The Hong Kong economy, which contracted by 1.2% last year due to a double whammy of the Sino-U.S. trade war and social unrest, is currently being battered further by coronavirus-related disruptions.
In order to measure the impact of the coronavirus outbreak on members’ business, the Chamber conducted a survey during 16 - 20 February. The results have portrayed an extraordinarily challenging environment for businesses.
A combined 91% of the survey respondents said their business activities in Hong Kong had either been significantly (54%) or moderately affected (37%) by the coronavirus outbreak. Only 1% said they had not been affected (Figure 1).
When asked about how the coronavirus had affected their investment and hiring plans in Hong Kong this year, a majority of respondents said they have become more cautious.
59% of respondents said their investment in the city this year would be less than originally planned, while 34% said the same as planned. Similarly, 59% said their hiring this year would be less than originally planned, while 33% said same as planned (Figure 2).
Many of our members do business across the border, and 69% of respondents said they had business operations in the Mainland. Among these, a combined 94% said their business activities there had either been significantly (58%) or moderately affected (36%) (Figure 3).
The picture for Mainland investment was similar to Hong Kong, with 60% of respondents running businesses in the Mainland saying their investment there this year would be less than originally planned, while 32% said same as planned. Similarly, 60% said their hiring this year would be less than originally planned, while 33% same as planned (Figure 4).
The coronavirus epidemic has affected the “top line” of most companies surveyed. A large majority of 88% of respondents said their business turnover had dropped due to the outbreak, versus 10% who said there had been no change and 2% whose turnover had risen (Figure 5). Among those with turnover dropped, 39% of them said it had plunged by at least 50%.
In this connection, 81% of respondents had adopted contingency plan. Among them, a reduction in or cancellation of business activities and meetings, additional hygiene measures in offices, and employees working from home were most commonly adopted (Table 1).
Maintaining sufficient liquidity and ensuring employees’ health appear to be the key concerns for businesses. As such, 31% of respondents said tax concessions would be the most useful Government measure that could support their business. Providing protective gear was chosen by 17% of respondents while 16% said low-interest or interest-free loans (Figure 6).
Since early 2018, two of the four pillar industries in Hong Kong – trading and logistics, and tourism, which accounted for a combined 25.7% of the city’s GDP in 2018 – have been hit particularly hard by internal and external challenges.
As an externally-oriented economy with close trade relationships with both Mainland China and the U.S., Hong Kong continued to feel the pain of the trade war. In 2019, merchandise exports and imports fell by 4.1% and 6.5% respectively.
Meanwhile, the social unrest took a heavy toll on tourism-related sectors. Total tourist arrivals dropped more than half in the last two months of 2019, and were down by 14.2% for the full year. The overall hotel occupancy rate dropped from 91% in 2018 to 79% in 2019, a level not seen since 2009.
Consequently, the value of total retail sales in the city was down by 11.1% in 2019 over 2018. The value of sales of jewellery, watches and clocks, and valuable gifts – a yardstick for spending by Mainland tourists and accounting for one-sixth of total retail sales in the city – plummeted 22.4%. As these are average figures only, individual businesses in some districts were affected to an even larger extent.
The overall unemployment rate has already risen from 2.8% at the beginning of 2019 to 3.4% in January, its highest level since November 2016. The unemployment rate for the retail, accommodation and food services sector, rose from 3.5% to 5.2% during the same period. As the coronavirus outbreak persists, and begins to affect more economies worldwide, many other sectors have started to feel the pain as well.
There is little sign of an economic recovery in the near term. In 2003, a speedy economic recovery, partly aided by the introduction of the Individual Visit Scheme for travellers from the Mainland, started as soon as the outbreak of SARS began to recede. However, even if the outbreak of coronavirus subsides in the coming months, consumer spending and business investment may remain under pressure amid uncertainty related to the trade war and social unrest.