Each summer, GIC and GCC conduct a joint Business Confidence Survey to gauge the current sentiment and economic outlook of the German business community in Hong Kong. The 2023 edition was conducted between late August and mid-September and gathered 81 responses from representatives of German subsidiaries in Hong Kong, locally founded companies under German ownership, as well as local and international companies with significant business ties to Germany.
Key findings
- Business confidence in Hong Kong over the next two years showed a strong recovery with significant improvements compared to last year’s survey.
- Respondents also rated the confidence of their overseas stakeholders in Hong Kong significantly higher compared to last year. However, the discrepancy between how respondents assessed their own business confidence in Hong Kong vs. that of their overseas stakeholders continued to widen.
- Every third respondent saw improvements in the overall economic situation compared to last year, while almost half found that conditions had worsened. 50% assessed the political climate as worse than in 2022.
- The relocation trend has clearly declined. 85% stated their company was not considering a relocation out of Hong Kong in the coming 12 months.
- Finding and retaining talent remains a major challenge for the German business community. Many respondents saw a negative trend since 2022, both in terms of recruitment of local talent and attraction of talent from overseas. Looking ahead into 2024, only few respondents expect improvements for overseas and local talent.
Hong Kong’s distinctive advantages – and ongoing challenges
The strategic location advantages which Hong Kong has offered for German business over many years were reaffirmed in the 2023 survey. Asked about the specific advantages Hong Kong provides for their business compared to other locations in the region, respondents most frequently cited convenient market access to Mainland China as well as Hong Kong’s proximity to the ASEAN markets. Other commonly mentioned advantages included the lean administrative and tax system, free flow of goods and capital, efficient transport and logistics infrastructure, as well as the cosmopolitan environment and highly qualified talent.
Yet, a deeper look into Hong Kong’s business environment in 2023 reveals ongoing challenges with regards to several aspects. For instance, most survey respondents assessed the political climate as either worse (50%) or unchanged (31%) compared to 2022. Moreover, finding and retaining talent continues to be a major struggle for many companies. Nearly half of all respondents found the situation had gotten worse in terms recruiting local talent (47%) and attracting talent from abroad (46%). Opinions on the overall economic situation were varied: 46% found the situation had become worse, while 32% noted improvements.
Overall, a majority of respondents saw no substantial changes in any particular category. The share of respondents who made a positive assessment compared to 2022 was highest in the categories of infrastructure and connectivity (26%), office and housing costs (26%), visa and immigration procedures (23%), and regional headquarters location (22%); presumably in no small part due to the lifting of cross-border travel restrictions in early 2023.
Looking ahead to the coming year, the survey results suggest a cautious outlook within the German business community. Most respondents were not expecting notable improvements in any of the categories included in the survey. 30% expected a better overall economic situation as well as improvements regarding office and housing costs in 2024, whereas well over half of all respondents was expecting the situation in these and other categories to remain about the same or worsen. In particular, 43% were expecting a (further) deterioration of the political climate, while around 38% were expecting negative developments in terms of attracting overseas talent as well as labour cost in 2024.
Seeing is believing? Business confidence showing signs of recovery
Last summer, respondents’ confidence in Hong Kong as a business location had reached its lowest point since 2019, owing to three years of stringent travel restrictions. On a scale from 1 to 5 (‘1’ indicating low confidence and ‘5’ indicating high confidence) respondents gave an average score of 2.30 – down from 2.80 in the summer of 2021. This downward trend has clearly shifted: Respondents to this year’s survey gave an average score of 3.20 – nearly back to the business confidence level of 2019 (3.37) – while also giving their stakeholders’ confidence a noticeably improved 2.75 rating (up from 2.09 in 2022).
Nearly half of all survey respondents (45%) rated their own business confidence in Hong Kong with 4 or 5 out of 5, while 26% gave a lower rating of 1 or 2. The remaining 30% gave a neutral score of 3. After several years of declining confidence in Hong Kong, the 2023 survey suggests that the sentiment in the German business community has improved significantly.
With regards to the business confidence of their stakeholders in Germany and overseas in Hong Kong, however, answers were diametrically opposed: 46% assessed their stakeholders’ confidence with a score of 1 or 2, while only 26% gave a high score of 4 or 5. On average, respondents assessed their overseas stakeholders’ confidence lower than their own by a margin of -0.45 (compared to -0.21 in 2022 and -0.11 in 2021) suggesting that the perception of Hong Kong as a business location by those working on the ground vs. by those looking at the city from afar has continuously widened in recent years.
Meanwhile, the relocation trend from Hong Kong to Singapore and other hubs in the region seems to have slowed down. 85% of respondents stated that their company was not actively considering a relocation out of Hong Kong in the next 12 months, while 14% were considering a partial relocation, i.e., moving certain departments or functions. In the 2022 survey, one in three respondents had reported plans for a partial (27%) or full (6%) relocation. Among those who indicated relocation plans in the 2023 survey, Singapore remained the most popular destination.
In terms of headcount development in Hong Kong in the next 12 months, responses were evenly spread out between increasing (29%), stable (33%), and decreasing (33%). When it comes to retaining talent in Hong Kong, companies were experiencing a variety of challenges in 2023. Competition with other employers (54%), emigration of staff (51%), and aligning employee expectations (46%) were all significant factors in this challenge, according to survey respondents.
German business in the Greater Bay Area
With regards to respondents’ business in the Greater Bay Area, the survey results were mixed. While 38% stated their stakeholders outside of Hong Kong were familiar with the term “GBA” and the concept behind it, 58% either stated this was not the case or were unsure. Other than Hong Kong, 36% of respondents had investments in the GBA – mainly Shenzhen and Guangzhou – whereas 64% did not. Only 18% expected their company’s investments in the GBA to increase in the coming year, while 79% expected no changes.
Covering all company industries, sizes, and office functions
Responses to the survey questionnaire were provided by corporate members of GCC (87%) as well as non-members (13%) active in a variety of industries and sectors. By far the largest share of respondents (31%) was engaged in the consumer goods industry, followed by accounting and professional services (14%), logistics (13%), as well as electronics (13%).
Around three out of four respondents (76%) were working in foreign companies with headquarters overseas, mainly in Germany. 39% of respondents’ companies in Hong Kong served as regional headquarters with managerial control over business operations in the entire Asia-Pacific region. Meanwhile, 21% were regional offices overseeing some other regional markets aside from Hong Kong, while 16% represented local offices with a sole focus on the Hong Kong market. 24% of responses came from locally established companies.
In terms of company headcount in Hong Kong, survey responses ranged from small offices with 10 employees or less (26%), to medium-sized offices with 11 to 100 employees (46%), to large offices with more than 100 staff (28%). As for global headcount, 39% of respondents worked in companies with 500 employees or less, while 34% had over 10,000 staff worldwide.
Find a summary of the survey results for download below.
Publications on the topic
German Business in Hong Kong 2023