Right now developed countries, such as those in Europe and Japan, are racking their wits about how to rescue their economies. The worst time for the world economy has yet to come. As a survey shows, Hong Kong SME [small- and medium-sized enterprises] Leading Business Index has dropped to its lowest in three years. Nearly 20% of the SMEs sounding the early warning that they may have to close down within one year’s time, and then Hong Kong's job market will deteriorate dramatically. As the world economy remains sluggish, all Hongkongers should psychologically prepared to pull through the difficulties together, calmly rising to all the challenges posed by the global economic downturn. In particular, the banking sector should lend support to SMEs given that the risks are controllable. Commercial banks must never talk lightly about credit tightening, a move seen like taking back the umbrella on rainy days.
All Hongkongers should pull through difficulties together, and banks must not take back the umbrella on rainy days. Various statistical data about Hong Kong's economy released recently are quite shocking. Retails recorded the largest decline in 17 years in terms of sales value, the number of inbound visitors dropped in nine months in a row, decrease in export lasted for the longest period of time since the financial crisis, and unemployment rate bottomed out and rose to its high in three years.All these point to a sudden downturn of Hong Kong's economy, of which SMEs will take the brunt.Small- and medium-sized businesses directly suffer from an economic downturn, having to face problems of capital flow and finance. They may eventually have to close down if support to them is not lent in time.
SMEs are the mainstay of Hong Kong's economy.Some 98% of Hong Kong enterprises are SMEs, which employ about half of Hong Kong's employees or nearly 2 million.As such, SMEs are closely bound up with Hong Kong's economy and job market. Authorities must spare no pains to prevent a large-scale closure of SMEs and the resulted large-scale layoffs.Otherwise, falling prey to this will be a great number of lower-and middle-level employees, which in turn will shake Hong Kong's economy and even social stability.
Industrial insiders estimate that about 100 restaurants have closed down in March. The quick worsening of SMEs'business operation is quite worrisome.
Secretary for Commerce and Economic Development Gregory So Kam-leung wrote a letter in his own name early this month to local banks, urging them to take into consideration of SMEs' operational pressure and give them all possible support and convenience when reviewing their loan applications. This indicates the sharp downturn of Hong Kong's economy and as a result, SMEs are suffering from problems in capital flow and finance, so that they urgently need more support from authorities.
As a matter of fact, Hong Kong is being dealt a dual blow by the economic downturn and price drop in real estate. Even when some SMEs have some property to mortgage, it is much more difficult for them to borrow loans from banks. For, on the one hand, property prices continue to go down, and on the other hand banks are concerned with the increase of non-performing loans(NPLs) so that they tend to be more cautious in lending. As a result, SMEs have to turn to finance companies for borrowing loans on much higher interest rates.
Apart from borrowing from banks, SMEs may also make use of the Hong Kong Mortgage Corporation Limited's Financing Guarantee Scheme in which the government offers 80% guarantee for a loan. But the problem is that SMEs still have to pay extra fees for insurance and the interest burden is still heavy. Moreover, whether the Financing Guarantee Scheme could become popular to benefit SMEs largely depends on the proactive participation of commercial banks.
What is the most worrisome is that, seeing that the economic climate becomes unfavorable and prices of mortgaged property keep going down, local banks are likely to take back the umbrella on rainy days, calling in loans from their clients and tightening credit overdraft quotas. For SMEs, this no doubt will add insult to injury or even become a fatal blow.
Downward pressure on Hong Kong's economy keeps intensifying.The risk for recession grows day by day.Authorities must strengthen support to SMEs. The proposal by the sector to set up a policy institution or bank to support SMEs is worth to be earnestly studies and discussed as a way to solve once and for all the difficulties facing SMEs in finance. 28 April 2016