“HKPC SME Support” Announces “Standard Chartered Hong Kong SME Leading Business Index” Q1 2024 Overall Index Retreated by 3.9 to 43.7 SMEs Have Plans of Selling Online in the Mainland

(Hong Kong, 30 January 2024) “HKPC SME Support” today announced the “Standard Chartered Hong Kong SME Leading Business Index” (“Standard Chartered SME Index”) for the first quarter (Q1) of 2024. The Overall Index retreated by 3.9 to 43.7 this quarter, down to the level in the fourth quarter (Q4) of 2022 (44.2). Of the five component sub-indices1, except “Investment Sentiment” (48.8) which remained stable, the remaining four recorded declined simultaneously, including “Profit Margin” (37.1, -8.3), “Business Condition” (40.2, -7.5), “Global Economy” (30.3, -4.3) and “Recruitment Sentiment” (52.0, -1.0), indicating a weakened confidence among local Small and Medium Enterprises (SMEs) on their business turnover this quarter. Notably, “Global Economy” had been down for three consecutive quarters and accumulated a drop of 18.0 since the second quarter (Q2) of 2023, reflecting that local SMEs are still facing challenges from the external environment.

“Standard Chartered SME Index” Survey Results
In terms of the 11 industry indices, “Financing and Insurance” (53.0) recorded the largest increment, uplifted by 5.2 and returned to the level above the 50 neutral line. Meanwhile, “Social and Personal Services” (52.1) also stayed above the 50 neutral line. In contrast, larger drops were recorded for “Accommodation and Food Services” (47.1, -8.4), “Import / Export Trade and Wholesale” (39.2, -7.5), “Professional and Business Services” (43.6, -6.4), “Information and Communications” (43.9, -6.2) and “Retail” (38.8, -4.4); and industry indices of “Import / Export Trade and Wholesale” (39.2), “Retail” (38.8) and “Transportation, Storage and Courier Services” (36.9) were even below 40 points.

In terms of overall investment trends, 91% of surveyed SMEs indicated that they would maintain or increase investment this quarter, which is on par with the previous quarter. The areas that most SMEs expected to maintain or increase investment were “Training Related to E-commerce or Digital Technology”, “Online / Offline Marketing Promotion” and “IT System”.

In terms of the changes in cost components, the proportion of local SMEs expecting raw materials cost to increase rebounded by 4 percentage points to 59% this quarter. Similarly, the proportion of SMEs expecting an increase in staff salary rebounded by 10 percentage points to 35% and returned to the level in the third quarter (Q3) of 2023, reflecting that the SMEs will face cost pressure again. On the other hand, only 23% of SMEs planned to increase the price of their product or service, a slight increase of 2 percentage points from the previous quarter, indicating that the majority of SMEs had no plan of shifting their cost pressure to the consumers.

Dr Lawrence CHEUNG, Chief Innovation Officer of HKPC, said, “The global economy is still under recovery after the pandemic, and the business environment remains weak among local SMEs. Additionally, the geopolitical tension has brought along many challenges and uncertainties to the business community, and the Overall Index retreated by 3.9 to 43.7. With the further recovery of tourism, the number of visitor arrivals to Hong Kong last year has recovered to 55% of the pre-pandemic level, which was much beyond the expected target. However, the industry index for ‘Accommodation and Food Services’ has recorded the largest drop for two consecutive quarters, and even fell below the 50 neutral line to 47.1. Meanwhile, the industry index of ‘Retail’ also dropped by 4.4 to 38.8. This reflects that although the number of tourist arrivals increases, the change in their pattern of spending in Hong Kong makes the market unable to benefit from it.”

Mr Kelvin LAU, Senior Economist, Greater China, Global Research, Standard Chartered Bank (Hong Kong) Limited, said, “The latest setback in the Standard Chartered SME Index in 2024 Q1 is a timely reminder that local business sentiment remains cautious as we step into 2024. A close look into the performance of component sub-indices confirms that the main drag in the Overall Index stems from the expectations of a weakened short-term business performance, with ‘Business Condition’ and ‘Profit Margin’ registering the biggest quarter-on-quarter drops. This is on top of the worsening drags from lingering global economic headwinds, all confirming weak economic momentum in the early months of 2024. The silver lining is that SMEs’ recruitment and investment appetite remained relatively stable compared with the previous quarter. This bodes well for the city’s growth driver to continue shifting gradually from domestic-oriented sectors to the more externally oriented ones as the year progresses, which would help extend Hong Kong’s modest recovery trajectory.”

Thematic Survey Results
The thematic survey of this quarter investigated the development of e-commerce among local SMEs. The survey found that among SMEs who were currently selling online, the majority of them primarily focused on developing the local market in Hong Kong (85%), while one-third (35%) were currently developing the Mainland market and one-third (34%) of SMEs developing the overseas markets. On the other hand, among the local SMEs which considered developing online sales, close to two-thirds (62%) of them considered developing in the Mainland market, while 40% and 36% considered developing online sales in the local market and the overseas markets respectively.

The survey also found that the difficulties and challenges facing local SMEs when developing or expanding online sales in the Mainland market included “Lack of knowledge about the corresponding laws or regulations”, “Too many domestic brands in the Mainland market”, “Lack of understanding about Mainland consumers’ needs and preferences / Rapid change of Mainland consumers’ preference” and “Lack of relevant labour or talent”. The types of support that most SMEs expected to receive included“Funding Support” (e.g. providing funding support or facilitating SMEs’ financing), “Industry Collaboration” (e.g. Government or industry to support organising different online sales activities in the Mainland), and “Market Insights” (e.g. enhancing SMEs’ knowledge in online sales in the Mainland or providing solutions that facilitate online sales in the Mainland).

Dr Lawrence CHEUNG continued, “The thematic survey found that over 80% of the local SMEs selling online are primarily developing the local market. And, among the SMEs that are considering developing online sales, two-thirds of them claimed to consider developing online sales in the Mainland, reflecting that SMEs are positive towards sales development in the Mainland. With the Mainland e-commerce industry flourishing in recent years, developing the Mainland market can provide immense business opportunities for SMEs. As the strongest backup for SMEs and the implementation agent or secretariat for 10 Government funding schemes, HKPC fully supports the establishment of the inter-departmental E-commerce Development Task Force introduced by the Government in the 2023 Policy Address. Meanwhile, the Government has also introduced ‘E-commerce Easy’ under the ‘Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund)’, allowing the enterprises to utilise HK$1 million from the cumulative funding ceiling of HK$7 million to implement e-commerce projects, encouraging the development of cross-border e-commerce in grasping business opportunities, and allowing eligible SMEs to apply for relevant subsidies.”

Dr CHEUNG added, “Furthermore, ‘Market Insights’ is also one of the supports that SMEs expect to receive. In response to this, HKPC’s ‘SME ReachOut’ has been upgraded to ‘SME ReachOut 2.0’, which has introduced the ‘SME LevelUp Workshops’ to provide e-commerce strategies and marketing consultations to SMEs, actively supporting the development of Hong Kong’s e-commerce and facilitating SMEs to promote trade and to achieve upgrade and transformation. In addition, HKPC launched various services in 2022 to increase the industry’s understanding of e-commerce, including the upgraded ‘BIZ Expands Easy (BEE)’, a one-stop online platform to provide Government funding information and the ‘Digital DIY (DDIY)’ Portal, an online platform to provide digital transformation information to facilitate enterprises’ digital transformation and e-commerce development.”

Conducted in December 2023, the Standard Chartered SME Index Q1 2024 survey successfully interviewed 808 local SMEs. The report will be available for download from HKPC website: https://www.hkpc.org/en/about-us/hkpc-publication/industry-insight/scbi.

To learn more about HKPC’s smart solutions to help enhance the productivity of SMEs with advanced technology, please visit the dedicated webpage: https://smarter.hkpc.org/en/.

¹ The five sub-indices include “Recruitment Sentiment”, “Investment Sentiment”, “Business Condition”, “Profit Margin” and “Global Economy”.

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At the Press Conference of the “Standard Chartered SME Index” Q1 2024, Dr Lawrence CHEUNG, Chief Innovation Officer of HKPC (left) and Mr Kelvin LAU, Senior Economist, Greater China, Global Research, Standard Chartered Hong Kong (right) announced that the Overall Index slightly retreated by 3.9 to 43.7 this quarter.