Hong Kong's economy is recovering moderately after the epidemic, and the catering, accommodation and real estate industries are "ice and fire"

Interface News Reporter | Zhang Xilong

Hong Kong's overall economy continues to recover modestly, but there is a clear divergence among sectors.

On April 30, the Hong Kong Productivity Council announced the "Standard Chartered Hong Kong SME Leading Business Index" for the second quarter of 2024, and the composite business index reached 47.3 in the second quarter of this year, up 3.6 points quarter-on-quarter.

The study reflects the confidence of Hong Kong's SMEs in the recent business environment, with a neutral level of 50. When the index is above the 50 level, it indicates that the respondent is positive, and below 50 it indicates that it is bearish. Since the second quarter of 2023, the index has shown a downward trend and is now back to the level of the fourth quarter of 2023.

Liu Jianheng, senior economist of Greater China of Standard Chartered Bank (Hong Kong) Co., Ltd., analyzed that although the overall figure did not return to the high level of 52.8 after customs clearance a year ago, it rebounded compared with the second half of last year and the first quarter of this year, reflecting that Hong Kong's economy has stabilized after a weak performance at the beginning of the year, and the negative sentiment is fading.

However, Cheung Tsz-chang, Chief Innovation Officer of Hong Kong HKPC, further pointed out that in the past three quarters, the cost of raw materials has been gradually rising, and global economic fundamentals such as geopolitics, the Russia-Ukraine war, and the situation in the Middle East are all triggering factors, while the prices of goods and services are relatively stable.

Lack of local spending power

At present, most sector indices remain below the 50 neutral level. The largest declines included accommodation and food services (42.6), finance and insurance (51.7) and social and personal services (50.7), down by 4.5 points, 1.3 points and 1.3 points respectively.

"In the short term, the less performing industries, the most obvious are tourism-related industries such as catering and accommodation, and the index is in the penultimate position. Liu Jianheng pointed out in an interview with Jiemian News that the sub-items of the catering industry did not perform outstandingly, and sales and profits fell month-on-month.

Among the three major sectors, the retail trade index was also the worst at 43.2, followed by manufacturing, import/export trade and wholesale trade at 45.3 and 44.4 respectively.

Liu Jianheng mentioned that "a large amount of consumption power to run out" is the main reason for this phenomenon, Hong Kong residents are accustomed to traveling, from the exchange rate, because the Hong Kong dollar and the US dollar are pegged, the Hong Kong dollar is currently appreciating, good for Hong Kong people to spend abroad, "the yen has been depreciating recently, attracting many Hong Kong people to Japan to shop, a lot of consumption power to run out." ”

"On the other hand, more and more people are going north to consume, which has also led to the recent weakness of industries related to domestic demand. Lau believes that at present, there is a big gap between Hong Kong residents' local spending power and pre-epidemic consumption.

Since the reopening of the border, there has been a phenomenon of "reverse flow" in Hong Kong - a large number of Hong Kong people have gone north to spend money or travel to Southeast Asia, East Asia and other regions, but correspondingly, Hong Kong has not attracted the same scale of tourists.

According to the "Hong Kong People's Northbound Consumption Data Briefing" released by Meituan a few days ago, the radius of Hong Kong residents' consumption and life in the north continues to expand. In addition to Guangzhou, Shenzhen and other cities in the Greater Bay Area, Wuhan and Changsha have become the cities with the largest number of new Hong Kong users. In the first quarter, the transaction value of Hong Kong residents' consumption of lifestyle services in the mainland increased by 135% quarter-on-quarter, and the number of orders increased by 157.6%.

Three sectors rebounded

In contrast, information and communications (57.7), real estate (52.3) and import/export trade and wholesale trade (44.4) rebounded by 13.8 points, 11.2 points and 5.2 points respectively, benefiting from policy support or improvement in external factors.

Liu Jianheng told Jiemian News that the biggest driving force is the improvement of the index in terms of global economic outlook. According to the latest research, among the five major sub-indices of the Composite Business Index, the "global economy", which has experienced three consecutive quarters of decline, stopped its decline and rose by 9.1 points to 39.4.

Another positive news comes from the improving economic situation in the mainland. On April 30, the Service Industry Survey Center of the National Bureau of Statistics and the China Federation of Logistics and Purchasing released data showing that China's manufacturing purchasing managers' index (PMI) was 50.4% in April, which was in the expansion range for two consecutive months.

"The (Mainland) manufacturing industry has maintained a recovery momentum, with an average improvement over the first quarter, remaining above the range of 50, and the mainland economy has entered an optimistic and positive range, and Hong Kong small and medium-sized enterprises will also benefit. Liu Jianheng said.

The change in the import and export index is related to Hong Kong's recent positive export performance. According to the Census and Statistics Department, the value of exports rose by 11.9% year-on-year in the first quarter, with significant increases in some major goods, including electrical machinery, instruments and appliances and parts (up 13.7%) and communications, audio and audio equipment and instruments (up 16.9%).

The rebound in the information and communications and real estate sectors is mainly related to policy support. 71% of the respondents in the real estate industry said that the "comprehensive withdrawal" of the property market is helpful to the company.

The Central Plains City Leading Index CCL was last reported at 146.89 points, up 1.39% for two consecutive weeks. Yang Mingyi, senior co-director of the research department of Centaline Real Estate, pointed out that the property market improved after the withdrawal at the end of February, and CCL got rid of the low level of 143.02 points before the withdrawal and stabilized.

However, the CCL is still at a more than 7-year low, hovering at the level of mid-February 2017, and the index is down 23.23% from the all-time high of 191.34 points in August 2021. Affected by the successive price reduction promotions of a number of new projects, second-hand transactions have gradually slowed down, and the upward trend of property prices has also been significantly hindered.

Hong Kong's economy is recovering moderately

92% of Hong Kong SMEs expect their overall investment to remain unchanged or increase, with investment expected to remain unchanged or increase in the current quarter, including IT systems, marketing promotion, e-commerce or digital technology-related training, overall staff training, research and development projects, machinery and equipment. The last two showed significant growth in the quarter.

Cheung Tsz-cheong believes that the rebound in the information and communications industry index reflects that Hong Kong's small and medium-sized enterprises are more willing to use technology to upgrade and transform, such as improving production efficiency and product quality through intelligent production lines. ”

According to the study, 82% of Hong Kong SMEs would like government support, with technology support/digital transformation (27%), financing needs (25%), local (Hong Kong) business development (24%), and talent recruitment and training (22%).

In 2023, Hong Kong's GDP will achieve a positive growth rate of 3.2%. Hong Kong's Financial Secretary, Paul Chan, said that taking into account factors such as local exports of goods, exports of services, and private consumption, Hong Kong's economy is forecast to expand further in 2024, with annual real growth ranging from 2.5% to 3.5%.

Lau Kin-hang told reporters that overall, Hong Kong is still in a moderate recovery, and the improvement in exports is expected to offset the continued weakness of local domestic demand.

"From a cyclical point of view, it is actually normal for the confidence performance of different industries to go in different directions. Imports and exports have experienced negative growth throughout last year and are now entering a cyclical rebound stage. The retail and catering industries benefited from customs clearance, reaching a high level in the middle of last year, and then also entered a downward cycle. This phenomenon is not unexpected. Liu Jianheng said.