Over the past months, Hong Kong has suffered unprecedented blows first from the anti-extradition protests and subsequently by the novel coronavirus outbreak.
These created adverse impact on the economy and tremendous pressure on the livelihoods of Hong Kong people, especially the middle and low-income groups and the small and medium enterprises (SMEs).
It is crucial for the government to introduce relief measures to counter the situation, in a timely and effective manner to revitalise the economy. The policy response would be a massive increase in government spending, and an intervention to effectively replace as much of the lost incomes from the private sector as possible. The more of this that can be done now, the less policy stimulus will be required when the health crisis is eventually over and normal economic activities are restored.
Although the Chief Executive, Ms. Carrie Lam Cheng Yuet-ngor offered one-off handouts of HK$80,000 up to HK$200,000, the relief was only limited to travel agencies, retailers and restaurants. Other industries cannot be benefited.
Whereas the Financial Secretary, Mr. Paul Chan mo-po, proposed to waive some of the government rent and rates and reduce certain license fees, the assistance offered to local SMEs in general are still very limited.
Instead of offering one-time cash rebate to SMEs which no doubt can meet short-term needs, the government should consider extending mid-term assistance to help SMEs to sustain their businesses and recover from the pandemic. Only when the businesses of SMEs are stabilised and revitalised would the unemployment rate be brought under control.
Currently there are two government subsidy schemes that aim at assisting SMEs to expand and grow their businesses overseas. Under the current exceptional circumstances, the government can consider updating the content, expanding the scope and relaxing the eligibility criteria to extend support to the SMEs
Export Marketing Fund (EMF)
EMF provides 50% reimbursement on a number of marketing activities undertaken by Hong Kong entities to expand and promote their business overseas. The mechanism of financing 50% of the expenditure instead of 100% is reasonable as it encourages responsible spending on the part of the business owners. Yet the list of marketing activities that the fund covers is limited and restricted to only certain types of international marketing activities.
When the economy is doing well, the government’s subsidies can focus on helping SMEs to further expand overseas. Yet, facing the potential global recession, the assistance should focus more strongly on helping SMEs, who form the pillar of the Hong Kong economy, to survive the crisis.
To better support businesses’ marketing initiatives, it is recommended that scope of funding be extended to cover all types of promotional activities targeting both Hong Kong and overseas markets. The extended scope can last for a certain period of time after the pandemic is over, until the economy has stabilised.
Currently, EMF mainly assists companies to participate in trade fairs/exhibitions outside Hong Kong, or local trade fairs/exhibitions which mainly target at markets outside Hong Kong. This can only benefit product-based industries. Service industries, a significant component of the Hong Kong economy, cannot be benefited. It is recommended that the EMF should also cover companies’ participation in international conferences, seminars and events to support service industries in promoting their businesses.
Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD)
The BUD fund also provides 50% reimbursement on expenditures of business expansion in the following markets: China, ASEAN, Australia, New Zealand, Iceland, Liechtenstein, Norway, Switzerland, Macao and Georgia.
In the good old days when more SMEs considered expansion to overseas markets, the BUD fund could be relevant. However, in this tough time when most of the SMEs are struggling for survival, the current scope of the BUD fund becomes impractical. If there is no change in the scope of the BUD fund and it continues to cover only expansions to overseas markets, it becomes irrelevant and fails to provide timely assistance to the SMEs.
It is recommended that for a two-year period after the pandemic ends, the scope of the BUD fund should be expanded to cover new business projects target to and conduct in both Hong Kong and overseas markets.
To be eligible for the fund, only Hong Kong registered companies with ‘substantive business operation’ will be considered. In determining whether the company has ‘substantive business operations’, the number of employees is one of the indicators, though there is no specific requirement for the number. If the BUD fund can be utilised to revitalise SMEs and stabilise their operations, the requirement for ‘substantive business operation’ should be further relaxed to include any companies who have new business initiatives to sustain and develop their businesses during and after the crisis.
By enhancing these two subsidy schemes, the government could be able to offer more practical and relevant support and assistance to SMEs in Hong Kong in a timely and effective manner.