1. Focus on: Hong Kong
International Business Report 2012 – Economy focus series
The economy The business perspective
The Hong Kong economy expanded at a markedly The Grant Thornton International Business Report
slower rate in the first quarter, hurt by a slump in (IBR) surveys more than 12,000 businesses in 40
merchandise exports amid a difficult external economies around the world. This report focuses on
environment. Private consumption growth remains businesses in Hong Kong and their expectations for
healthy but the export-based economy will be the next 12 months, as illustrated in figure 1.
vulnerable to further slowing in the eurozone, The IBR survey tells us that businesses in Hong
United States and mainland China economies. Kong are only cautiously optimistic about their
Keeping the US dollar peg minimises currency risk economy over the next 12 months. Expectations for
but makes Hong Kong vulnerable to commodity employment remain below 2011 levels whilst the
price shocks. The housing and equity markets are availability of a skilled workforce and bureaucracy
over-inflated with the potential for substantial are both far less of a constraint than in 2011.
corrections.
The key indicators1 are highlighted below:
• GDP increased 0.4% year-on-year in Q1-2012,
well down on the 3.0% observed seen in Q4-
2011
• merchandise exports gains of 5.2% in May were
offset by a 4.8% decline in June; imports also
dropped by 2.9%, following an increase of
4.6% in May
• the trade deficit widened to HKD43 billion in
April of 2012, with exports being worth
HKD266 billion
• fixed investment climbed by 12.2% in Q1-2012,
the highest rate seen in almost two years due to
an increase in public infrastructure works
• household spending increased by 5.6% in Q1,
slowing slightly from a 6.6% gain in Q4-2011.
1
source: International Monetary Fund, The Economist and Experian.

2. The outlook
Figure 1: Key indicators for businesses
Hong Kong is expected to face slower GDP growth
over 2012 with the key export markets of Europe Hong Kong compared with APAC 2010 2011 Q2-2012 Q2-2012
and the United States sluggish, before a trade surplus HK HK HK APAC
recovery from 2013. The economy is forecast to Outlook for the economy over the next
12 months
expand by 2.8% in 2012, accelerating to 3.9% per
Net optimism over pessimism 64% 41% 8% 6%
annum on average in the period 2012-16. Slower
economic growth on the Mainland would also have Change in employment levels
a negative effect on local trade but domestic demand Net hiring expectations 41% 39% 22% 29%
is expected to remain firm.
In short-term, the Hong Kong dollar’s peg to Constraints on expansion
the US dollar means monetary conditions are Availability of skilled workforce 27% 41% 24% 37%
expected to stay loose. In the longer term, Hong Source: Grant Thornton IBR 2012
Kong is expected to have enviable growth potential
with further integration into the Mainland supply
chains and as a RMB off-shore hub. Financial
market integration looks set to be faster than
previously anticipated due to significant momentum
behind capital account liberalisation on the
Mainland. Huge street protests greeted the swearing
in of Hong Kong’s new chief executive, Leung
Chun-ying. Much will depend on how the new
government sets out and implements policies,
particularly the recently enacted competition law
and greater provision of social housing.
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3. International Business Report results
The results reveal that global business optimism rose Figure 2: Outlook for the economy over the next 12 months: Q4-2010 to Q2-2012
marginally in Q2-2012 with net 23% of businesses Net percentage businesses indicating optimism less those indicating pessimism
optimistic2 for their economies over the next 12 80
70
months. Businesses sentiment for the next
60
12 months in mainland China is positive with net 50
33% of businesses optimistic, up from net 23% in 40
the first quarter. 30
20
The sovereign debt crisis continues to weigh
10
heavily on businesses confidence in Europe; 0
business optimism across the eurozone stands at net -10
-5%. However confidence in the BRIC3 economies -20
Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012
remains strongly positive at 41% and confidence in Hong Kong 57 67 46 42 10 -2 8
the United States increased from 46% to 50%, the APAC 5 17 8 -7 -9 2 6
highest level recorded since 2005. Global 23 34 31 3 0 19 23
Source: Grant Thornton IBR 2012
Optimism/pessimism
• business optimism for the year ahead increased
in Q2-2012, climbing to net 8%
• business sentiment in the Asia Pacific region as a
whole also climbed to stand at net 6%
• globally, business optimism climbed to net 23%,
up from 19% in Q1.
2
the balance is the proportion of companies reporting they are optimistic less
those reporting they are pessimistic.
3
the BRIC economies are Brazil, Russia, India and China

4. Employment Figure 3: Employment history: Q4-2010 to Q2-2012
• net 22% of businesses in Hong Kong expect to Net percentage businesses
hire workers over the next 12 months, slightly 70
60
up on Q1, but well below levels observed this
50
time last year (44%) 40
• actual employment growth reported by 30
businesses in Hong Kong in Q1 (30%) was 20
10
higher than expected the previous quarter (20%).
0
Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012*
Expected HK 44 42 44 42 22 20 22
Expected APAC 16 32 38 32 34 35 29
Actual HK 42 50 62 30 28 30 –
Actual APAC 26 34 33 30 25 24 –
*Q2 2012 actual data will be documented in Q3 2012
Source: Grant Thornton IBR 2012
Revenue expectations Figure 4: Revenue expectations: Q4-2010 to Q2-2012
• the proportion of businesses expecting to see Net percentage businesses indicating an increase less those indicating a decrease
revenues rise in the year ahead climbed to net 90
80
26% in Q2-2012, up from 22% in Q1
70
• expectations are in line with Q1 for businesses in 60
the Asia Pacific region and globally, with net 50
59% in APAC and net 52% globally expecting 40
30
to increase revenues over the next 12 months.
20
10
0
Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012
Hong Kong 66 81 68 60 36 22 26
APAC 51 55 54 51 48 56 59
Global 46 55 55 45 43 52 52
Source: Grant Thornton IBR 2012

5. Profitability expectations Figure 5: Profitability expectations: Q4-2010 to Q2-2012
• the proportion of businesses expecting to Net percentage businesses indicating an increase less those indicating a decrease
increase profits in Hong Kong dropped sharply 70
60
over the past 12 months
50
• just 8% of businesses now expect to see profits 40
rise over the next 12 months, compared with 30
54% in Q2-2011 20
10
• net 40% of businesses in the Asia Pacific region
0
expect to see profits rise over the next 12 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012
months, slightly above the global average (38%). Hong Kong 36 57 54 40 16 24 8
APAC 37 45 34 32 34 37 40
Global 40 47 42 33 31 39 38
Source: Grant Thornton IBR 2012
Constraints
Figure 6: Constraints on expansion: Q2-2012
• a lack of skilled workers is cited as being the Average percentage of businesses rating constraint 4 or 5 on a scale of 1 to 5 where 1 is not a constraint
and 5 is a major constraint
greatest constraint on business expansion for
businesses in Hong Kong (24%), lower than for Availability of skilled workforce 24
37
businesses in the APAC region (37%)
Regulations/red tape 12
• regulations and red tape is cited by just 12% of 33
businesses in Hong Kong as being a major Shortage of orders/reduced demand 8
49
constraint, again, far lower than the APAC
Shortage of working capital 8
average (33%). 27
ICT infrastructure 8
21
Cost of finance 6
33
Shortage of long term finance 6
23
Transport infrastructure 2
19
Hong Kong APAC
Source: Grant Thornton IBR 2012

6. Accessing finance Figure 7: Accessing finance: Q2-2012
• the majority of businesses in Hong Kong are Percentage of businesses
happy with the level of support provided by 100
90
lenders; 87% of class lenders as supportive or
80
very supportive towards their business, 70
compared with 81% of APAC businesses 60
• moving forward, 14% of businesses expect 50
40
finance to become more accessible in Hong
30
Kong, whilst 12% expect it to become less 20
accessible. 10
0
87 81 0 2 14 20 12 23
Supportive Unsupportive More Less
Lender support Accessibility of finance – next 12 months
Hong Kong APAC
Source: Grant Thornton IBR 2012
Currencies
Figure 8: Factors determining confidence in a currency: Q2-2012
• the majority of businesses in Hong Kong use the Percentage of businesses
HKD (92%) in their business, followed by the 80 78
70 72
USD (36%) and RMB (34%) 64
60 56
• businesses have the most confidence in the RMB 50
(80%) whilst the least confidence in the Euro 40
(2%) 30
20
• stability is identified as being the most important 14
10
factor in determining confidence in a currency 0
4
(78%), followed by liquidity (72%). Stability Liquidity Confidence in Demand for Store of Other
the currency the currency value
issuer
Source: Grant Thornton IBR 2012

7. The Grant Thornton International Business Report (IBR) is a quarterly survey of 3,000 senior executives in businesses all
over the world. Launched in 1992 in nine European countries the report now surveys more than 12,000 business leaders in
40 economies on an annual basis providing insights on the economic and commercial issues affecting the global economy.
In Hong Kong, 200 businesses were surveyed over the past 12 months across all industry sectors. These businesses ranged
from medium to large in size with total employment of between 100 to 499 employees. Q2-2012 data are drawn from
interviews conducted in May/June 2012.
To find out more about IBR and to obtain copies of reports and summaries please visit: www.internationalbusinessreport.com.
Participating economies
Argentina Malaysia
Armenia Mexico
Australia Netherlands
Belgium New Zealand
Botswana Peru
Brazil Philippines
Canada Poland
Chile Russia
Mainland China Singapore
Denmark South Africa
Finland Spain
France Sweden
Georgia Switzerland
Germany Taiwan
Greece Thailand
Hong Kong Turkey
India United Arab Emirates
Ireland United Kingdom
Italy United States
Japan Vietnam
Contacts
Global research
Grant Thornton International
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E dominic.h.king@uk.gt.com
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