Business Outlook: 2014/2015 AMCHAM ANNUAL SURVEY: ANOTHER YEAR OF CAUTIOUS OPTIMISM

By Kenny Lau


The mission of AmCham is to foster commerce among the United States, Hong Kong and Mainland China, and to enhance Hong Kong’s status as an international business center. Members of the chamber are asked at the end of each year in an annual survey to share their views on Hong Kong’s business environment of the past year and their outlook for the next 12 months.

For the 2014 survey – conducted in November and December over a period of several weeks – a total of 1,479 questionnaires were sent out, and 160 sets of completed responses were received. The results of the survey are very telling of how Hong Kong’s business environment in which businesses (member companies of the chamber) performed in 2014 and what business executives are thinking in terms of their outlook for 2015.

Broadly speaking, despite a number of risk factors in economic, social and political terms around the globe, 2014 was a fairly good year of business prospects for most in Hong Kong. But it was also a year of increasing concerns due to growing volatility from multiple directions which made business planning much more difficult and hard to comprehend.

The recent political development, “Occupy Central” which lasted for more than two months, is indeed a major concern, according to the survey. The impact varies from business to business: some say it has had a negative effect; others say they haven’t been affected in any way close to their anticipation. Many are, however, worried about the uncertainty of a future direction for Hong Kong and how it can remain a competitive city against others in the region.

Hong Kong will remain relevant to the international marketplace because of a strong finance industry and a robust real estate sector, but Singapore and Shanghai have already gained significant traction in becoming a regional center for many multinational companies, a survey respondent reveals. This will undoubtedly have an impact on Hong Kong in future years, particularly when there is complacency on many of the key issues.

The least attractive aspects of doing business in Hong Kong from an international perspective are: exponential increases in housing and office rental costs far exceeding the rate of inflation, a continuous shortage of international school places for expats, and environmental problems including air pollution. For some, it has simply gotten “too expensive for what it delivers.”

The good news is: Hong Kong is well known for a simple and efficient tax system, a sound legal and regulatory system as well as seamless transportation links in a location well situated as a gateway to China, hence a highly regarded reputation in global commerce. These are also the foundation upon which the world’s freest economy is supported. Can Hong Kong stay ahead of its competition in the coming decade? The answer will be determined by the decisions that are made today.

BUSINESS SENTIMENT

Hong Kong’s business environment in 2014 was good; challenges amid high cost of doing business lie ahead in the coming year

3The year 2014 is described to have been a fairly good year for doing business overall. A majority of respondents find Hong Kong’s business environment of the past 12 months to be quite satisfactory: nearly half of them (49 percent) say it was “good” and others (5 percent) give a rating of a “very good” business climate; about one-third (34 percent) say very little change during the year; and a minority (12 percent) believe it was unstable or became worse.

4In terms of the outlook for 2015, respondents feel more or less the same, although their views indicate a trend of going slightly downwards in a cautiously optimistic way. Those who believe the coming year will be either “very good” (5 percent) or “good” (43 percent) are less than half; about a third foresee an environment that will remain largely unchanged; and a small number of respondents (16 percent) expect it to be unstable or even getting worse.


Hong Kong is an important hub for international business in Asia

5

Despite volatility in a challenging business environment locally and globally, confidence in Hong Kong’s role as a strategic center of international commerce and a gateway for trade with China remains intact. In fact, many respondents say they plan to “expand” (46 percent) their business in Hong Kong over the next five years, while a similar number (47 percent) expect “business as usual” in the city. Conversely, only a few are thinking about “gradually reducing” (6 percent) their local operation or “exiting” (1 percent).

6In terms of Hong Kong as a major business hub, 75 percent of respondents indicate that Hong Kong is where they have their regional headquarters. Of those, 85 percent reveal an intention of keeping their office in Hong Kong as a regional headquarters over the next three years, while others are “not sure” (13 percent) or “will not” (2 percent) maintain a regional center here. Meanwhile, 92 percent of respondents without a regional headquarters in Hong Kong say their companies are not thinking about establishing one.


BUSINESS INFRASTRUCTURE

Hong Kong remains competitive structurally; but these are also challenging issues

7

Hong Kong’s competitiveness is unquestionably critical to its status as an international business center and a strategic hub in Asia, especially when there are a number of other cities – including Singapore and Shanghai – striving aggressively to become the leading financial and economic powerhouse of the region. It has been a subject of endless discussion in recent years amid a rapid development of neighboring cities into becoming more business-friendly.

Does Hong Kong have what it takes to be competitive against other international cities? Yes, survey respondents say, but not unanimously. In other words, there is still much to do in order to remain a highly sought-after marketplace. Those who believe Hong Kong to be “most competitive” (8 percent) or “very competitive” (34 percent) are less than half; about half (49 percent) see a city on par with others; and others say it is “least competitive” (6 percent) or “not competitive” at all (3 percent).


Software slackened due to economic, social and political volatility

8

Thanks to a simple and efficient tax system, a sound legal and regulatory system as well as seamless transportation links in a location well situated as a gate to/from China, Hong Kong has been a renowned city – and the world’s freest economy – in which to do business. These are a set of highly integrated infrastructures – physically and intellectually – that have taken years, if not decades, to develop.

In recent times, because of a somewhat volatile environment in economic, social and political terms, survey respondents find a number of aspects unsatisfactory – including an exponential increase in housing and office rental costs far exceeding the rate of inflation, a continuous shortage of international school places, and uncertainty in the political development of Hong Kong.

BUSINESS VIABILITY

Tops concerns regarding Hong Kong’s business environment in 2015

When asked to list their concerns about doing business in Hong Kong in the coming 12 months, survey respondents overwhelmingly cite a number of areas that are considered to have a direct impact on Hong Kong’s competitiveness. They include:

  • Stability of the political system
  • Cost of commercial/office rentals
  • Affordability of residential housing
  • Availability of high quality talent/personnel
  • Shortage of international school places
  • Pollution/ environmental degradation
  • Long-term business planning/opportunities
  • Gateway to China/market access

CHINA BUSINESS

Hong Kong as a gateway to the growing market of China

As a gateway city to China and a springboard for Chinese companies going global, Hong Kong for decades has served the critical role of a business facilitator beyond international borders. Unsurprisingly, many multinational corporations and smaller enterprises established in Hong Kong have strong commercial ties across China. In fact, companies operating in the city, including a large number of survey respondents, have significant presence in major Chinese cities.

9The most common places in which member companies of AmCham have branch offices of their own are Shanghai, Beijing, Shenzhen, Guangzhou and Chengdu. Other cities include Dalian, Qingdao, Hangzhou and Chongqing. In terms of a destination for an AmCham delegation, Beijing, Chengdu, Chongqing, Shenzhen and even Xi’an are the most often cited – indicating huge business potential opportunities in these cities amid China’s “Go West” development plans. Interestingly, there is much less interest for Shanghai, possibly due to its maturing – and perhaps saturated – market.

Survey respondents also cite six key areas for a continuous dialogue during AmCham’s annual Beijing Doorknock and other meetings with Chinese government officials throughout the year. Market access is by far the most important issue for which they seek to advocate on behalf of their businesses. Chinese companies going global, fair competition, environmental protection, protection of IP rights and CSR are other topics for further engagement as part of an advocacy agenda from the perspective of the business community of Hong Kong.

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