44 percent of small businesses cited political instability in Hong Kong as the top reason to seek financing in 2019, according to a survey by CPA Australia, with increasing collapses expected in 2020.

At 61 percent, Hong Kong’s small businesses ranked the highest in Asia Pacific in terms of demand for external funds with 44 percent citing survival needs, the survey said. 37 percent claimed to have grown in the past 12 months – a record-low and a plug from 2018’s 56 percent.

25 percent of respondents claimed to have experienced difficulty in paying debts in 2019 with 29 percent expecting the trend to continue in 2020. Even before the pandemic began, only 26 percent of respondents expected business growth while 73 percent had intentions to access financing in the next 12 months. 

«We have seen that the businesses in Hong Kong had experienced a lot of challenges last year, but the situation was worse than I expected,» said Janssen Chan, CPA Australia's deputy divisional president (2020) and chairperson of the Greater China SME committee, foreseeing accelerated collapses in the next three to six months.

Politics, Economics, Pandemic

In addition to political instability, 37 percent of respondents also named poor overall economic environment as the biggest negative factor to seek financing, likely largely referring to the effects of the U.S.-China trade war. 

«Coupled with the COVID-19 pandemic this year, the present situation for Hong Kong small businesses has become even more severe, and many will struggle to survive this crisis,» Chan reiterated, though he lauded government measures such as monetary easing, repayment relief and additional financing support.

Sectors like retail, catering and tourism industries have been facing many challenges in operating brick-and-mortar businesses were highlighted as those most at risk.

Go Digital

According to the survey, Hong Kong ranked below average for doing business online, evidenced by 43 percent of respondents that said they generated 10 percent or more of total income from the channel. This compares to 82 percent in Shenzhen and 86 percent in Guangzhou. Only 30 percent of respondents in Hong Kong claimed investments in technology improved profitability, half of Shenzhen and Guangzhou’s 60 percent.

CPA Australia’s Chan suggests the usage of digital tools to improve cost control and boost sales alongside the consideration of virtual banks as a new channel for external finance.

«Small businesses with resilience and flexibility under adverse economic conditions will remain competitive and eventually manage through these tough times,» he added.