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Hong Kong economy

Smaller Hong Kong businesses upbeat about their prospects as retailing and tourism pick up

Survey finds companies see revenue growth of up to 10 per cent this year

PUBLISHED : Tuesday, 24 July, 2018, 10:03pm
UPDATED : Tuesday, 24 July, 2018, 10:03pm

Hong Kong’s medium-sized companies are turning optimistic about their business prospects this year thanks to stronger retail and tourism sectors, a survey has found.

Almost two-thirds of executives at medium-sized firms, defined as those with annual revenues between US$1 million and US$3 billion, surveyed by accounting firm Ernst & Young (EY) expected their revenues to expand between 6 per cent and 10 per cent for the coming year, up 23 percentage points from last year. Another one-third expected the growth rate to exceed 10 per cent.

“Retail businesses are doing very well and consumption is growing. A falling unemployment rate and a booming tourism sector also contributed to the optimistic sentiment,” said Agnes Chan, managing partner of EY’s business in Hong Kong and Macau.

The survey was conducted online from January to March with executives at over 100 firms in Hong Kong. Almost one-third of the firms are in the retail business, 16 per cent are in media and entertainment and 15 per cent are real estate and construction firms, with the rest in industries ranging from financial services to life sciences.

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At the beginning of this year Hong Kong’s finance secretary, Paul Chan, forecast the city’s economy would grow between 3 and 4 per cent this year.

The city’s retail sector, which took a hit when the number of tourists from mainland China plunged between 2015 and 2016, is now thriving. The value of total retail sales in Hong Kong reached HK$40.5 billion (US$5.16 billion) in May, jumping 12.9 per cent from the same month last year, official statistics showed. Retail sales surged by 13.7 per cent in the first five months of this year from the same period last year.

According to a report by HSBC in 2015, medium-sized firms generated HK$1.3 trillion in sales, roughly equal to 15 per cent of Hong Kong’s economy.

The EY survey also found that as many as 80 per cent of the executives surveyed planned to use artificial intelligence technology in the next two years, while 11 per cent planned to adopt it in the next five years. Another 6 per cent said they were already using it in some of their businesses.

Just 3 per cent of respondents had plans to adopt AI when surveyed by EY a year ago, underlining the rapid rise of the technology’s status among business operators, helped by lavish government efforts, according to EY.

“For frontier technologies like AI, the process from zero to adoption can be extremely fast,” said Peter Chan, an assurance partner at EY. “Many of my clients are already using facial recognition for staff to clock in instead of punch cards.”

The sudden change in attitudes could also be explained by rising awareness following increased government spending to fuel investment in technology rolled out in the past year, such as a HK$40 billion grant for the Hong Kong Science and Technology Parks Corporation, said EY’s Agnes Chan.

Almost four in 10 respondents thought technology was the top factor driving up productivity, and more than half said the adoption of AI in their businesses would cut headcounts by 10 per cent to 20 per cent.

Medium-sized businesses in Hong Kong are also keen to be listed to raise funds, with 44 per cent citing insufficient cash flow as their biggest challenge. Three-quarters of those surveyed are considering an initial public offering, far exceeding the average 43 per cent in the rest of the world.