Hong Kong Productivity Council Chief Digital Officer Edmond Lai, left, and Senior Economist of Global Research for Greater China of Standard Chartered Bank Hong Kong Kelvin Lau at a press conference to release Standard Chartered Hong Kong SME Leading Business Index for the first quarter on Jan 26, 2021. (PHOTO PROVIDED TO CHINA DAILY)

Business confidence among Hong Kong’s small and medium-sized enterprises weakened amid the fourth wave of the city’s COVID-19 pandemic despite optimism about vaccinations and the new US administration, a new survey shows.

The Standard Chartered Hong Kong SME Leading Business Index for the first quarter this year, released on Tuesday, was down 5.1 points to 32.4 from the previous quarter. The survey was conducted by the Hong Kong Productivity Council in December. It interviewed 814 local SMEs.

Kelvin Lau, senior economist of global research for Greater China of Standard Chartered Bank Hong Kong, said that the latest readings suffered a setback after improving the two previous quarters.

“This is somewhat of a surprise, given that the survey was conducted in early to mid-December, when news around impending vaccine rollouts and a new Biden administration in the US should have lifted sentiment,” Lai said.

All five component subindexes of the first quarter — recruitment sentiment, investment sentiment, business conditions, profit margins and the global economy — dropped simultaneously. Profit margins recorded the most significant drop, down 8.7 points to 20.2.

Kelvin Lau, senior economist of global research for Greater China of Standard Chartered Bank Hong Kong, said that the latest readings suffered a setback after improving the two previous quarters

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All three key industry indexes — import or export trade and wholesale industry, manufacturing industry, and retail industry — saw a fall. But recruitment sentiment of social and personal services, financing and insurance, and the information and communications industries stood above 50 despite the downtrend.

One possible explanation is that the expected improvement to global growth prospects remains too far off to offset lingering immediate challenges, including further disruptions from fresh waves of COVID-19 outbreaks, or, in the case of exporters, the strengthening of the renminbi, he added.

“The latest readings is a timely reminder that while 2021 as a whole is still likely to be a year of recovery, we believe it will be a bumpy ride,” he said.

HKPC Chief Digital Officer Edmond Lai noted that some industries achieved above 50 in recruitment sentiment, indicating these industries still see development opportunities under the gloomy global and domestic business environment.

The survey also featured market opportunities arising for SMEs. Over 34 percent of SMEs were interested in or have been entering the mainland market. However, on the central government's “dual circulation” policy —  a plan to strengthen the country’s domestic market while deepening opening-up to foreign markets — about 46 percent of SMEs said they “have heard of it but without much understanding”, and only13 percent said they were “familiar with it”.

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About 10 percent and 43 percent surveyed SMEs said they were “familiar with” and “have heard but without much understanding” of the recently signed Regional Comprehensive Economic Partnership agreement respectively.

Lai stressed that the “dual circulation” policy and the signing of RCEP will undoubtedly offer Hong Kong SMEs new opportunities.

The survey unveiled that many SMEs are tapping into the mainland market, while there are many that lack understanding of the national policy, he said.

“To seize the market opportunities, it is of utmost importance for SMEs to understand the policy and boost competitiveness through industry and technology transformation,” Lai stressed, adding that the HKPC has been offering support to local SMEs through various training and events.