HKPC Unveils the Q4 2024 “Standard Chartered Hong Kong SME Leading Business Index” Index Shows Remarkable Rebound Across Sub-indices

(Hong Kong, 7 November 2024) The Hong Kong Productivity Council (HKPC) today announced the “Standard Chartered Hong Kong SME Leading Business Index” (“Standard Chartered SME Index”) for the fourth quarter (Q4) of 2024. The Overall Index increased by 3.2 to 45.7 from the previous quarter, returning to the level in Q3 2023. Three of the five component sub-indices1 showed significant growth, including “Profit Margin” (41.9, +6.8), “Global Economy” (36.2, +6.7) and “Business Condition” (44.3, +4.9), and rebounded the level recorded in Q2 2024. “Recruitment Sentiment” recorded a slight increase (50.6, +1.0), while “Investment Sentiment” (48.9, -0.1) remains near to the 50 neutral line, reflecting SMEs’ optimistic yet prudent outlook towards investment.

“Standard Chartered SME Index” Survey Results
In terms of the 11 industry indices, except for “Professional and Business Services” (43.7, -2.3) and “Construction” (43.5, -1.5) recording slight declines, the remaining 9 industries experienced a rebound in growth. Among them, “Accommodation and Food Services” (49.0, +9.4), “Real Estate” (44.2, +6.9), “Information and Communications” (53.0, +5.1) and “Transportation, Storage and Courier Services” (44.5, +5.1) had the most significant increases.

In terms of overall investment trends, 93% of surveyed SMEs indicated they would maintain or increase investment this quarter, a slight increase from the previous quarter. The areas that most SMEs expected to maintain or increase investment included “IT Systems”, “Training Related to E-commerce or Digital Technology, “Overall Staff Training”, “Research and Development”, “Facilities and Equipment”, and “Online Marketing Promotion”.

In terms of the changes in cost components, SMEs anticipate a slowdown in cost increment. Only 50% of local SMEs expect the cost of raw materials to increase, a drop of 7 percentage points compared to the previous quarter. Additionally, the proportion of SMEs expecting an increase in staff salary has continued to decrease since Q2 2024, falling to 19% this quarter, fell by 8 percentage points from the previous quarter. On the other hand, most SMEs consider maintaining stable prices of their products, while only 16% of them planned to increase the prices of goods and services, a decrease of 3 percentage points from the previous quarter.

Dr Lawrence CHEUNG, Chief Innovation Officer of HKPC, said, “The Chief Executive announced a series of policies to support local SMEs in the 2024 ‘Policy Address’, including injecting HKD$1 billion into the ‘BUD Fund’ administrated by HKPC, expanding the geographical funding scope of ‘E-commerce Easy’ to include ten ASEAN countries and supporting the digital transformation of SMEs on a one-to-one basis. This can create a favourable business environment that is conducive to the development of SMEs, create new opportunities, and promising to strengthen the position of SMEs in the local economy.”

Mr Kelvin LAU, Senior Economist, Greater China, Global Research, Standard Chartered Bank (Hong Kong) Limited, said, “We are encouraged by the latest rebound in the Standard Chartered SME Index. We believe the 3.2 increment quarter over quarter was in part boosted by the major policy pivots in the US Fed with its jumbo rate cut in September and China’s outsize monetary and fiscal stimulus package. This is supported by the 6.7 rise in the ‘Global Economy’ and the 9.5 increase in ‘Accommodation and Food Services’, in hope of a stabilising China story boosting mainland visitor spending and the 6.9 increase in ‘Real Estate’ as the interest rate cycle finally turns into a tailwind. However, the Overall Index remains below the average of the last two years (46.4). That said, it looks to take a lot more positive news and the removal of US election uncertainty, to turn SME sentiment around for good. Other than ‘Recruitment Sentiment’ and ‘Information and Communications’, all sub-indices also remained below the 50 neutral lines. The absence of a quarter over quarter improvement in ‘Investment Sentiment’, in particular, is a reflection of SME needing further policy support and additional external tailwinds to lift their still-cautiousness longer-term business outlook.”

Thematic Survey Results
The thematic survey results of this quarter investigated the objectives and challenges faced by Hong Kong SMEs in “Environmental, Social and Governance” (ESG). The survey results showed that in the past two years, the awareness of ESG amongst local SMEs has increased significantly, more than doubling compared to Q1 2022 (38%, +22 percentage points). Most surveyed SMEs would identify ESG as “Environmental Protection” (94%), followed by “Social Responsibility” (75%), “Corporate Governance” (45%), and “Care for Employees” (37%), highlighting a greater focus of “Environmental” aspect among three areas of ESG (“Environment”, “Social”, “Governance”). In terms of the level of attention towards ESG, more than ninety percent (97%) of surveyed SMEs expressed it has either increased or remained unchanged compared to the previous year, particularly in the “Social and Personal Service”, “Finance and Insurance” and “Import/Export Trade and Wholesale”, which indicates a global trend towards a green economic transformation. As for the areas of concern, over seventy percent (71%) of SMEs surveyed were concerned about at least one of the areas under ESG, namely “Resources and Recycling” (38%), “Occupational Health and Safety” (33%), “Consumer Protection and Product Responsibility” (29%), “Carbon Reduction and Climate Change” (24%) and “Business Ethics and Whistleblowing” (24%).

However, the survey results showed that only around ten percent (9%) of SMEs surveyed have set ESG objectives, mainly focusing on “Reducing Carbon Emissions” (65%), “Reducing Energy/Resource Consumption” (63%) and “Promoting Social Responsibility” (48%). In addition, among SMEs that have set ESG objectives, 76% said that they will share these objectives with stakeholders, with over half of them (51%) will share externally through “Company Reports” (32%), “Company Website” (30%) and “Social Media” (17%). Nearly forty percent (37%) of SMEs will opt to share their ESG objectives with their employees internally through intranet. About half (46%) would review the gap between their ESG practices and industry standards, taking measures such as “Completing ESG Assessments” (23%), “Participating in Awards” (21%), “Signing Charters” (20%) and “Obtaining External Certifications” (20%).

Regarding the benefits of implementing ESG, all (100%) SMEs that have set ESG objectives believe that this can bring benefits to the company, which includes “Enhancing the Company/Brand Image”, “Complying with Government/Regulatory Requirements”, “Enhancing the Company’s Competitiveness”, “Meeting Current Customer Expectations” and “Reducing Operation Costs”.

On the contrary, 91% of surveyed SMEs stated that they have yet to set ESG objectives. The main reasons include “Lack of Request from Customers” (42%), “Prioritising Business Objectives” (34%), “Lack of Expertise” (34%) and “Concerns on Increase Costs” (30%).

Meanwhile, over ninety percent (96%) of surveyed SMEs indicated that they encountered challenges when implementing ESG initiatives, primarily because of “Insufficient Manpower of Funding” (59%), “Employees Lack Adequate Knowledge/Do Not Know How to Start” (56%), “Lack of Clear Guidelines” (45%), “Unaware of Available Innovative Technologies” (32%), and “Adjustments to the Ever-changing Market Standards” (31%).

Dr CHEUNG continued, “The Government is proposing targeted funding to support businesses in green transformation projects, encouraging the adoption of environmental technologies and sustainable development practices. ‘Sustainable development’ has become a highly prominent issue in recent years, with green development being a key factor in the evolution of new productive forces. In the current business landscape, ESG is increasingly becoming a crucial framework for evaluating corporate performance and value. SMEs should consider seeking professional consultation when they encounter challenges in implementing ESG. HKPC recognises the needs of SMEs in ESG implementation, thus initiated ‘ESG One’ earlier this year as one of our six comprehensive support strategies for SMEs. ‘ESG One’ provide members with free online ESG self-assessment tools, enabling SMEs to identify their strengths and uncover opportunities for improvement promptly. By assisting SMEs in setting specific ESG objectives and strategies, HKPC aims to lead the way in promoting the development of green business model and collaborate with industries to build an ESG ecosystem.”

Conducted from September to October 2024, the Standard Chartered SME Index Q4 2024 survey successfully interviewed 817 local SMEs. The report will be available for download from HKPC website: https://www.hkpc.org/en/about-us/hkpc-publication/industry-insight/scbi.

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

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At the press conference of “Standard Chartered SME Index” Q4 2024, Dr Lawrence CHEUNG (left) and Mr Kelvin LAU, Senior Economist, Greater China, Global Research, Standard Chartered Hong Kong (right) announced that the Overall Index increased 3.2 to 45.7.