In June 2021, GIC and GCC conducted a joint Business Confidence Survey in order to gauge the current sentiment and future outlook among German businesses in Hong Kong, following two years of unprecedented challenges. The survey gathered a total of 91 responses from the German business community in Hong Kong, comprising of corporate members of GCC, subsidiaries or branches of German parent companies, local sales agents and distributors of German brands, as well as locally established companies with German ownership.
More than a third (36%) of all survey respondents’ companies in Hong Kong were functioning as a regional headquarters, i.e. with managing responsibility for their parent company’s entire operations in the region. Around 28% had their global head office in Hong Kong. In terms of market focus, over 60% of respondents were responsible for the Greater China region, the largest percentage among all Asian markets. Respondents’ company sizes in terms of the number of employees worldwide ranged from 500 or less (31%) to 10,000 or more (40%).
Employment and investment outlook
Overall, the survey results point towards a stable employment outlook among German businesses in Hong Kong over the coming 12 months: Almost half (48%) were expecting the number of their staff in Hong Kong to stay the same, while similarly large shares of respondents were either expecting an increase (23%) or a decrease (21%) in numbers. Among respondents from small companies (50 employees or less), 57% were expecting their current employee numbers to remain stable. Larger companies were expecting higher turnover compared to the overall percentages, both in terms of headcount increase (27%) and decrease (27%).
Respondents’ sentiment for investments over the next three years remains on a moderate level. A large share of survey respondents either had plans or were considering to invest in Shanghai (32% yes/16% undecided), Hong Kong (30%/26%), the Greater Bay Area (26%/27%), and/or Beijing (16%/14%). Respondents from larger companies (>50 employees) were notably keener to invest, primarily in Shanghai (56%/19%), followed by the GBA (39%/33%), Hong Kong (38%/31%), and/or Beijing (35%/9%), respectively.
Economic uncertainty prevails
Breaking down perceived changes in Hong Kong’s business environment reveals a mixed picture. Overall, the survey results indicate considerable uncertainty among respondents about the economic situation in Hong Kong. Nearly 40% assessed the overall economic situation in 2021 as worse compared to 2020, while less than a third (31%) found that the situation had improved. Furthermore, a large share of respondents saw a drop in Hong Kong’s competitiveness as a logistics hub (40%) and/or regional headquarters location (42%) over the same period.
Meanwhile, the economic outlook for 2022 appears slightly less negative: Some 47% of respondents were expecting the overall situation to improve over the next 12 months. However, about one in four respondents (26%) was expecting things to get worse. In addition, every third respondent was expecting Hong Kong’s status as a logistics hub (31%) and/or regional HQ (36%) to further diminish in 2022. On a more positive note, 30% noted improvements in terms of office and housing costs from last year, pointing towards less pressure on the real estate market.
Strong views on political and legal changes
At the same time, a majority of respondents perceived a deterioration in Hong Kong’s legal system (52%), freedom of the press (77%), and political climate (78%) since last year, trends that were expected to continue in 2022. The availability of reliable information was also viewed with considerable scepticism: 49% saw a negative change from last year, whereas 48% found the situation had remained about the same. However, more than half (54%) were expecting a deterioration in this category in 2022.
This subject has also come up in daily exchanges with GCC members. There is a growing concern among companies that the free flow of information might be compromised, which could potentially have a negative impact on regional headquarters functions. The German business community maintains that ‘One Country, Two Systems’ should be adhered to, and civil liberties and the rule of law should remain protected.
Business confidence remains low as companies need travel to resume
Asked to rate their business confidence in Hong Kong over the next 2 years on a scale from 1 (low) to 5 (high), respondents gave a somewhat cautious score of 2.80 on average, virtually unchanged from June 2020 (2.78) but far below the 3.37 rating at the time of the first GIC/GCC confidence check in August 2019. With an average of 2.69, respondents assessed their overseas stakeholders’ business confidence in Hong Kong even lower than their own.
The lack of business confidence among a majority of survey respondents and their companies is in no small part due to the critical need for the resumption of travel: On a scale from 1 (not important) to 5 (critical), more than half of respondents gave the highest importance rating for both travel to Mainland China (51%) and international travel outside of China (57%). In terms of the frequency of business travel in the future, 47% of respondents were expecting less travel compared to the pre-pandemic level, while 15% were expecting to travel more frequently than before.
For enquiries, please contact:
Ms. Monica Murjani
T: (+852) 2532 1281
E: murjani.monica@hongkong.ahk.de
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