Speeches and Presentations



LCQ7: Business environment of small and medium enterprises

Following is a question by the Hon Tommy Cheung and a written reply by the Secretary for Commerce and Economic Development, Mr Gregory So, at the Legislative Council meeting today (December 18):

Question:

The Asia-Pacific Small Business Survey 2013 released by CPA Australia on November 26 this year indicated that the confidence of Hong Kong small businesses in their own business fell sharply from the previous year surveyed. The confidence score of Hong Kong businesses regarding their own business next year was negative for the first time in five years, and the Hong Kong businesses surveyed were the least confident in the local economy next year among the six Asia-Pacific economies covered by the survey (i.e. Hong Kong, Australia, Indonesia, Malaysia, New Zealand and Singapore). Regarding the business environment of the small and medium enterprises (SMEs) in Hong Kong, will the Government inform this Council:

(a) whether it has assessed if the aforesaid report is a warning to the economic prospects of Hong Kong; if it has assessed, of the details; if not, the reasons for that;

(b) whether it has assessed if the room for survival of SMEs has been shrinking incessantly, resulting in a continuous decrease in the opportunities for members of the public to move up the social ladder through starting up businesses; if the assessment results indicate such a case, of the authorities' solutions; if it has not made such an assessment, the reasons for that;

(c) whether it will conduct studies to follow up the problems reflected in the aforesaid report, including assessing the operating difficulties faced by Hong Kong SMEs at present, compiling statistics on the rates of increase in various components of operating costs, as well as ascertaining the main reasons for the drop of business confidence score and its long-term impacts on the Hong Kong economy, so as to put forward specific solutions; if so, of the details; if not, the reasons for that; and

(d) whether it will provide SMEs with tax concessions, establish SME designated zones or shopping malls, or subsidise SMEs to rent offices or shops, so as to enhance the competitiveness of SMEs; if so, of the details; if not, the reasons for that?

Reply:

President,

My reply to the various parts of the question is as follows:

(a), (b) & (c) The Government has been closely monitoring the operating situation of local enterprises. Results of the "Asia-Pacific Small Business Survey 2013" announced by CPA Australia in November 2013 indicated that the confidence of surveyed Hong Kong small businesses (Note 1) in their own business in 2014 had decreased from 2013, which was mainly attributable to concerns over the prospects of the Hong Kong economy, as well as increasing costs and competition that might have an impact on their business operation. Nevertheless, the report showed that the number of Hong Kong small businesses that were optimistic about their own business prospects were still more than those who were pessimistic.

The Government has been providing timely and adequate support for small and medium enterprises (SMEs) (Note 2). Alongside Hong Kong's swift economic recovery after the global financial crisis, the numbers of SMEs and persons engaged in SMEs are higher than their pre-crisis levels. In June 2013, the numbers of SMEs and persons engaged in SMEs increased by 11 per cent and 5 per cent respectively from June 2007. Compared to June 2012, the numbers of SMEs and persons engaged in SMEs in Hong Kong also increased by 1.8 per cent and 0.6 per cent respectively in June 2013, suggesting a broadly stable business environment for local SMEs. Moreover, the number of job vacancies of SMEs also rose visibly by 10.6 per cent year-on-year over the same period, reflecting a favourable hiring sentiment among our SMEs and their still relatively positive business outlook. In fact, the report of CPA Australia indicated that over one-third of the respondent enterprises planned to recruit more people in 2014.

At present, on behalf of the Economic Analysis and Business Facilitation Unit, the Census and Statistics Department (C&SD) conducts a monthly exercise on a sample panel of around 400 SMEs, to gain a better understanding of their business operation, including business receipts and the number of employees. According to the latest findings, although the surveyed SMEs remained relatively cautious about the near-term business outlook, the employment situation of the surveyed SMEs had been broadly stable in recent months.

The report of CPA Australia showed that enterprises were concerned about the possible impact of increasing costs on their business operation. Although the increase in local business operating costs (including rent and labour costs) over the past few years has put some pressure on the business environment of local enterprises, particularly the SMEs, the broadly stable consumption market has partly cushioned the impact of the rising costs. According to the results of the Annual Survey of Economic Activities conducted by C&SD, between 2009 and 2011, employee compensation and rental costs of SMEs (only including those enterprises with employees) accounted for around 35-36 per cent and 8 per cent of the total operating expenses respectively, and the overall profit situation was also largely steady over the same period (Appendix).

On the other hand, following the Government's latest round of demand-side management measures since late February 2013, the uptrend in rentals for office space and retail shop space has moderated. The rise in office space and retail shop space rentals tapered from 3 per cent and 4 per cent respectively during the second quarter of 2013 to 1 per cent during the third quarter, with even a monthly decline of 0.8 per cent in October. The Government will strive to increase the supply of commercial land in order to cater for the long-term economic development of Hong Kong. The Financial Secretary outlined a series of measures in the 2013-14 Budget, such as including nine sites for commercial/business use in this fiscal year's Land Sale Programme, which would provide for a total floor area of about 330 000 square metres. The Government would also step up its efforts in increasing the supply of commercial land in various districts for the further development of different economic activities.

(d) The Government has been providing multi-folded support for SMEs. The SME Loan Guarantee Scheme (SGS) under the Trade and Industry Department (TID) provides 50 per cent loan guarantee for eligible SMEs to assist them in obtaining loans from the participating lending institutions. The rental for office space and retail shop space is considered to be necessary operating business cost. As such, loans for this purpose are covered under the SGS. As at end November 2013, over 27 300 applications have been approved under the SGS, involving a total loan guarantee amount of about $20.4 billion. In addition, TID has been providing funding support for non-profit-distributing organisations to implement projects which aim at enhancing the competitiveness of SMEs in general or in specific sectors through its SME Development Fund (SDF). As at end November 2013, 223 applications have been approved under the SDF, involving a total funding of about $250 million.

The existing single profits tax rate has already reflected the fairness principle of "earning more, paying more; earning less, paying less". Providing tax concessions to specific enterprises would deviate from the fairness principle of Hong Kong's tax system. In fact, in the year of assessment 2011-12, almost 90 per cent of registered corporations need not pay any tax. Only 94 900 corporations, accounting for 11 per cent of registered corporations, paid profits tax.

We will continue to closely monitor the changes in the economic situation and the needs of our enterprises and review our support measures for SMEs from time to time in order to provide them with timely and adequate support.

Note 1: The survey defined small businesses as those which employ fewer than 20 people.

Note 2: SMEs refer to manufacturing enterprises which employ fewer than 100 people in Hong Kong and non-manufacturing enterprises which employ fewer than 50 people in Hong Kong.

Wednesday, December 18, 2013

Annex PDF