LCQ10: Assisting small and medium enterprises in tiding over economic downturn
Following is a question by the Hon Jeffrey Lam and a written reply by the Secretary for Commerce and Economic Development, Mr Gregory So, in the Legislative Council today (May 25):
According to the survey findings of the "Standard Chartered Hong Kong SME Leading Business Index" for the latest quarter released by the Hong Kong Productivity Council on the 27th of last month, the overall business index of the small and medium enterprises (SMEs) in Hong Kong had declined for three consecutive quarters, and hit a new record low in three years, with the surveyed SMEs generally holding a gloomy outlook on the business prospect. Nearly 20 per cent of such SMEs indicated that they would not rule out the possibility of winding up their businesses within one year should the economic downturn continue and 28 per cent of those SMEs from the retail industry, which was the most affected industry, had so indicated. Regarding assisting SMEs in tiding over economic downturn, will the Government inform this Council:
(1) whether it has responded to the aforesaid survey findings; if it has, of the details;
(2) in respect of the retail, tourism, catering and hotel industries of Hong Kong, of the respective number of persons employed, the underemployment and unemployment rates, and the situation of SMEs among those industries winding up their businesses since January this year;
(3) whether it has made adequate preparation and formulated corresponding measures for assisting SMEs in tiding over economic downturn; if it has, of the details; if not, the reasons for that;
(4) given that the Hong Kong Mortgage Corporation Limited (HKMC) has launched the SME Financing Guarantee Scheme (FGS) to provide loan guarantees for Hong Kong enterprises in order to assist enterprises in meeting their financing needs, of (i) the number of applications received, (ii) the number of applications approved and (iii) the aggregated amount of loan guarantees granted, under FGS by HKMC since January this year, together with a breakdown by the industry to which the relevant enterprises belong;
(5) whether it has assessed the effectiveness of FGS; if it has assessed, of the outcome; and
(6) given that the Government introduced the Special Loan Guarantee Scheme (SpGS) in December 2008 to help SMEs secure loans from lending institutions with the Government providing loan guarantees, and SpGS ended in late 2010, whether the Government will re-launch SpGS in light of the current economic downturn; if it will, of the details?
(1) Recent economic instability that continues around the globe has dealt a blow to the trade performance of the Asian region, including that of Hong Kong, and affected local economic sentiment. Compounded by the drop in visitor arrivals, the Hong Kong economy slowed further in the first quarter of this year, posing pressure on small and medium enterprises (SMEs).
The Census and Statistics Department (C&SD) also conducts consultation with SMEs regularly. For details, please refer to Box 1.1 in the First Quarter Economic Report 2016 compiled by the Economic Analysis and Business Facilitation Unit. The latest results revealed that the SMEs consulted generally stayed cautious about their business outlook in the face of the unfavourable economic performance and uncertain external environment. This is similar to the survey findings of the "Standard Chartered Hong Kong SME Leading Business Index" for the second quarter of 2016, with both showing that the recent business environment for SMEs is still unfavourable. In view of the grim economic environment this year, a series of support measures were proposed in the 2016-17 Budget to help SMEs and the trade tide over the difficult times and safeguard employment.
(2) Based on the data obtained from the General Household Survey conducted by the C&SD, the numbers of employed persons, the unemployment rates and underemployment rates in respect of the retail trade, accommodation services and food and beverage services activities from February to April 2016 are set out in Annex 1.
The C&SD does not have the employment figures of the tourism industry for the period from January 2016 at the moment. Moreover, the C&SD has not compiled statistics on the number of SMEs that have wound up their businesses.
(3) SMEs are the mainstay of the economy of Hong Kong. The Government attaches great importance to the development of SMEs and provides them with appropriate support.
Through its departments and public organisations (e.g. the Hong Kong Trade Development Council and the Hong Kong Productivity Council), the Government provides local enterprises with various support measures, including the launch of the SME Funding Schemes, provision of latest market information and rendering of technical support and consultation services, with a view to enhancing the competitiveness of enterprises.
To help SMEs secure loans in the commercial lending market and lower their loan cost, the Financial Secretary announced in the 2016-17 Budget that the Government would extend the application period of the special concessionary measures under the SME Financing Guarantee Scheme to February 28, 2017, reduce the annual guarantee fee rate for loan guarantee applications approved under the measures by 10 per cent, and remove the requirement of a minimum guarantee fee rate of 0.5 per cent for loan guarantee applications. Based on the data available in April 2016, we estimate that the number of loans that will benefit from further concessions in guarantee fee is around 6 600, and the average saving in guarantee fee per applicable loan is around $6,000.
The Government will also continue to implement various SME funding schemes to assist SMEs in obtaining financing, opening up markets and enhancing competitiveness. Through the $1 billion Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund), the Government provides support for enterprises in branding, upgrading and domestic sales to facilitate their business development in the Mainland. The Government launched the "ESP Easy – Simplified Application Track" (ESP Easy) under the Enterprise Support Programme of the BUD Fund in late August 2015. ESP Easy adopts a set of simplified application procedures to assist enterprises in implementing specified measures, providing more adequate support for enterprises, especially SMEs. ESP Easy is well-received by the trade. Up to the end of March 2016, we have received 218 applications.
The Government will continue to review its measures in the light of economic changes to provide enterprises with appropriate support.
(4) The numbers of applications in relation to the special concessionary measures under the SME Financing Guarantee Scheme from January to end-April 2016 are set out in Annex 2.
The numbers of applications approved in relation to the special concessionary measures under the SME Financing Guarantee Scheme from January to end-April 2016, with a breakdown by industry, are set out in Annex 3.
(5) Since the implementation of the special concessionary measures under the SME Financing Guarantee Scheme and up to the end of April 2016, the Hong Kong Mortgage Corporation Limited (HKMC) has received over 12 200 applications and approved over 10 800 of them, involving a total loan amount of about $43.9 billion and a total guarantee amount of about $35.1 billion. We consider that the special concessionary measures can help enterprises tide over their liquidity needs and secure loans in the commercial lending market. The Government will closely monitor changes in the market situation as well as the needs of SMEs, and will review from time to time the special concessionary measures, to ensure that adequate support is provided to the trade.
(6) In the light of the global financial crisis at the time, the Government introduced the Special Loan Guarantee Scheme in late 2008 to help enterprises tackle financing difficulties arising from the credit crunch problem. The scheme provided a maximum guarantee of up to 80 per cent of the approved loan without any charge. Therefore, the risks were largely borne by taxpayers. It was an exceptional measure introduced during exceptional times.
As mentioned above, amid the uncertain external economic environment, the Government has implemented the special concessionary measures under the SME Financing Guarantee Scheme operated by the HKMC. In addition, SMEs may obtain loans under the regular SME Loan Guarantee Scheme administered by the Trade and Industry Department. We consider that the above measures can provide strong support for SMEs in terms of financing. There is no need to re-launch the Special Loan Guarantee Scheme. The Government should strike a balance between prudent use of public money and assisting enterprises.