Businesses in Hong Kong are cautiously optimistic that the worst may be behind them, according to the latest findings from the Chamber’s annual Business Prospects Survey, with 40% of respondents expecting an increase in turnover in 2023 (Figure 1), compared to 60% who expect business to be worse or the same.
Although this is an improvement, readers should be mindful that 2022 has been an extremely difficult year for businesses as they are still trying to shake off the devastating effects brought on by the fifth wave of the Covid pandemic, which has plunged the city’s economy into three consecutive quarters of contraction since the beginning of the year.
For the first 10 months of 2022, nearly two-fifths (38%) of the 357 respondents said that their business turnover had decreased compared to the same period last year (Figure 2). Only 29% said their performance had increased, while 33% asserted that there had been no change.
Almost three years since the pandemic struck, a return to normalcy appears to be quite distant, with 40% of respondents anticipating a reduction in business turnover in 2023 compared to pre-pandemic levels (Figure 3). This jibes with the economy’s performance, which is now 4.4% smaller than that in 2019.
Understandably, businesses continue to fret over restricted cross-border travel with such concerns climbing to 4.3 (the maximum rating is 5) this year compared to last year’s 4.1 (Figure 4). Retaining experienced staff is especially challenging for larger corporations, with “brain drain” identified as the second most important issue. For SMEs, social-distancing restrictions and inflation were cited as bigger challenges as they struggle to stay afloat amidst a choppy economic environment.
Unless Hong Kong re-connects with the rest of the world, the economy is unlikely to make a meaningful recovery. This sentiment is shared by an overwhelming majority (94%) of respondents, who either agree (75%) or somewhat agree (19%) that normalizing cross-border travel with the Mainland and rest of the world should be the top priority for the SAR Government.
Business sentiment on recruitment remains largely unchanged with those preparing to expand their workforce over the next 12 months dropping slightly to 34% from 35% a year ago (Figure 5). Big corporations are more bullish, with 42% planning to hire more staff in Hong Kong, compared to 28% for SMEs.
While companies may be keen to hire, such plans are likely to be frustrated by a steadily shrinking labour pool, which is effectively pushing up wages. Although the Chief Executive has made attracting talent a top priority in his maiden Policy Address, more than half (55%) of respondents felt that his proposals – which include such measures as granting two-year visas to workers with an annual salary of over HK$2.5 million – did not go far enough, with 16% indicating that both existing and new measures were not sufficiently comprehensive. An additional 39% also shared the same view, although to a lesser degree.
Meanwhile, rising interest rates, weakening global demand, and continuing – albeit a gradual relaxation of – local restrictions are contributing to a pause in investing in Hong Kong, with only 16% of those polled planning to put up additional capital, which is more or less similar to the 17% recorded a year ago (Figure 6).
In contrast, the Greater Bay Area (excluding Hong Kong) continues to be a favoured investment destination. Among respondents already operating in the region, 34% said they would increase capital investment over the next 12 months (Figure 7). This compares to 26% planning to expand their presence in the rest of the Mainland (Figure 8).
Notably, the Government has recently downgraded its full-year GDP growth forecast to -3.2%, which is considerably worse than the previous estimate of between a contraction of 0.5% and 0.5% expansion. Getting the economy back on track will necessarily involve re-mobilising investment and getting people back to work. While the latest Policy Address has taken positive steps to address these and the many other challenges facing Hong Kong, it will take time for the benefits to trickle through. Until then, the city will struggle to recover its footing.
About the survey
A total of 357 companies responded to the Chamber’s survey conducted from 7-11 November 2022. The largest group of respondents (25%) were professional and business services, followed by traders (15%), and manufacturing (11%).
Wilson Chong, [email protected]