Motion on “Safeguarding the Room for Business and Development of Small and Medium Enterprises”(2011.06.22)

Hon KP Chan on Safeguarding the Room for Business and Development of Small and Medium Enterprises:

•    Small and medium enterprises (SMEs) are the mainstay of Hong Kong’s economy, accounting for 90% of its businesses and employing more than 1 million employees. SMEs deserve credit for Hong Kong’s ability to stay competitive in the international market. However, as an important foundation of Hong Kong’s economy, SMEs have been operating under more and more difficult circumstances in recent years.

•    As mentioned in the original motion, due to the financial tsunami, the orders received by SMEs have been greatly affected. Moreover, under the linked exchange rate, on the one hand, Hong Kong is unable to curb inflation using monetary policy. As a result, raw materials prices and rents have been driven up. On the other hand, the Hong Kong dollar is undervalued. A recent survey shows more than 90% of Hong Kong businessmen in the PRD Region interviewed said that production costs have risen by nearly 20% compared with last year.

•    Apart from external problems, SMEs are also plagued by endless internal troubles. The issues of meal break pay and rest day pay that suddenly came up within the minimum wage mechanism took many SMEs by surprise. While their expenditure has increased, the business environment has deteriorated. In addition, the Government has recently decided to raise the upper salary limit for MPF contributions and wages have further risen. All this has added to the burden of SMEs. The Hong Kong Government has a duty to help SMEs. At least, it should not add to their troubles.

•    The recent Competition Bill (competition law) tabled by the Government has been very controversial. SMEs believe that it contains lots of grey areas and are worried that they will fall into legal traps. Various chambers of commerce are concerned that business environment will be affected. The bill lists 12 kinds of “anti-competition” conduct. SMEs may easily fall into legal traps like concerted practices of buying and selling goods, sharing price information, sharing information other than prices, and setting technical or design standards. To survive, Hong Kong’s SME often have to share information, including information on market conditions, which would also involve pricing. Flexible business strategies are key to SMEs’ success. Thus, the relevant law has not taken into consideration the way SMEs do business.

•    We must also note that SMEs have far less influence on the market than large enterprises, and the chance of their reaching an agreement to fix prices is slim. It is inappropriate to apply the same rules to SMEs that are applied to the large enterprises. Moreover, for the same kind of products, the prices set by SMEs are often lower than those set by large enterprises. The selling prices of SMEs are often advantageous to consumers.

•    Worried that they might inadvertently fall into legal traps, many SMEs are forced to hire lawyers to oversee business conduct related to the competition law. This is very costly and might eventually cause the SMEs to close down. The biggest worry of SMEs is that large enterprises might use the competition law to accuse them of exchanging information on prices, in order to stop them from setting their prices too low. If such things happen, it would not only be detrimental to the SMEs, it would be even more detrimental to consumers, contravening the original intent of the competition law.

•    Thus, we should carefully study the proposal in the original motion that when enacting regulatory legislation, the Government should completely exempt SMEs, so as to safeguard consumer interests as well as SMEs’ room for development. In addition, I believe it would be fairer for the Government to implement anti-trust legislation first to break the monopolies of large corporations, and then consider introducing the competition law after achieving certain results and gaining some experience.

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