Ventures Dialogue

Not unlike in North America, the economy is first and foremost on the minds of Hong Kong residents and officials.  Last Thursday in the Legislative council Chief Executive Donald Tsang Yam-kuen used concerns about the economy to confirm delays in consultation regarding electoral reform.  He explained that the jobless rate is expected to rise above 4%.  Low by North American standards, the unemployment rate in Hong Kong generally hovers between 2.5 and 3%.

Consumer confidence has been shaken, banks have become more reticent to lend, and businesses have been constrained by the inability to obtain credit from the banks.

The Hong Kong government has put many measures in place to help reduce the impact of the economic tsunami, as it is called in this part of the world. Programs aimed at businesses are available to all registered Hong Kong businesses, even if they are subsidiaries of offshore companies, for instance from Canada.

A special loan guarantee program has been implemented to help small and medium sized enterprises (SMEs) secure loans from banks.  While banks still make the lending decisions, under the scheme the government provides a 70% guarantee for loans up to $6M Hong Kong dollars.  This program is an extension of a permanent program which backs loans for expansion and equipment purchases.

Already more than 1300 applications have been received and more than HK$2.2 billion in loans has been approved by the financial institutions.  Other support programs for SMEs have been expanded as well including an export marketing fund similar to our own Export Market Access here in Ontario, and information and education support.

The Hong Kong Export Credit Corporation, which provides insurance protection for exporters registered in Hong Kong, has also received a guarantee from the government to cover claims beyond the norm.  Claims are expected to rise this year as overseas buyers default on contracts.  According to Mr. Walter Tse, Deputy General Manger of HKECIC, more buyers refuse to take delivery of goods during difficult economic times.  HKECIC has chosen not to raise premiums although risk has risen, and offers free credit checks for a maximum of three buyers so that Hong Kong companies may affordably determine how much credit to offer a new client overseas.

The Hong Kong Monetary Authority is of the opinion that there is sufficient liquidity in the system but “we will not as a regulatory body force them (the banks) to lend to the corporate sector,” explains Mr. Rayond Chan, Head (Banking Policy Division).  Chan says that the regulator has issued advice to the banks to encourage them to lend, and to discourage them from curtailing credit to corporations as a group or across an industry.  They’ve encouraged the banks to review each loan request on a case by case basis.  Mr. Chan adds, “lending is a commercial decision.”

In Hong Kong, 98% of all businesses are classified as small and medium enterprises of 100 employees or less.  Belinda Kwan, Assistant Director-General of the Trade and Industry Department says the measures that have been introduced to help them weather the economic tsunami should be sufficient to help the strong companies survive.  Taking a rather pragmatic view she stated that during difficult times, “the stronger get stronger and the weak disappear.”

Later this month, I’ll talk about the economic stimulus package that Hong Kong is preparing and how it may create opportunities for Canadian firms.