“Standard Chartered SME Index”) for the fourth quarter (Q4) of 2023. The Overall Index slightly rebounded by 0.9 to 47.6 this quarter, though still below the 50 neutral line. Three of the five component sub-indices¹ registered increments, including “Profit Margin” (45.4, +3.9), “Business Condition” (47.7, +3.0) and “Recruitment Sentiment” (53.0, +2.0), indicating that small and medium enterprises (SMEs) have expectations for business conditions this quarter. On the contrary, “Global Economy” had been declining since the second quarter (Q2) of 2023, from 48.3 in Q2 to 34.6 this quarter, accumulating a drop of 13.7. This indicates that local SMEs are still facing challenges from the external environment.

“Standard Chartered SME Index” Survey Results
In terms of the 11 industry indices, “Import / Export Trade and Wholesale” (46.7, +5.1) recorded the largest increment. On the contrary, “Real Estate” (39.2, -7.3), “Construction” (42.8, -4.7) and “Retail” (43.2, -3.8) suffered the largest drops, with “Retail” even falling back to the level of the first quarter (Q1) of 2023.

In terms of overall investment trends, 92% of surveyed SMEs indicated that they would maintain or increase investment this quarter, which is on par with the previous quarter. The areas that most SMEs expected to maintain or increase investment included “Training Related to E-commerce or Digital Technology”, “Overall Staff Training”, “Research & Development”, “Offline Marketing Promotion”, and “IT System”.

In terms of the changes in cost components, the proportion of local SMEs expecting raw materials cost to increase had been on a declining trend. Compared with the previous quarter, it further dropped by 12 percentage points to 55%. Similarly, the proportion of SMEs expecting an increase in staff salary fell by nine percentage points to 25%. The findings indicate a slowdown in the cost pressures facing SMEs. On the other hand, only 21% of local SMEs planned to increase the price of their product or service, a further decrease of five percentage points from the previous quarter, indicating that the majority of SMEs are gradually easing the pace of their price increases.

Dr Lawrence CHEUNG, Chief Innovation Officer of HKPC, said, “After the decline last quarter, the index recorded a slight increase this quarter, indicating an overall improvement in business sentiment among SMEs. In terms of industries, ‘Import / Export Trade and Wholesale’ (46.7, +5.1) saw the biggest increase, while the indices of ‘Professional and Business Services’ (+1.7), ‘Information and Communications’ (+0.9), ‘Transportation, Storage and Courier Services’ (+0.9), and ‘Financing and Insurance’ (+0.8) also registered slight increments. This shows that SMEs remain optimistic about their business prospects. In contrast, the index of ‘Retail’ continued to fall (43.2, -3.8), dropping to the level of Q1 2023, indicating that local citizens’ spending intentions have not correspondingly strengthened with the increased optimism. In terms of the external environment, unstable factors such as global economic uncertainties and geopolitical tensions have dampened businesses’ outlook on the ‘Global Economy’, which further dropped to 34.6 this quarter, exerting certain pressures on Hong Kong's further recovery. In the ‘2023 Policy Address’ (Policy Address)² recently released by the HKSAR Government (the Government), a series of measures to stimulate economic growth in Hong Kong are proposed, including establishing an inter-departmental E-commerce Development Task Force and organising ‘Hong Kong Shopping Festivals’ on e-commerce platforms. These measures aim at helping SMEs develop e-commerce business in the Mainland, enhance the awareness of Hong Kong brands and expand the domestic market, all of which will provide support for the business environment.”

Mr Kelvin LAU, Senior Economist, Greater China, Global Research, Standard Chartered Bank (Hong Kong) Limited, said, “The quarter-over-quarter improvement in the Overall Index in Q4 2023 adds conviction to our belief that the Hong Kong economy is reaccelerating after going through a mid-year soft-patch. The modest nature of the rebound (which is still falling short of returning to 50 neutral line), however, is a reminder that SMEs are still facing plenty of headwinds, especially the external ones. The dip in the latest ‘Global Economy’ sub-index falling back below 40 highlights the ongoing worries over weak external demand, high interest rates and lingering geopolitical uncertainties. This, together with local drags such as the struggling property market, has in turn spilt over weak investment appetite. We expect the modest recovery to continue in the coming quarters, mainly supported by the recovery in domestic spending thanks to the tight labour market (as confirmed by a rise in the ‘Recruitment Sentiment’ sub-index to 53.0 from 51.0 in the previous quarter). Fresh supportive initiatives from the recent Policy Address should also help, although that could partly be offset by worries over the Middle East conflict which only started to escalate towards the end of this quarter’s survey period. All this is echoed by the fact that over 50% of the surveyed SMEs consider ‘worse-than-expected economic condition’ as their biggest business challenge in 2024.”

Thematic Survey Results
The thematic survey of this quarter investigated the deployment plan and direction of local SMEs in 2024. The survey found that “worse-than-expected economic conditions” would be the top challenge that local SMEs expected to face in 2024, followed by “increase in cost” and “difficulties in recruitment”. In particular, “low spending intentions among local citizens”, “local citizens spending outside Hong Kong”, and “insufficient tourist arrivals” were found to be the major challenges facing “Retail” and “Accommodation and Food Services”. In response to these challenges, local SMEs put “regaining / increasing local customer base” as their top priority in their 2024 development plan, particularly for “Retail”, “Construction”, “Accommodation and Food Services”, “Professional and Business Services” and “Information and Communications”. Meanwhile, “Manufacturing” showed higher intention to “provide or sell more products or services” and “increase resources to develop overseas markets”.

Dr Lawrence CHEUNG continued, “Although the number of visitors has gradually recovered to a level close to pre-pandemic era, the consumption patterns among Hong Kong citizens have changed, with weekend trips to the Mainland becoming the norm. ‘Retail’ and ‘Accommodation and Food Services’ industries are most directly affected. The thematic survey found that ‘low spending intentions among local citizens’, ‘local citizens spending outside Hong Kong’, and ‘insufficient tourist arrivals’ have posed pressure on SMEs. The Government announced moving ahead with the ‘Northern Metropolis’ as the new growth engine, facilitating cross-border commercial services and cultural and leisure consumption, leveraging on strong boundary commerce functions, which is expected to boost consumption across various industries and improve the business environment. We also look forward to the series of measures to be put forward by the Government under the ‘Development Blueprint for Hong Kong’s Tourism Industry 2.0’ to drive inbound tourist consumption and local consumption. Of course, enterprises should also devise strategies to enhance their competitiveness, such as expanding customer bases, attracting residents to consume locally, and providing more diversified products and services.”

On the other hand, 11% of local SMEs claimed that they would increase the adoption of digital technology in their operational processes in the coming year, with “Administration and Office Support”, “Sales and Business Development”, and “Data Analysis” being the top areas with increased adoption. The survey also gauged local SMEs' awareness of various Government funding schemes available for SMEs. In particular, the “SME Financing Guarantee Scheme”, “Technology Voucher Programme (TVP)”, “SME Export Marketing Fund (EMF)”, “BUD Fund” (Dedicated Fund on Branding, Upgrading and Domestic Sales), and “Enterprise Support Scheme (ESS)” showed higher levels of awareness.

Dr CHEUNG added, “In addition, strengthening the adoption of digital technology is crucial to further enhancing enterprises’ competitiveness. The Government has introduced ‘E-commerce Easy’ in the Policy Address, allowing enterprises to utilise HK$1 million within the cumulative funding ceiling of HK$7 million under the ‘BUD Fund’ to implement e-commerce projects. As SMEs’ strongest backup, HKPC will continue assisting the industry in leveraging advanced technologies and innovative services for upgrade and transformation. Furthermore, HKPC’s ‘SME ReachOut’ has been upgraded to SME ReachOut 2.0³, which has introduced the ‘SME LevelUp Workshops’ to provide e-commerce strategies and marketing consultations to SMEs, actively supporting the development of Hong Kong’s e-commerce. Moving forward, HKPC will continue striving to enhance SMEs’ awareness of various Government funding schemes and encourage them to utilise Government support to elevate their business performance and competitiveness.”

On the same day, HKPC and Standard Chartered Hong Kong also held the SME Conference 2023, entitled “Innovation Empowers: Collaborating for Collective Wins in the Greater Bay Area”. The event had invited Mr Algernon YAU, JP, Secretary for Commerce and Economic Development to deliver the opening remarks, while Hon Sunny TAN, Chairman of HKPC, and Mr Anthony LIN, Chief Executive Officer, Greater Bay Area of Standard Chartered Bank, gave welcome speeches. Mr Yonghui ZHU, Dedicated Deputy Director, Leading Group Office of Guangdong on Construction of the Guangdong-Hong Kong-Macao Greater Bay Area, Mr Alex CHAN, General Manager, Digital Transformation Division of HKPC, together with other business leaders, focusing on the Greater Bay Area (GBA), explored how to demonstrate high-quality development potentials through leveraging the strong economic strength, financial services, economic complementarity, and abundant talent resources. The forum has gained the support of over 30 industry associations from the GBA and Hong Kong, including the Guangdong-Hong Kong-Macao Greater Bay Area Productivity Promotion Service Alliance, Federation of Hong Kong Industries - Pearl River Delta Council, Huizhou Association of Enterprises with Foreign Investment and Zhongshan Association of Enterprises with Foreign Investment, among others. The forum also covered the whole GBA region via WeChat live streaming, fostering mutual benefits and win-win cooperation for SMEs inside the GBA.

Conducted in September and October 2023, the Standard Chartered SME Index Q4 2023 survey successfully interviewed 822 local SMEs. The report will be available for download from HKPC website: https://www.hkpc.org/en/about-us/hkpc-publication/industry-insight/scbi.

To learn more about HKPC’s smart solutions to help enhance the productivity of SMEs with advanced technology in achieving Make Smart Smarter, please visit the dedicated webpage: https://smarter.hkpc.org/en/.

¹The five sub-indices include “Recruitment Sentiment”, “Investment Sentiment”, “Business Condition”, “Profit Margin” and “Global Economy”.

²Source: “2023 Policy Address” Support Small and Medium Enterprises to Embrace Challenges https://www.policyaddress.gov.hk/2023/en/p69.html

³Source: Government launches enhanced services of “SME ReachOut” https://www.info.gov.hk/gia/general/202310/10/P2023101000176.htm?fontSize=1

- Ends -

At the Press Conference of the “Standard Chartered SME Index” Q4 2023, Dr Lawrence CHEUNG, Chief Innovation Officer of HKPC (left) and Mr Kelvin LAU, Senior Economist, Greater China, Global Research, Standard Chartered Hong Kong (right) announced that the Overall Index rebounded slightly by 0.9 to 47.6 this quarter.

Mr Algernon YAU, JP, Secretary for Commerce and Economic Development, the HKSAR Government (middle), Hon Sunny TAN, Chairman of HKPC (left), and Mr Anthony LIN, Chief Executive Officer, Greater Bay Area, Standard Chartered Hong Kong (right) officiated the SME Conference 2023 – “Innovation Empowers: Collaborating for Collective Wins in the Greater Bay Area”.