Hong Kong is one of the most densely populated and diverse cities in the world. It offers a cornucopia of experiences, from world-class shopping to fine dining, from a vibrant nightlife to breathtaking natural landscapes, and from expansive parks to world-class museums—just name it and Hong Kong shall cater.
These combinations make Hong Kong an ideal location for small businesses to thrive.
However due to the restrictions imposed to prevent the spread of Hong Kong COVID-19 infections, many businesses and industries were forced to stop or limit their operations resulting in significant economic loss for the region.
Covid-19 and Hong Kong Businesses
The once lively streets of Hong Kong became inanimate as customer traffic and sales continued to decline. Many restaurants and shops have been forced to close down due to lack of business during this time period.
The decline in the number of tourists visiting the city contributed to the loss of the number of people who shop at local stores, restaurants and bars.
Hong Kong is coping with an increase in daily viruses, with cases soaring above 50,000 per day in early March of 2022. While other parts of the globe are coming to grips with the virus, the international financial center has decided to double down on a zero-tolerance stance in line with Mainland China.
Despite developments in the COVID-19 situation in Hong Kong, high rates of infections are still threatening the region, affecting the gradual opening of small enterprises.
To better understand the business situation, let’s dig a little bit deeper on how the pandemic has impacted small business profits in Hong Kong.
1 – Businesses Are Forced To Close Down Or Limit Operations
Many businesses have been forced to close down or limit their operations because of the pandemic.
Hong Kong based small business owner Pinky Yeung, shared her experience as a result of their business’ closure with Aljazeera. Yeung and her husband, who are fitness trainers, started Care and Cure Health Wellness Center specializing in chronic pain treatment. Eventually, the pair was earning up to one million Hong Kong dollars ($128,000) every month in membership fees.
However, the gym is now closed, its doors and windows covered with foam boards, as recreational institutions such as bars, theme parks, and museums enter the sixth week of government-imposed shutdown due to Hong Kong’s greatest COVID-19 outbreak.
In an interview with Bloomberg last February 2022, the president of the Hong Kong Federation of Restaurants and Related Trades, Simon Wong, stated that over 5,000 establishments, or nearly a third of the city’s eateries, are considering closing for several months in order to reduce cost.
Moreover, more than 1,200 establishments have already ceased operations, and 300 have shuttered permanently. But there are fears that quantitative easing efforts will not be sufficient to prevent further job losses.
2 – Employees Have Reduced Productivity Due To Illness And Stress
Employee productivity is an important aspect of a business’ success. If your employees are not producing results, it will be difficult for your business to make money. Unfortunately, many small businesses in Hong Kong have seen a decline in productivity as a result of COVID-19. This has been caused by several factors including employee illness, fear of contracting illness from others, and job stress related to working remotely during such uncertain times. Businesses should take steps to address these concerns in order to reduce their negative impacts on productivity.
In addition, 28% said their employees were taking more days off work due to illness, putting a strain on hiring and training new staff. The survey also found that more than half of the companies surveyed reported an increase in absenteeism among their staff due to COVID-19.
3 – Some Companies Are Forced To Lay Off Workers And/or Reduce Their Hours Of Work
In line with the closures and limited business operations, the unemployment rate in Hong Kong also increased.
During the first quarter of 2022, the monthly average level of unemployment in Hong Kong increased from 4.5 percent to 5.0 percent. It was the highest unemployment rate since the third quarter of the prior year, as infections in Hong Kong and Mainland China forced authorities to reinstate strict lockdowns. The quantity of jobless increased by 26,900 to 188,500, whilst the number of employed fell by 54,000 to 3,610,500. While those numbers represent a huge jump from a year ago, they also don’t tell the whole story.
Hong Kong’s unemployment rate jumped to 5% in the three months to March 2022, the highest level in nine months, as the economy was pummeled by a vicious wave of COVID-19 infections and the stringent measures required to contain them.
The unemployment rate was the highest since June 2021, at 5.4 percent, and was higher than the 4.8 percent forecast by economists in a Bloomberg poll. The unemployment rate increased in “almost all key economic sectors,” as did the underemployment rate, which reached 3.1 percent in the January-March period, the Census and Statistics Department said in a report Thursday citing government data.
4 – Some Shop Owners Struggle To Pay Rent
There are many opportunities for small business owners in Hong Kong. This is partly because Hong Kong is a free-market economy with very few restrictions and minimal government intervention. But even though it’s been a profitable venture for shop owners, the COVID-19 pandemic has had an adverse impact on their profits. And one of the ways this has happened is through rising rents.
In fact, some shop owners are struggling to pay rent because their income has dropped significantly since the pandemic began. According to the Hong Kong Census and Statistics Department survey (2020), the pandemic has put a strain on businesses’ profits and employees’ incomes, which has caused a ripple effect throughout the local economy.
For example, take Ms. Wong, who works at a bakery in Hong Kong. Her customer base has decreased dramatically over the last year because many people have lost their jobs due to COVID-19 lockdowns and other economic downturns. But her rent hasn’t changed at all; she still owes $20,000 HKD every month for operating out of a storefront in Mong Kok that she uses as both a bakery and a coffee shop (with tables).
The problem here isn’t just that Ms. Wong’s income has decreased dramatically since the coronavirus outbreak; it’s also that she was already struggling to pay rent before COVID-19 hit Hong Kong hard last February 2020 when they first started implementing travel bans from mainland China.
Despite the devastation in their city, many local Hong Kong businesses remain optimistic about how the outbreak will impact their own bottom lines. Still, many don’t expect to see a major decline in sales, as long as they keep up with the changing demands of customers. While there is room for future growth potential after we recover from this hard crisis, these small businesses will have to make quick changes to adapt to the new situation, or they might not be able to survive.
Pinetree Accounting Services: Helping HK Businesses through the Pandemic.
At Pinetree, our accountants have helped countless Hong Kong businesses navigate these unprecedented times. If you are looking for accounting, bookkeeping, payroll services, tax services, audit arrangement, company formation services, or for help to move your business from traditional accounting means to cloud computing with Xero, simply reach out for a no obligation free consultation. We’d be happy to help.
If you need to know more, you may contact me at email@example.com, call us on +852 3529 2328 or visit our website www.pinetree.hk