Many firms had been hit by the subprime crisis, spiralling costs for raw materials and environmental protection, higher wages and the weaker US dollar.

However, many SMEs expected business would remain stable over the next year in all markets except the US.

Exporters, especially those engaged in consumer and electronic goods, were vulnerable to the US economic slowdown, according to HSBC commercial banking senior executive Nixon Chan.

'Hong Kong's smaller businesses are increasingly turning to the mainland and the rest of Asia, whose economies are robust and are growing at double digits,' Mr Chan said.

'Many of them believe they will weather the economic turbulence and adapt to the changing environment.'

The survey found that 68 per cent had not been affected by the worsening economy in the US.

'We are surprised at these findings,' Mr Chan said. 'While increasing exposure to the China market, many respondents believed the US remains a strategically important market for their business.'

Still, the mainland economy is not without challenges as the Sichuan earthquake, prevailing high inflation and growing wages and raw material costs are adding to pressures on businesses.

Regarding higher costs, many respondents would choose to change suppliers, trim staff and sub-contract work to cheaper locations, the survey shows. About 40 per cent of those polled also indicated they would reduce the amount of credit they extended to customers to manage business risks while about 28 per cent would rely more on trade services provided by banks.

'Many smaller firms have gone through turbulence including Sars and the Asian financial crisis, which helped them to overcome challenges,' Mr Chan said.

Despite the hostile operating environment, he said HSBC's bad-debt exposure to smaller enterprises remained stable.