AmCham Hong Kong 2018 Business Sentiment Survey This is the first in a new annual series to gauge the major concerns, hopes and expectations of Hong Kong s international business community. The survey was carried out in partnership with Ipsos Business Consulting.
May 30, 2018 2018 Business Outlook Survey Page 1 CONTENTS Foreword 2 Executive Summary 3 Competitiveness 5 Greater Bay Area 11 The Innovation Economy 15 About the Survey 18
May 30, 2018 2018 Business Outlook Survey Page 2 Foreword HONG KONG is a bastion of open and fair markets, good governance and the rule of law, all of which combine to create a vibrant and open society. This combination is the bedrock of this city s extraordinary rise into one of the world s truly global commercial hubs. Excellent infrastructure, the deep pool of world-class professional services, and our role as a nexus for China and Asia trade are another special mix that adds to Hong Kong s unique set of competitive advantages. In our new annual Business Sentiment Survey, AmCham s members have clearly signalled the great value that the international business community places on these attributes. But there is no time for complacency. The survey shows concern that the government remains opaque and requires greater efficiency to embrace change. Some factors are beyond HK Chief Executive Officer Carrie Lam s control such as U.S.-China ties or Beijing policy uncertainties. Nonetheless, we hope leaders take note of the findings and make every effort to uphold the values and institutions that make this Special Administrative Region the jewel of Asia. Tara Joseph, AmCham President TIMES of great change present a challenge for both governments and business leaders plotting a course through uncharted territory. At such times, it is essential to step back, survey the terrain and silence the noise from news and social media, marketing and rhetoric. We were delighted, therefore, to partner with AmCham in creating a new annual survey to gauge the concerns, hopes and expectations of Hong Kong s international business community. This, our first, sets important benchmarks: As the biggest international chamber in Hong Kong, the views expressed in this survey are a valid and genuine representation of the global business community. Markus Scherer, Consulting Director, Ipsos Business Consulting
May 30, 2018 2018 Business Outlook Survey Page 3 Executive Summary 70% of respondents say Hong Kong retains its core attraction as a global business hub, citing the city s deep pool of world-class professional services and its connectivity not just with China but to other Asian markets. Government transparency, rule of law and free flow of information, together with business-friendly policies are the most important factors behind Hong Kong remaining an international business center, followed very closely by the availability of talent. But while the governance factor is our biggest advantage, there are concerns it is under threat from the bureaucratic mindset HK Chief Executive Carrie Lam has vowed to defeat. Members saw risks from red tape and bureaucracy as by far the biggest obstacle seen facing HK s attempts to lead in the smart city race (60% ranked it their top concern, vs 33% for uncertainties over China s laws.) Note: N indicates the number of responses received.
May 30, 2018 2018 Business Outlook Survey Page 4 About half of total respondents believed that there has been some erosion of the core values of One Country Two Systems, although perceptions were mixed. To be sure, the city remains a stable, efficient and globally connected base from which to launch into the more challenging environment of mainland China. China s opaque government, uncertain policy direction and barriers to fair market access were the most commonly cited obstacles to success of the GBA plan. In fact, while almost 70% of respondents were optimistic over the impact entering the GBA would have on their revenue. Our members had mixed messages on operating costs and hiring. A significant proportion said they hoped to cut expenses and recruit less expensive talent in the GBA, while another grouping showed no signs of concerns over costs in the world s most expensive property market, arguing that the ease, safety and efficiency of doing business and living in Hong Kong made up for the expenses.
May 30, 2018 2018 Business Outlook Survey Page 5 Competitiveness More than China Hong Kong retains its attraction as a global financial and commercial hub for international businesses and executives, with more than 70 percent of respondents citing easy access not just to China but to other Asian markets, as well as the deep pool of world-class professional service providers. The same proportion of respondents said access to non-china Asian markets was the city s biggest draw as did those who cited Hong Kong s Gateway to China role. The responses underscore Hong Kong s longstanding importance as a base for trading with and servicing the wider region, as well as the global nature of the city s economy. The findings show that Hong Kong retains the advantages of its global connectivity, while also serving as a springboard for China s increasingly outward-looking economy. Far from becoming sidelined as a provincial backwater following the return to Chinese rule in 1997, the city does indeed appear to be growing into the role of super-connector.
May 30, 2018 2018 Business Outlook Survey Page 6 We do business in HK because of what it is, not because we want it to be just another city in China Respondent Only 2 percent of respondents felt Hong Kong was insufficiently competitive against other Asian world cities; 47 percent were at the other end of the scale, saying Hong Kong was strongly competitive. Given the headlines about air pollution and other environmental problems that have made frequent headlines in recent years, it is worth noting that 18 out of 20 individual members who responded to the question said they believed Hong Kong offers attractive lifestyle options compared with other major cities. No Room for Complacency... There were more members who felt the overall state of Hong Kong s business environment was getting worse than there were those who believed it was improving ( 26 percent vs 19 percent).
May 30, 2018 2018 Business Outlook Survey Page 7 A recurrent theme in the results was the importance respondents placed on Hong Kong s values of openness, rule of law and free and fair markets. While the findings were generally positive about Hong Kong s overall competitiveness, the vibrancy of its open society and the quality of the city s infrastructure both soft and hard there are clear signs of concern over the integrity of the One Country, Two Systems framework and the rule of law, as well as the longer term risks posed by a closed, bureaucratic government mindset. (See Smart City section.) More than 50 percent of respondents said they believed One Country, Two Systems and the rule of law have already been eroded.
May 30, 2018 2018 Business Outlook Survey Page 8 When asked whether they felt the erosion was just a perception generated by the media, a significant proportion agreed, while almost two-fifths disagreed, showing the broad spread of views on the issue. That matters to members, because government transparency, the rule of law and free flow of data were among the most important factors for Hong Kong to remain an international business center, alongside business-friendly policies such as the low tax regime and the city s ability to attract talent. Some members were keen to point out that the last two might be said to flow through from the first factor: This is absolutely critical and an underpinning of every other advantage of Hong Kong as a business hub, one wrote. The governance factor was Hong Kong s biggest differentiator, said another.
May 30, 2018 2018 Business Outlook Survey Page 9 Hong Kong has many advantages and should position itself to take advantage. Some of the political wrangling is not necessary. China also needs to reaffirm the city s strengths and not weaken Hong Kong s global positioning. It is time to get on with it Respondent Counterintuitively, in the world s most expensive real-estate market, costs don t appear to have been a burning issue for either corporate or individual members. Operating costs in fact were among the least cited factor weighing on members. For individuals the picture was more mixed, with an equal number taking the view that Hong Kong s costs were in line with those of its rivals that who felt it much less value. But when asked whether Hong Kong offers unique strengths and attractive lifestyle choices compared with other major cities, more than 70 percent agreed.
May 30, 2018 2018 Business Outlook Survey Page 10 With the influence of China being more prevalent, Hong Kong needs to maintain transparency in order for organizations to feel secure in having their Asia Pacific HQ in Hong Kong, otherwise there will be no benefit over Shanghai Respondent
May 30, 2018 2018 Business Outlook Survey Page 11 Greater Bay Area Already there... The Greater Bay Area is a commercial and lifestyle zone designated by the Chinese government and which connects the Special Administrative Regions of Hong Kong and Macau with 11 major cities in Guangdong province. The survey found 70 percent of members were positive about the impact on revenue from operating in the GBA with more than a quarter very optimistic. Just over half of the respondents said they already have an office presence in the GBA outside of Hong Kong.
May 30, 2018 2018 Business Outlook Survey Page 12 Of the remainder, only 14 percent of respondents said their companies had plans to expand in the GBA. While this might appear to show contradictory feelings toward the zone, the result seems to indicate they are either already located in the zone or they find Hong Kong to be an adequate location from which to exploit the opportunities presented by the GBA plan. If your business needs the Pearl River Delta, you re already there Respondent
May 30, 2018 2018 Business Outlook Survey Page 13 The major attractions of the GBA were its pool of about 67 million consumers, as well as the opportunity to use the zone as a base from which to target other markets, both inside China and abroad. Hong Kong s connectivity with the GBA was also seen as a major advantage that could be leveraged by members. Hurdles On the downside, members felt the Chinese authorities lack of transparency, weak rule of law and policy uncertainty were the biggest impediments to the success of the GBA initiative, with concerns over the tilted commercial playing field and poor communication of where the real opportunities lay to be two related and major concerns.
May 30, 2018 2018 Business Outlook Survey Page 14 Market access barriers are massive for some parts of our business. Our company is literally blocked in China Respondent Other hurdles cited by 31 respondents included: China s expensive and complex taxes and red tape; company policy/structure; GBA is just political rhetoric unrelated to real business needs; rivalry between GBA cities; talent shortages and high operating costs; and the gulf between Hong Kong and Guangdong s cultures and operating environments.
May 30, 2018 2018 Business Outlook Survey Page 15 The Innovation Economy Digital disruption is sweeping through Hong Kong s economy, with 37 percent of respondents saying they think technology and innovation are going to be transformative for their companies, forcing them to redefine their entire focus. A further 26 percent put technology and innovation in their top three priorities, but don t expect them to be transformative. Members felt that the Hong Kong government s push to create an innovation-led economy presented genuine opportunities to develop new lines of business and generate sales from emergent technologies. Members also saw opportunities to improve their own operations in terms of efficiency, improved security and better customer services. These outweighed the expectations of a gravy train of government contracts to build infrastructure and provide advisory roles.
May 30, 2018 2018 Business Outlook Survey Page 16 Pros & Cons Hong Kong s core advantages proximity and connectivity to China and role as a global business hub were also seen a the city s biggest edge in the race to become a leading smart city, the survey found. Members also cited the city s vibrant, open and globally connected society and quality of life reflecting back to the survey s earlier findings that these core attractions are also what underpins business confidence in Hong Kong s overall health and prosperity.
May 30, 2018 2018 Business Outlook Survey Page 17 The city s education system and availability of skilled workers was cited as one of the factors giving HK an edge in the race to be a smart city leader. The ability to hire key talent was cited as both a major factor behind Hong Kong s status as a global business hub as well as key to its continuing to enjoy that status. Attracting and retaining talent was seen as integrally linked to the Hong Kong s lifestyle options, open and vibrant society, and the rule of law and One Country, Two Systems framework. Education and talent also drew some of the strongest critical commentary, with the shortage of skills and the lack of a fail and learn culture among the most cited challenges to Hong Kong s attempt to build a smart city. As discussions on education in wider society often spark vigorous debate, perhaps it should come as no surprise to find a wide rage across two poles. Another explanation may be in sectoral shortages of skilled labour. Hong Kong s education system produces well-educated candidates for the traditional pillar industries. However, are shortages in growth areas (cybersecurity workers received a 31 percent average pay rise in the past year, according to the latest salaries and jobs review by Robert Half. A significant proportion of respondents also indicated they were hoping to tap a new and cheaper pool of talent in the GBA.
May 30, 2018 2018 Business Outlook Survey Page 18 About the Survey Member types Ipsos Business Consulting conducted the poll online and by phone between March 10 and May 11, 2018. We invited about 1,380 corporate and individual members of the Chamber to take part, and collected 230 valid responses. This marks the beginning of a planned new series of annual membership surveys that will provide a new benchmark for business sentiment among Hong Kong s international business community. AmCham is the biggest and most active international chamber of commerce in Hong Kong, making the survey an authoritative insight into the views of businesses and executives based here. Asia-Pacific HQ Hong Kong is the Asia-Pacific hub of more than 75 percent of respondents' companies, followed by Singapore. Approximately 40 percent of respondents were working for SMEs with fewer than 50 employees in Hong Kong. Almost half of respondents were working for companies with more than 100 employees of which around 15 percent were working for companies with more than 1,000 employees in the city. That is in line with the Chamber s membership base of about 1,500. Respondents represented a diverse group of multinational businesses from more than a dozen countries. Almost 50 percent were from U.S. companies, with 36 percent representing Asian companies more than 90 percent of which were Hong Kong companies. Twelve percent represented a range of EU companies. Additionally, the largest of number of respondents reported working in education (13 percent), banking or financial services (12 percent), apparel (8 percent), management consulting (8 percent), logistics (5 percent), and IT-related services (4 percent).
May 30, 2018 2018 Business Outlook Survey Page 19 About AmCham HK AmCham was founded in 1969 with a core mission, values and clear objectives. Mission To foster commerce among the United States, Hong Kong and China and enhance Hong Kong's stature as an international business center Values Private Enterprise, Free Trade, Rule of Law, Ethical and Responsible Business Practices, Transparency and the Free Flow of Information Objectives To represent our diverse membership on issues of common interest. To provide a forum for networking and access to information. To serve as a trusted and influential advocate with governments. To encourage civic-minded participation in the Hong Kong community. To promote the Chamber's core values. http://www.amcham.org.hk/ About Ipsos Business Consulting Fact-based growth strategy consulting. Ipsos Business Consulting is a purpose-driven consultancy that believes knowledge empowers organizations and enables them to create opportunities and generate growth around the world. Here at Ipsos Business Consulting we are united and driven by our mantra Build, Compete, Grow three words that encapsulate who we are and what we do. Build establish firm foundations for new lines of business that match client resources to the strongest opportunity within their chosen market. Compete devise winning business models that will outperform the competition. Grow improve top-line growth for developed and emerging markets. http://www.ipsosconsulting.com
May 30, 2018 2018 Business Outlook Survey Page 20 For media enquiries: Queenie Tsui: qtsui@amcham.org.hk Content: Ben Richardson: brichardson@amcham.org.hk Methodology: Yuhui Chu: YuHui.Chu@ipsos.com Photo: Chris Hoare via Creative Commons/Flickr