Back during the 2008 global financial tsunami, many people thought that they were witnessing a once-in-a-century crisis. Few could have anticipated that they would see another one so soon, and one that could be more devastating in many aspects. The Covid-19 pandemic has had a huge impact on businesses in Hong Kong and globally, and a return to normality is still some distance away.
In its latest economic outlook report released in December, the Organisation for Economic Cooperation and Development estimated that the global economy would shrink by 4.2% in 2020.
In Hong Kong, the economy contracted by 7.2% year-on-year for the first nine months of 2020 after a 1.2% decline in 2019, shrinking to the same level – adjusted for inflation – as 2016. At the time of writing, the city is enduring a fourth wave of coronavirus infections and consequently has been forced to tighten social-distancing restrictions again.
After experiencing another turbulent year, many businesses in Hong Kong, big and small, have found it difficult to make plans amid high uncertainty about the pandemic situation, and they have remained cautious in their business outlook. This is one of the key takeaways from the Chamber’s annual Business Prospects Survey, which was conducted during 9-13 November.
For the first ten months of 2020, nearly two-thirds of the survey respondents said their business turnover had declined compared to the same period in 2019, versus 26% who said there had been no change and 12% whose turnover had risen (Figure 1). It is worrisome to learn that one out of five respondents said their turnover had plunged by at least half during the period.
Border and social restrictions due to Covid-19 were the two more important factors affecting respondents’ business operations, compared to local social unrest and the Sino-U.S. tensions (Figure 2).
The availability of effective vaccines could prove to be a game changer for the battle against the pandemic. However, despite breakthroughs in vaccine procurement, we are going to live with Covid-19 for some time as the immunization programme in the city may only be completed by the end of 2021 at the soonest.
When asked about their expectations for the business prospects trend in Hong Kong over the next 12 months, 40% believed that it would turn negative, while one-fourth expected positive and 15% said there would be no change (Figure 3). This pessimism clearly has implications for their business plan in 2021, which will be discussed later in this article.
Disruptions to cross-border activities due to the ongoing pandemic was considered the major challenge over the next 12 months, so the containment of Covid-19 and reopening the borders as soon as possible should be able to boost business sentiment. This was followed by Hong Kong’s narrowing advantage over Mainland and surrounding cities as economic policy lags behind (Figure 4).
Regarding their business plans, survey respondents were reluctant to expand their Hong Kong operations. Over half (55%) of them planned to maintain headcount in Hong Kong and only one-fifth planned to increase (Figure 5). As to staff pay, the same proportion (55%) planned to freeze it in general (Figure 6).
A similar situation can be seen in capital investment plans in the city (Figure 7) while the picture was more bullish for the Greater Bay Area (GBA). Among those that already have capital investment in the region, half of the respondents said they would further expand in the GBA (excluding Hong Kong) over the next 12 months (Figure 8).
While the Covid-19 pandemic has disrupted our daily lives and the broader economy, it also brings some welcome changes. Most prominent is perhaps the accelerating adoption of digitalization. For those previously comfortable with more traditional ways of doing business, the crisis and the associated social restrictions have served as a wake-up call for them to rethink how to adapt in order to survive.
A combined 58% of respondents said they would be likely or very likely to make a major investment in digitalization over the next 12 months (Figure 9). This proportion rose to 72% for big corporations that are likely to have more financial resources.
Over half (55%) of respondents said they would allow employees to work remotely, at least some of the time, after the Covid-19 pandemic is over (Figure 10). The impacts of digitalization on productivity and employment in the long run, however, are less clear and remain to be seen.
Undoubtedly, the business prospects of Hong Kong in 2021 will depend heavily on whether the pandemic can be brought under control without a significant compromise on economic activity, as well as progress in vaccination roll-out.
The Government has unveiled a series of relief measures including the Employment Support Scheme to help people and businesses pull through the pandemic. However, as this scheme, which subsidized wages for a six-month period, expired in November, the real tests for many businesses are yet to come.
Wilson Chong, [email protected]