Policy Statement & Submission

30 July 1998
The Honorable C H Tung
Chief Executive
The Hong Kong Special Administrative Region
5/F, Main Wing, Central Government Offices
Lower Albert Road
Central
Hong Kong

Re: Chamber Letter to Chief Executive on SME matters
Dear
I am writing to you as the Chairman of the Hong Kong General Chamber of Commerce. Over 70 percent of the Chamber's 4000-strong membership, as you perhaps know, are Small and Medium-sized Enterprises (SMEs). In recent meetings with the SMEs organized by the Chamber's SME Committee, the Chamber has found that there are real fears that SMEs with their scarce resources will become less capable of dealing with the problems brought on by the serious Asian financial crisis. Some SMEs find their difficulties bordering on bankruptcy, while others find their profits greatly reduced. They have some common complaints, and I am forwarding these complaints to you in the hope that the government takes note of their concerns. SMEs form the backbone of Hong Kong business, and you can see from these entrepreneurs' sentiments below that they are frustrated and looking to the government for support and leadership.

Although difficult to quantify, the principal problems plaguing SMEs identified by the Chamber SME Committee can be grouped into four categories. These are issues relating to: (1) Government, (2) Operating Environment, (3) Cost and (4) Human Resources and are dealt with in Part I below. Part II outlines the recommendations by the Committee on how the SAR Government can help SMEs better manage their problems.

Part I: Priority Issues
Government: Since the onset of the currency turmoil, it was felt that the SAR Government had been slow to react initially. While recognising that Hong Kong is a victim of the regional financial crisis, the Chamber's SMEs believe this allowed the problem to exact a heavier toll on the SAR than was really necessary. On the other hand, there is an uneasy feeling that government has become more inclined to over-regulate which has in turn interfered with market forces, the property-sector being a prime example.

Operating Environment: Already operating in one of the world's most challenging business settings, local SMEs are facing even harsher conditions brought on in the wake of the Asian economic downturn. Amidst waning economic confidence and reduced consumer spending, these small business operations are suffering from the knock-on effects of increasing competition, plummeting business and margins, and diminishing cashflow. These have been compounded by lending policies of many banks which have until now formed credit opinions on the basis of property values. As property prices have fallen substantially, these have in turn caused credit lines to shrink. On top of these problems, there is the added concern of the future Millenium Bug problem and the current airport cargo problem.

Cost: The SMEs feel that the sharp drop in revenue across all sectors has not been matched by a comparable fall in the cost of doing business. Concessionary reductions or the freezing of rents and fees and charges, although welcomed, do not go far enough in providing meaningful relief to SME operators. The same applies to wages and interest rates. As for the impending introduction of the Mandatory Provident Fund, while most owner-managers fully support the intentions and principles behind the scheme, they worry about the effect of further frustrating the efforts of companies implementing or planning cost-cutting measures.

Human Resources: The inability of the existing education system to respond to the changing economy has meant the SAR has continued to suffer from a mismatch of jobs to skills. The shortage in skilled workers, as in the IT sector, relevant and critical to Hong Kong's market needs has continued to hamstring the growth of domestic SMEs whether in good times or bad. Other than the capability to discharge their assigned duties satisfactorily, it is also important that workers display the right attitude and are instilled with the proper work ethics which very often determine the quality of their output. These have largely been deteriorating during the boom years due to high staff turnover.

Part II: How Government can PROVIDE A BETTER ENVIRONMENT FOR THE SMEs TO COMPETE MORE EFFECTIVELY
Suggestions on where Government could play a part can be divided into four areas. These include:

Government

(1) Improving the government's crisis management skills. (2) Finding ways of raising efficiency and productivity. (3) Conducting better and more extensive PR in Hong Kong.

Industrial Support

(1) Investing resources in assisting trade-related sectors to export more during the current downturn. (2) Providing cheaper industrial land. (3) Attracting professional and skilled talent from China and elsewhere. (4) Crafting a concise industrial policy which nurtures value-added manufacturing and higher technology.

Regulations

(1) Deregulating public monopolies. (2) Toning down market intervention. (3) Removing all existing restraining measures on the property market.

Reduction of Business Costs

(1) Reducing charges by public sector bodies while raising the quality of their services. (2) Freezing or rolling back government fees and charges. (3) Bringing down and/or stabilising interest rates. (4) Looking closely at a more appropriate moment to begin the implementation of MPF.

Although this letter by no means contains an exhaustive list of issues defined and actions recommended, the Chamber's SME Committee feels that the items raised in the letter form the main substance of the problems faced by Hong Kong's SMEs. To effectively address these needs, the Chamber SME Committee advocates a strategic, comprehensive and continuous approach to resolving problems experienced by SMEs rather than on a piecemeal basis. Therefore, there is the need for government to formulate a formal policy for SME development, providing a sounder infrastructure for the Hong Kong SMEs to thrive once again.

I wanted you to personally receive these frank comments by our SME members as you deliberate government policy during this difficult period. I believe it would be useful for the government and the SMEs if the Chief Secretary for Administration or the Financial Secretary could meet with the leadership of our Chamber's SME members to hear first-hand their urgent concerns and needs. I hope that such a meeting can be arranged in the near future.



Yours sincerely,



Peter Sutch
Chairman


c.c. The Hon Mrs Anson Chan, Chief Secretary for Administration
The Hon Donald Tsang