Business sentiment in Hong Kong continues to improve, according to the findings of the Chamber’s annual Business Prospects Survey, with 45% of respondents indicating they expect business turnover to increase in 2022.
For the first 10 months of 2021, 75% of the 320 respondents said that their business turnover had remained stable or improved compared to the same period last year. Of these, 40% said that it had increased, while for 35% it had remained the same.
The improvement in business confidence is likely due to Hong Kong’s success in containing the pandemic, and optimism over the expected reopening of the border with Mainland China.
However, it should be noted that improvements in this year’s results are especially significant due to a low base effect in 2020, when the pandemic first hit and before vaccines were available. Another reason for a tempering in optimism is the fact that the pandemic is quite rampant in other locations. This has allowed mutations to take place with the emergence of new omicron variant at the end of November. A return to normalcy therefore remains quite distant.
Although most respondents anticipated business turnover next year would either remain at current levels or increase, a significant minority – 32% of respondents – anticipated a decrease in business turnover in 2022 compared to pre-pandemic levels.
Reduced cross-border travel remains the primary concern for businesses and this worry has escalated in intensity compared to a survey conducted by the Chamber in July. The loss of talent has overtaken restrictive social-distancing measures as the second biggest impediment facing businesses, notably for larger corporations.
SMEs, meanwhile, are particularly vulnerable to the impact of measures such as social-distancing rules because they are less able to access finance to tide them over more difficult times.
On a positive note, more businesses are planning to increase their workforce over the next 12 months, with respondents in this category rising to 35% from 21% a year ago. Investment sentiment remains cautious, with only 17% of those polled planning to put additional capital in Hong Kong, compared to 14% a year ago.
This cautionary sentiment could have a longer term impact on Hong Kong, as underinvestment tends to have a lasting effect on productivity, an important catalyst of growth and competitiveness.
In contrast, the Greater Bay Area (excluding Hong Kong) continues to be an attractive investment destination. For respondents that already operate in the region, 42% said they would increase capital investment over the next 12 months. This compares very favourably to plans for capital investment (30%) in the rest of the Mainland.
Businesses are generally positive about the Northern Metropolis plan announced by the Chief Executive in her recent Policy Address. This project will see a new urban area – including businesses, technology development and residential – built along the border with the Mainland. A majority (63%) of respondents to our survey said they believe this plan is likely (44%) or very likely (19%) to improve Hong Kong’s competitiveness.
However, there are questions over the project’s execution as “delays and overruns” was identified as the top concern, followed by reservations (“unable to achieve stated benefits”) and the price tag (“too costly”) of the undertaking. It is hoped that the Government will ensure efficiency and transparency as the project gets under way, to address these concerns and ensure the plan fulfils its potential.
The Chamber has also recently unveiled its 2022 economic forecast, which predicts real GDP to grow by 2.8% and a headline inflation of 2.2%. With the economy back on its feet in many regards, we expect growth to moderate next year. Critical to sustaining such growth, and enabling businesses to prosper, will be a resumption of cross-border activities in particular, and a wider relaxation of the city’s travel restrictions.
Wilson Chong, wilson@chamber.org.hk