Battered small businesses: government stimulus package “too little too late”

Owners of small and medium enterprises and scholars are sceptical towards the effectiveness and timeliness of government’s new measures to support small businesses under a relief package unveiled by the Financial Secretary Paul Chan Mo-po at his 2020/21budget speech.

The HK$120 billion relief package aims to boost the ailing economy amid the US-China trade conflict, months of social unrest, and the novel coronavirus outbreak. It includes a one-off HK$80,000 cash handout for retailers, a low-interest loan with a 100% guarantee by the government for small and medium enterprises (SMEs), and HK$10,000 for all adult permanent residents.

Hong Kong’s economy contracted by 1.2 per cent in 2019, the first annual GDP decline since 2009. Vowing to help enterprises to get through the economic doldrums, the government has put a focus on “supporting enterprises, safeguarding jobs, stimulating the economy and relieving people’s burden” at its latest Budget.

The retail sector has suffered across the board with large retail businesses like Sa Sa International Holdings, Chow Tai Fook Jewellery Group, Louis Vuitton shutting or planning to shut stores in the city after months of anti-government protests and amid a protracted Sino-US trade war. Small businesses struggle even harder to survive the effects of the pandemic on the economy.

HK$80,000 cash for retailers

Under the Retail Sector Subsidy Scheme, eligible retailers will receive one-off cash handouts of HK$80,000 each from the government to alleviate their financial difficulties. Qualified businesses must have been registered since at least January 1 this year, still operating and have a physical store. Mail order, online retailers and direct marketing businesses are excluded from the scheme.

Chan Yiu-nga, 43, owner of a Chinese restaurant in Kowloon City, received the cash handout in less than two weeks after application.

“The money came faster than I expected,” she said. “Our business actually has poor cash flow, so cash is the best thing we could ask for now. But it is merely a tiny favour because it can’t even cover our monthly rent,” she said. Chan, along with other small retailers in the city, can also apply for the low-interest loan designated for SMEs.

Chan said the restaurant has been mostly quiet during the coronavirus outbreak. 

SMEs low-interest loan

There are about 340,000 SMEs in Hong Kong, accounting for over 98% of the total business establishments in the city, according to the Trade and Industry Department. To support local enterprises and safeguard jobs, the Financial Secretary introduced the concessionary low-interest loan under the SME Financing Guarantee Scheme, which is fully guaranteed by the government.

The total size of the SME Financing Guarantee Scheme is HK$20 billion. The loan amount for each applicant could be equal to the sum of the businesses’ salary bills and rental expenditures for six months, capped at HK$2 million, with an interest rate of prime rate minus 2.5 per cent per year.

To head off the potential economic crisis caused by the Coronavirus, The US Federal Reserve cut the Fed Funds rate twice in March to a range of 0-0.25 per cent while Hong Kong’s prime rates are unchanged at 5.0-5.25 per cent.

SMEs in Hong Kong would receive subsidies on utility bills and could apply for a full government-guaranteed loans to ease financial burdens. 

Wong Chun-hung, 55, owner of a pharmacy in Mong Kok said the scheme has no practical use at all.

“I don’t think it’s useful for SMEs because we need to repay the loan afterward. If we are not able to make a profit, we are not able to repay the loan no matter how low the interest is,” Wong said.

To apply for the scheme, businesses have to show that they have been in operation for at least three months by December 2019, and have to provide clues that their revenue was down by at least 30 per cent in any month since February compared to the any quarter’s monthly average of last year.

Wong also said that the application procedures are too hard to follow.

“They asked us to provide documents, but my pharmacy is not a big-scale business, and I didn’t keep everything in black and white,” Wong said.

As the retail sector has been dragged down by pro-democracy protests, Hong Kong’ retail sales plunged 11.1 per cent year-on-year to HK$ 431,160 million in 2019, according to the Hong Kong’s Census and Statistics Department.

The city’s retail trade has been facing an extremely austere and retail sales plunged 44 per cent year-on-year to HK$22.7 billion in February 2020, the biggest drop in the record and marking 13 straight months of negative readings.

Chief Executive Carrie Lam announced a ban on entry to visitors; all arrivals are subject to a 14-day mandatory quarantine, travellers from mainland, Macau and Taiwan are excluded from the measure if they haven’t visited foreign countries in the past 14 days.

The Hong Kong Tourism Board (HKTB) predicted that Hong Kong would see “zero visitors” for the coming months due to the entry ban measure. The retail sector is expected for a further drop in their businesses.

Source: Hong Kong Census and Statistics Department

“My business dropped more than 50 per cent in 2019. I still feel uncertain about my business prospects,” Wong said.

Besides the pharmacy industry, other SMEs like restaurants also suffered from the economic downturn in 2019 and the outbreak of coronavirus.

Chan, whose shop has operated in Kowloon City for five years, said the new measure is just “better than nothing”. “I hope there would have been more timely support for SMEs,” said Chan. “I’m not sure whether we could survive through a difficult situation before we could even get the loan.”

Source: Hong Kong Census and Statistics Department

According to the Hong Kong’s Census and Statistics Department, the total restaurant receipts in 2019 declined 5.9 per cent year-on-year to HK$112.5 billion. It has suffered from double-digit plunges from Q3 2019, with the declines of 11.8 per cent and 14.3 per cent in Q3 and Q4 respectively.

CUHK associate professor of Economics, Chong Tai-Leung restaurants can shut down before they obtain the loan.

“Restaurants usually have one to two months of cash flow, but most restaurants may have already used it up since the economic downturn last year,” said Chong. “It is not about how much the government lends out, but how fast it is done.”

He also expressed concerns over the possible inappropriate use of the loan.

“I am afraid the loan will be abused by restaurants which already owe the banks a lot of money,” Chong said. “These restaurants may use the government-guaranteed loan to pay off old debts.”

The coronavirus pandemic continues to batter the catering sector as the government has announced new measures to enforce social distancing. Restaurants are required to set each table 1.5 meters apart and limiting the number of diners at each table to four. Staff and diners have to wear a mask and restaurants also need to check diners’ temperature and provide hand sanitiser for them.

“The major issue is that people prefer to stay home to avoid getting infected, it is almost impossible to survive when there is no business even with the help of low-interest loans and a small amount of cash handout,” Chan said with a sigh.

HK$10,000 Cash handout

The government has announced an HK$10,000 cash handout to all adult permanent residents in Hong Kong in a bid to boost consumption.

The handouts will cost the government around HK$71 billion. It is estimated that the relief measure could lift the economy by around 1 per cent, the Financial Secretary told CNBC.

Chan Hong-kay, an 18-year-old University student who is eligible for the cash payout, said he didn’t think the measure could help the economy much as he’s planning to save that money.

“I will probably save the money for future use because I seldom go out in view of the coronavirus disease. I don’t even want to go out for dinner or shopping because my family is running out of masks,” Chan said.

Prof. Chong said the handout might not be very effective in boosting the economy as the government hopes. “People may not choose to consume in restaurants or retail shops which are affected by the virus,” he said. “Instead, they may spend the extra money to hoard supplies like face masks in pharmacies which are already in good business.”

《The Young Financial Post 新報人財經》



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