SMEs in Hong Kong and Singapore Require Additional Government Support to Survive the COVID-19 Pandemic

Reported by Dong Shuer, Gu Lin, Liu Xiaoqian and Wang Ziwei

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Sun Han’s Hong Kong business was suspended during the COVID-19 pandemic. She founded her company, Dear Booklet, a year ago, selling high-end personal photo albums processed using artificial intelligence. However, her overseas supplier was unable to start working until April this year on account of the unprecedented situation.

As of November 2020, Hong Kong has gone through three waves of COVID-19, in response to which the government has issued three rounds of “Anti-epidemic” funds to relieve economic pressure and support local business. The Employment Support Scheme (“ESS”) is the highlight of the second round of funding, offering time-limited subsidies to employers and helping them pay their employees.

source: Anti-epidemic Fund

According to the latest statistics, for June 2020, there are more than 340.000 Small and Medium Enterprises (SMEs) in Hong Kong, which together account for around 45% of total employment and more than 98% of total businesses. However, not all of these firms has received monetary support from the government.

source: SME Financing Guarantee Scheme (SFGS)

“Since we are a start-up, we are too young to meet the selection criteria of those supporting schemes for enterprises from the government,” said Sun, whose company had not received any subsidies from the ESS or other support schemes. “The first challenge is that we got obstructed in promotional activities because of the social gathering ban,” she explained. “All onsite activities had to be cancelled. We even couldn’t visit our clients.” She noted that, because many retail SMEs face high storage fees and rents, for start-ups, “It’s hard to survive without monthly income.” Sun suggested that the government should reduce or waive site fees, such as those for office rentals and storage.

She also said that her company has had supply problems, observing that “Most of our product suppliers have suffered from the epidemic as well. They suspended production, so we can’t get the products on time.”

source: Support for Local & Foreign Enterprises

More than 70 per cent of the proprietors of SMEs in Hong Kong who responded to the conducted by the Hong Kong General Chamber of Commerce in August 2020 indicated that they could not survive for more than six months without further relief measures from the government. The challenges currently confronting these firms include business partners’ financial difficulties, unpredictable foreign sanctions, insufficient cash flows and business volumes, and disruptions in supply chains.

source: Hong Kong General Chamber of Commerce

Wonderkin, a local start-up founded in 2019 and based at Cyberport that sells smart diaper products, has also encountered problems in its supply chain as a result of the pandemic. “Because of COVID-19, all of our partners, especially in the healthcare industry—their focus went to medical supply, you know, personal protection equipment, like masks, ventilators, gloves for people who work,” said Fiona Li, the CEO and co-founder of Wonderkin.

However, the company has benefitted from several schemes offered by the government. “The government has the STEM Internship Program Program that subsidises companies that hire students who are taking STEM programs,” she continued. “I’m able to get some of the students into the program, so that helps me to speed up the development process.”

She had also heard about the FinTech Anti-epidemic Scheme for Talent Development (FAST) initiative launched by the Hong Kong Financial Services and the Treasury Bureau, which offers salary subsidies to participating employers of up to $10,000HKD monthly for a maximum of 12 months during the period from July 2020 to July 2022. She was uncertain about the success rate of the applications that were submitted, but it was her understanding that “if you can prove your company is a fintech company, they give it out to you.”

Besides the ESS and FAST, the Hong Kong government also offers 100% loan guarantees to SMEs under the SME Financing Guarantee Scheme (SFGS). It has increased its initial loan guarantee commitment from $20 billion to $50 billion as part of the effort to ease the burden on borrowers and also increased the maximum amount for the loans and the repayment period. The 352 respondents to the Impact of COVID-19 on Business Operations survey conducted by the Hong Kong General Chamber of Commerce in early May 2020—more than half of whom were involved with SMEs—gave the 100% loan guarantee scheme an average score of 2.9 on an ascending scale of usefulness ranging from 1 to 5.

The effectiveness of the loan guarantee scheme may, however, be time-limited. “Loans can only solve the problem for a while. The important thing for a business is to have business,” said Hilton Chan, an adjunct professor at Hong Kong University of Science and Technology’s Business School. He was of the opinion that no amount of money supplied by the government to individuals would be of much help as long as the economy is closed and people are under quarantine, for which reason “The most important thing is basically to open up [the economy].”

As for SMEs’ concerns about rents, Chan pointed out that many business owners “have to consider whether they can downsize their offices.” Having witnessed a transformation in the workplace over the past six months as many employees began working from home, he pondered, “Why do we need to pay high rent for our office?”

COVID-19 has also impacted SMEs in Singapore, where the government has issued a series of support schemes to help business owners, including the Job Supporting Scheme (JSS) and Enhanced Enterprise Financing Scheme. Similar to the ESS in Hong Kong, the JSS offers employers wage support to help them retain local employees, and the enhanced Enterprise Financing Scheme is Singapore’s version of Hong Kong’s SFGS, both having been designed to increase the scale of the current loan guarantee plan for SMEs.

source: Monetary Authority of Singapore

At least one expert in Singapore has also questioned the long-term efficacy of such loan guarantee schemes. David Leong, managing director of the human resource consulting company PeopleWorldwide Consulting, warned that “the government cannot go on providing JSS across the board, as it will deplete the coffers and, most importantly, distort employment conditions.” He went on to indicate that Singaporeans need to adapt to the new circumstances, including by working from home and teleconferencing.

However, it may be no easy task for some companies to move their business online. “Digitalisation costs money,” said Johnson, the owner of a construction SME in Singapore. He suggested that the situation might be tolerable if the technology for dealing with the pandemic, such as monitoring systems for body temperature, were ready to use upon delivery. Such measures as installing enterprise resource planning (ERP) software that allows companies to work online, though, could cost hundreds of thousands of Singapore dollars.

Johnson was also facing problems with his supply chain. Before the pandemic, his manufacturers assembled materials in China or Malaysia and then transported them to Singapore for further processing. “Now, the manufacturers in Malaysia are not producing,” he complained. “As the situation with the pandemic worsens, the Malaysian government locks the country down, and things can’t be transported.”

He founded his construction company in Singapore in 2008 and had benefitted from the government’s financial support during the pandemic in the form of levy relief, loan guarantees, and a one-off grant.

The Singapore government also offered legal protections to the businesses and properties of local SMEs by issuing the six-month-effective COVID-19 (Temporary Measures) Act 2020. The act prohibits the bringing of insolvency proceedings against SMEs by either their creditors or financing companies. In order to recover from the pandemic, SMEs may need more lasting support. Thus, Johnson hoped that the government would extend the due date for the reduction of the levy.

It was his observation that, though the government offered numerous support policies and forms of funding, it only did so after people had felt pain. “The government has put up a lot of money, but citizens get little of it in the end,” he concluded, suggesting that it should make pro-active policies rather than waiting until disaster struck.