The confidence of privately held Hong Kong companies concerning the economic outlook has plunged during the past 12 months, according to the latest Grant Thornton International Business Report (IBR). The 130% drop of balance* in business sentiment in the city was the biggest recorded in any of the 36 economies covered by the survey, and it has pushed Hong Kong down to 28th position from last year's fifth place in terms of its optimism.
 
The IBR is an annual survey of the views of senior executives in privately held businesses around the world. It provides territory, regional and global trend data concerning economic and commercial issues that affect a sector often described as the "engine" of the world economy. The views of 7,200 privately held businesses were canvassed for the 2009 Report.
 
Emerging economies remain more hopeful

There are some startling contrasts in attitudes about the economic crisis in mature and emerging economies. These polarised results suggest some pockets of hope still exist in the global marketplace. It is no coincidence that privately held businesses have been among the first to experience a slump in optimism about the macro economic climate, and they are preparing for a prolonged and painful downturn. Yet those in emerging economies also realise it could offer real opportunities at their own micro level.

China's north/south divide

Compared with the Hong Kong business community, privately held companies in Mainland China are more sanguine that the economic outlook will improve for them during the next 12 months, making it the world's eighth most optimistic economy.
 
Such businesses in Guangdong province appear to be more sensitive to the global downturn, with low expectations about selling prices (-13%), exports (-12%) and profitability (-32%). Even so, they expect their turnover (+5%), investments in new buildings (+7%) and investments in new plant and machinery (+15%) to rise in 2009.
 
Taiwan ranks low in most of these areas, while sentiment in Hong Kong is even worse. It is now the most pessimistic economy in the world in terms of every economic indicator, namely turnover (-48%), selling prices (-34%), exports (-19%), profitability (-52%), investments in new buildings (-21%) and investments in plant and machinery (-13%).
 
While privately held companies in Hong Kong and Guangzhou fear the worst, their counterparts further north, in Beijing and Shanghai, are more upbeat that their turnover will rise significantly in 2009, with scores of +41% and +31%, respectively. They are also more positive in their expectations about selling prices, exports and profitability.

It is also worth noting their expectations concerning investments in new buildings (Beijing: +18% and Shanghai: +6%) and plant and machinery (Beijing: +26% and Shanghai: +28%). This may indicate that they intend to include investments to expand their operations in their strategic plans for 2009.

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* The percentage balance is the difference between the percentage of respondents who were optimistic and those who are pessimistic. The highest possible balance is +100% and the lowest is -100%.