Policy Statement & Submission

This paper endeavors to address some of the issues affecting the territory's small and medium businesses and the means by which their future may be secured and enhanced.

General Principles
The Hong Kong General Chamber of Commerce maintains as its first principle of government-business relations that the role of Government to provide a business friendly environment.

This includes the provision of a level playing field for all companies, regardless of size, to enable them to compete fairly and on an equal footing.
The Chamber recognises that the limits imposed by their individual resources and bargaining power (although not as a group), may require that Small and Medium Enterprises (SMEs) receive attention from Government, semi-autonomous government bodies and trade associations in nurturing their growth and development.

Since the Government has established a Small and Medium Enterprises Committee, the Chamber, through its own SME Committee, believes it can offer advice on key issues concerning small businesses.

A Business Friendly Environment
The Hong Kong General Chamber of Commerce welcomes the Government's recent re-commitment to the maintenance and enhancement of a business friendly environment for Hong Kong. This is effectively a commitment to those key attributes which have made Hong Kong a regional and global business: a free port, free trade and free enterprise.

They also include the rule of law; a low, simple and clear tax regime focussed on domestic sourced income; a clear and efficient civil service; a balanced relationship between business and Government; and a well-educated, strongly motivated and affordable workforce. These basic tenets of Hong Kong's economic and commercial success should not be tampered with.
Located centrally in the fastest growing region of the world, Hong Kong is faced with a rapidly changing and more open international trade environment which offers great opportunities on the one hand, but increased competition and escalating operating costs on the other. To meet domestic as well as regional challenges, we suggest:

· Government policies and practices should be constantly reviewed to create a business-friendly environment and to relieve business of over-regulation and unnecessary bureaucracy.

· Legislature should avoid enacting laws that dampen the free enterprise spirit and burden business with increased operating cost.

· In view of the changing economy, any industry support initiatives from Government need to focus on higher value added processes and to develop knowledge intensive industry. Government must retain minimum intervention, maximum support for business in the new industrial landscape.

· The airport, port, railway, and road systems as well as land use planning and development contribute substantially to our competitiveness, Government must continue to improve Hong Kong's physical infrastructure to sustain trade and economic growth.

· Equally important, Government must encourage and support the development of human resource skills in Hong Kong. Education and skills training programmes must have a closer match with the expectations of society to allow Hong Kong people to compete favourably in the region and indeed, the world.

· Hong Kong's long term and continuing prosperity and quality of life are of vital importance to the business community. Appropriate and affordable environmental policies are therefore a key to future growth.

· Government should reinforce its principle of not competing with the private sector in business by transferring services to the business sector where market conditions make this possible.

The Role of Costs
The two biggest difficulties facing small and medium sized businesses in Hong Kong in the past decade of restructuring of the economy away from manufactures to higher value added services have been the rapid escalation in property rents and real wages.

The problem for small and medium sized businesses producing and selling their goods and services into the local market has been particularly acute as it has been for all those businesses, big or small, faced with a Hong Kong sized cost base but needing to still compete on the world market against firms with much lower costs.

The Government can, however, play a role by taking the lead in moderating wage increases in the civil service, keeping non-wage benefit requirements to a bare minimum and by taking a more restrained approach to land premium demands, and reducing bureaucracy and red tape for all businesses.

An SMEs Policy
Despite the paramount importance of a level playing field for business, the Chamber believes there is some room for policy initiatives to aid small and medium sized business grow and develop within the Hong Kong business environment.

These policy initiatives would effectively be available to all businesses regardless of size, but because of their nature the benefits to SMEs would be commensurably higher.

Their development need not be confined to Government bodies. Trade associations could and should be encouraged to also provide even greater support and a greater range of services especially attractive to SMEs.
In particular, they would be aimed at overcoming to some extent the relative limitations which SMEs may have in organisational power, management skills and expertise, resource development support, information access and financing business growth and development.

These should include:
Cutting Red Tape
Small and medium sized businesses tend to be hit more heavily by the demands of Government in terms of licences, approvals and fees and charges for Government services than do larger businesses.
The Chamber therefore welcomes and supports the Helping Business Programme including the objectives of cutting red tape and eliminating over-regulation; reducing the cost of compliance and enforcement, transferring services out of the public sector and introducing new services.

The Government should also ensure that the task forces and its outlined action plans to be conducted under the auspices of the Efficiency Unit are carried through It should quickly complete the pilot studies in this programme and accelerate the expansion of the programme throughout Government.

Ensuring Steady Growth, Low Inflation
Government should continue with its policies of ensuring steady growth in the economy with low consumer price and asset price inflation, and ensuring moderate and affordable rises in real wages (including those in the Civil Services) and other benefits.

Steady growth and overall costs control are vital to the maintenance of a healthy small and medium sized business sector.

Human Resources Development
Apart from quantitative achievements in the education system, the aim must be to provide a sufficient number of high quality graduates for business in general and small and medium sized businesses in particular.
Skills training must be brought up-to-date and meet the current and future need of the society. The Government should help SMEs by encouraging training courses tailored to requisite job skills through trade associations, appropriate institutions and "on-the-job" training.

In this regard, Government could, for example, provide matching grants for approved training courses offered by trade organisations and appropriate institutions which would be used to relieve part of the financial burden for SMEs in staff training.

Information Access
The collection, processing and utilization of relevant information is of vital importance to businesses. Usually, SMEs find it difficult to gather the information they need on Government policies, technology, markets and potential business partners. Existing facilities may be too expensive to tap into or too diverse to be effective.

The Chamber welcomes the Government's establishment of a "One Stop Shop" Business Licence Information Centre. It also should establish an Information Access Centre to provide a one-stop-shop information service that is accurate, user-friendly and of high quality.

Trade organisations should be encouraged to further develop the use of electronic systems amongst SMEs and communicate with their members by means of electronic tools.

Technology and R&D
Along with education, technology is the key to future development. Return on investment for R&D in technology is longer and therefore has not been pursued enthusiastically in Hong Kong.

A scheme of sharing risks in the form of financial incentives from Government might be introduced to raise the willingness amongst entrepreneurs to invest in R&D. This policy is of course not company size specific but company activity specific.

Government should encourage as a high priority the clustering of high value added and technology based industries to form a critical pool of labour, specialists and management.

Financing
SMEs tend to have more difficulty attracting appropriate finance than do large enterprises, and may not have adequate information on the various sources and mechanisms and the required collateral to secure finance for their business.
Government should identify ways to improve the financing environment for SMEs and to reduce SME financing costs. This could include the further cultivation of the venture capital industry in Hong Kong and the promotion of access to international venture capital.

More than anything else, however, there needs to be a better information system to bring the full variety of finance providers together with small businesses in need of additional finance.

Market Access
Market access is critical to the globalisation efforts of SMEs and their ability to take full advantage of the new free trade setting under the WTO. Government should continue vigorously to press for further trade liberalisation in the WTO as well as in the APEC.

Trade missions and exhibitions help to promote Hong Kong's image, enhance mutual understanding and business ties between Hong Kong and overseas buyers/suppliers, and obtain more information on overseas markets which would benefit industries in Hong Kong.

A further portion of the trade and valorem tax might be dedicated to the partial financing of outgoing trade missions and exhibitions organised by the TDC and trade organisations which enable participants to gain accurate and timely information on foreign markets, market opportunities, cultural and business practices and regulations specific to these markets.

Company Law Reform
The Chamber welcomes the Government's Review of the Companies Ordinance, including the appointed Reviewer's examination of how the Ordinance may be made more "user-friendly" for Small and Medium sized enterprises and the burdens of compliance with the Ordinance by SMEs can be reduced.
Government should, in its Company Law Reform exercise, consider what provisions of the Ordinance are material to smaller companies, with a view to reducing unnecessary regulation and compliance costs. In particular, the necessity for at least two shareholders and two directors for small companies should be reviewed.

Future Concerns
The Chamber has noted the relative mobility of business investment and labour and believes that future actions by Government must be monitored vigorously to ensure that they are not disadvantageous to small businesses.
Hong Kong must be careful that new initiatives, such as restrictions on imported labour (the Supplementary Labour Scheme), mandatory pension schemes and anti-discrimination laws, do not become oppressive burdens for small and medium sized businesses.

In particular, the Chamber is concerned that such initiatives should not create a non-competitive investment and employment environment for SMEs. Not to do so would be to run the risk of encouraging the move away from SMEs to larger companies and/or the general decline of SMEs in Hong Kong.