The risks are high if SMEs are opening up overseas markets on their own. As such, it is the responsibility of the HKSAR Government to assist businesses to tap into new markets.

SMEs have always been the pillar in Hong Kong’s economic growth. They are present in every sector and their impact on the economy is not to be overlooked. In times of economic prosperity, Hong Kong’s 340,000 SMEs generate ample job opportunities for the employment market and contribute significantly to our GDP. Yet, when the external environment turns unstable while operation costs continue to escalate at home, SMEs bear the brunt.

While the Hong Kong economy grew quite favorably and the Government has continued to step up support for SMEs over the past few years, initiatives have been rather conformant and passive. For example, the Government has done very little aside from regularly injecting money into various SME development funds, extending the application periods for the special incentives under SME financing schemes and raising the funding ceiling per project year after year, and allocating additional funding to the Hong Kong Trade Development Council as a means to enable Hong Kong companies to expand business overseas.

Compassionate but uncreative

Although these Government initiatives are somewhat compassionate for SMEs facing operation difficulties, they are lax, uncreative and ineffective in creating more opportunities for SMEs. They have also ignored the input raised on many occasions by the industry. Some of the suggestions include looking into merging some of the SME funding schemes, and providing one-stop integrated promotion and approval of various funding schemes, etc. If the Government had accepted these opinions, it could centralize resources for processing the relevant SME credit and funding applications, and at the same time reduce administrative work. This would be particularly helpful for startups lacking real-world experience or resources. The incentives, in turn, become more attractive for applicants.

Currently, the Government is making vigorous effort to forge a smart city – it aspires to construct a new generation of government cloud-based infrastructure  and big data analysis platforms to support the development of digitized government services. Seizing this opportunity, the Government shall consider the needs of SMEs in the master design and construction. It should add relevant services and develop more appropriate support for SMEs to help them expand into new markets so as to mitigate the impact they face amidst trade conflicts between China and the US.

Increasing downside risk for the economy

Two sets of recently published figures have set off alarms for Hong Kong’s economic growth and the business environment of SMEs. The first set comes from the International Monetary Fund, which revised down its forecast for Hong Kong’s economic growth twice in the same quarter, indicating there are increasing downside risks for the economy. The HKSAR Government must not wait for problems to surface − when the wave of SMEs closure sets in − before taking any action. It must make hay while the sun shines.
 

The second set of figures comes from the first quarter survey of the “Standard Chartered Hong Kong SME Leading Business Index” published by the Hong Kong Productivity Council. Survey findings show that the Overall Index dropped by 2.6, reading at 40.4 to mark a three-year low. The survey also found that more than half of the SME respondents believed that local business environment will be stable in the first quarter of 2019. Nonetheless, as many as 81% of the respondents were not optimistic about the outcomes from the trade negotiations between China and the US About 38% of SME respondents expressed that the trade conflicts between China and the US may affect their business, a percentage 14% higher than that recorded in Q4 2018. By sector, 50% of these respondents came from Manufacturing and 42% were from Retail, both percentages doubled that of the previous quarter.

Assistance for expanding overseas markets

The survey shows that to address impacts from the trade conflicts between China and the US, 23% of responding SMEs said that they would consider tapping into new Southeast Asian markets in the wake of international trade conflicts. In fact, SMEs have to actively consider opening up new markets to respond to the lasting effect of trade conflicts between China and the US By “opening up” overseas markets, it also means setting up factories and sales functions in target markets in Belt and Road  countries. The sizeable markets in these countries are good options for SMEs looking to develop externally.

However, SMEs opening up new overseas markets on their own will face significant risks. It is the responsibility of the HKSAR Government to help them exploit new markets. Initiatives that can be considered include approving the signing of new Free Trade Agreements and comprehensive agreements to avoid double taxation. The global Economic and Trade Office network of the Hong Kong government should also be expanded.

Complementary strengths and division of roles are the key to success

On the other hand, Hong Kong is benefiting from development opportunities in the Guangdong-Hong Kong-Macao Greater Bay Area. SMEs developing a presence in the Greater Bay Area should embrace the idea of building together. Complementing each other’s strengths and division of roles are essential for success. The key to driving the construction of the Greater Bay Area is to innovate systems and mechanisms. Hong Kong should fortify and enhance its position as an international financial center and a hub for shipping, trade and international aviation, so as to propel the growth of various sectors, including finance, trade and commerce, logistics and professional services. It should also advance in the direction of high-end and high value-added sectors, striving to develop innovation and technology industries, as well as to construct an international legal and dispute resolution service center for the Asia-Pacific region.

This is a free translation. For the exact meaning of the article, please refer to the Chinese version.