Businesses in the Guangdong-Hong Kong-Macao Greater Bay Area are optimistic on prospects, with sentiment among those in Hong Kong showing strong improvement. The mood among innovation and technology (I&T) firms in Hong Kong is especially buoyant.
This week, Standard Chartered and the Hong Kong Trade Development Council (HKTDC) released the Standard Chartered GBA Business Confidence Index (GBAI) for the second quarter of this year.
The overall current performance index for business activity remained largely unchanged at 54.1 from 54.3 in January to March and near its strongest level since the second quarter of 2021.
The GBAI expectations index rose to 54.8 in the second quarter from 54.0 previously, the first rise in five quarters. The figures remain comfortably above the 50 neutral mark, reflecting sustained expansionary momentum following a solid start to the year.
At the city level, Hong Kong’s current performance rose to 47.1 from 43.3, while expectations increased to 49.7 from 44.2, approaching the 50 neutral level. However, Guangzhou’s current performance index fell to 53.6 from 57.1 and expectations dropped to 56.6 from 60.6. Shenzhen had the highest current performance at 57.3 and expectations at 57.1.
Performance among industry categories was diverse. Retail and wholesale, up 3.9 points for current performance and 2.6 points for expectations, financial services up 15.0 points and 10.7 points, and professional services up 7.6 points and 12.3 points, respectively, all improved materially quarter-on-quarter.
The May Labour Day holiday and an early start to the 618 online shopping festival probably boosted household demand, allowing retail and wholesale to beat manufacturing and trading, despite a stronger start to the year for manufacturing.
I&T appeared to take a hit from tariff concerns, with the category’s current performance sub-index plunging to 43.9 from 57.8 previously, and expectations falling sharply to 38.1 from 54.6 in the first quarter.
However, the level of confidence across I&T respondents varied greatly in Shenzhen, with 42.0 for current performance and 33.7 for expectations, and Guangzhou at 50.0 and 59.4, respectively. In Hong Kong, the sector was positive at 63.2 and 76.0, respectively. This shows that not all tech companies are equally vulnerable to tariff increases from countries in the west.
Kelvin Lau, Senior Economist for Greater China at Standard Chartered, said: “During the survey period, the United States raised tariffs on US$18 billion worth of imports from Mainland China, as part of its Section 301 review. The same period also marked the run-up to the European Commission’s more recent decision to impose anti-subsidy tariffs on mainland electric vehicles (EVs).
“Some of our I&T respondents are probably part of such EV and lithium battery supply chains, and their reliance on external demand could be a lingering concern going into the US elections. That said, we take comfort from Hong Kong’s I&T outperformance, which likely reflected the city’s recent innovation and technology push via attracting strategic enterprises and related talent.”
The term “new quality productive forces” describes China’s push to modernise its economic growth model through technological innovation and transformation. A key concern over the push is whether there will be enough demand to absorb output from the increase in production capacity, but just 11.7% of respondents saw a very high risk of overinvestment and potential overcapacity in some of the new industries. A more substantial 36.7% described this as only a low risk, while acknowledging that risks exist.
The risk of overcapacity or macro concerns, such as an uncertain economic outlook, did not deter GBA companies from upgrading equipment and planning to make other business investments in the next 12 months. Of the respondents, 26.1% said they planned to increase such investment materially or marginally versus just 6.9% planning a decrease. A majority 67% opted for no change.
Irina Fan, HKTDC Director of Research, said: “Recent economic data from Mainland China indicates that the country’s growth remains at a solid pace so far this year. A greater role for Hong Kong is expected, particularly in the area of industrial transformation, as the country focuses on pushing through the new quality productive forces. We also see room for financing and investment expectations to play catch-up.”
