As another wage hike looms, SMEs urgently need government help

January 15, 2019 18:58
The proposed statutory minimum wage rate of HK$37.5 per hour will come into effect on May 1. Photo: HKEJ

Last week, the Chief Executive in Council officially adopted the recommendation made by the Minimum Wage Commission (MWC) to raise the statutory minimum wage (SMW) to HK$37.5 per hour from HK$34.5 at present, marking an 8.7 percent increase. 

Once the relevant ordinance is tabled and approved by the Legislative Council, the revised SMW rate will come into effect on May 1 this year. 

It is estimated that some 70,000 workers in Hong Kong who are currently making less than HK$37.5 per hour are going to directly benefit from the pay rise. 

According to the MWC, the wage rise is going to cost local employers an extra HK$800 to HK$930 million, or a mere 0.1 percent of the total salary expenditures. 

As such, the MWC believes the proposed increase is unlikely to seriously undermine the city's overall business environment and entrepreneurial drive. 

The SMW, first implemented in 2011, was meant to ensure that the overall economic performance and average wage level of our city do not go beyond our grassroots employees’ wages. 

In 2018, our working population saw an average 4 percent rise (or 4 to 4.5 percent for civil servants) in monthly pay, thanks to our impressive economic growth over the past two years. 

Under normal circumstances, an 8.7 percent growth in the SMW, which is subject to adjustment every two years, would not constitute too much of a financial burden on employers. 

However, the current state of our economy has been moving in the opposite direction in recent months, and this raises the question of whether the timing is right for enforcing a substantial increase in the minimum wage. 

The global economy is facing growing uncertainty and volatility since last fall, mainly due to the trade war between the United States and China

And owing to the grim outlook for the world economy, international organizations such as the International Monetary Fund have scaled down their global GDP growth forecasts for 2019 to 3.7 percent from 3.9 percent initially. 

Even more worrying is the continued economic slowdown in China and its implications for the world economy. A number of economists and those in the market are projecting a 6 percent GDP growth for China this year, compared with 6.6 percent in 2018.

The prevailing view is that China’s economic downturn will have a spillover effect on other economies.

Since Hong Kong’s key economic pillars – financial services, retail, tourism, catering and hotel industries – are all closely related to the mainland, a persistently underperforming economy on the other side of the border will inevitably lead to a substantial decline in our bilateral human and capital flows as well as trade volume. 

In fact, our city’s retail sector has already shown signs of slowing down since November last year, when the mainland economy started losing steam.

And if the economic downturn in the mainland worsens this year, it is likely that our retail industry, particularly small and medium-scale shops, are going to get hit even more badly.

Apart from the global economic headwinds, the situation is compounded by falling property prices in our city, which were already down by some 9 percent over the past four months.

As far as investors and homeowners are concerned, a widespread and continued depreciation in their asset value is likely to take a significant toll on their spending power, thereby dealing a further blow to the already beleaguered retail and catering industries in Hong Kong.

Amid such a rapidly deteriorating business environment, an 8.7 percent increase in the minimum wage from May this year might put more local small and medium enterprises (SMEs) out of business and drive more grassroots employees out of their work than expected.

As we all know, small businesses are often more vulnerable to the impact of rising salary expenditures and less resilient amid an economic slump.

Therefore, the SAR government should provide timely support for our SMEs through special measures or other mechanisms in the upcoming 2019/20 budget such as tax deductions and fee waivers in order to help them navigate through the tough times.

This article appeared in the Hong Kong Economic Journal on Jan 12

Translation by Alan Lee

[Chinese version 中文版]

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Hong Kong Economic Journal