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Jiang Chuqin

More than one in 10 Hong Kong small and medium-sized enterprises (SMEs) have failed to repay government-backed loans meant to keep them afloat, with no sign that the situation will improve any time soon.
The government now must shoulder HK$14.72 billion (US$1.89 billion) from default cases, almost double the unpaid loans of HK$7.5 billion a year ago.
The default rate for the Special 100 per cent Loan Guarantee Scheme, which provided businesses with low-interest loans from banks, rose to 10.25 per cent as of the end of September, according to data from the Commerce and Economic Development Bureau.
That was up sharply from 5.49 per cent a year ago, and higher than the default rate of 9.2 per cent in August.
“The rise in the bad debt ratio and the trend of businesses going bankrupt may persist for some time,” warned Allen Shi Lop-tak, a former president of the Chinese Manufacturers’ Association.
The number of businesses that closed down rose from 88,232 in 2022 to 94,002 last year, according to official data. In the first eight months of this year, 76,707 SMEs closed.

Shi said SMEs needed more supportive policies from the government, such as more flexible loan plans from banks and more guidance to restructure and upgrade their businesses.
The loan scheme introduced in April 2020 has provided HK$143.6 billion to 39,990 businesses with almost 400,000 employees as of the end of September.
Those eligible included retailers, travel agents, restaurants, cinemas, karaoke establishments and transport operators.
The scheme aimed to ease their cash-flow problems during the pandemic, help them remain in business and avoid lay-offs.
The maximum amount each applicant could apply for was the sum needed to cover employees’ wages and rent for 27 months, or HK$9 million, whichever was lower.
The loan came with a special low interest rate and a maximum repayment period of 10 years.
As of last month, the government had approved 67,050 applications and rejected only 707. It stopped accepting applications at the end of March.
The latest data showed 6,865 SMEs had defaulted on their loans, a 91 per cent rise from 3,585 last October.
Lawmaker Doreen Kong Yuk-foon said: “The government can only create a better business environment for the whole economy, but cannot control how each SME performs.”
Some businesses that obtained loans through the scheme have come to grief.
Hong Kong fitness chain Physical owed more than HK$10 million in loans under the scheme when it closed down last month.
It had been in business for 38 years when it shut on September 6 after the Mandatory Provident Fund Schemes Authority accused it of not paying HK$3 million in contributions and arrears for 740 employees.
A source said it had about HK$1 million in its bank accounts when it ceased operations.

Last Tuesday, the Independent Commission Against Corruption revealed that another business used fraudulent documents to obtain loans under the scheme.
Arri Wong Ka-nam, 55, owner of 24 Hr Locksmith, was sentenced to 22 months in prison for deceiving Standard Chartered Bank into approving a loan of HK$3.1 million.
His loan application in September 2022 was supported by false MPF statements claiming that the company had made monthly contributions of HK$19,000 for its seven employees to an MPF trustee in the city.
It was later found that the company never held an account with the MPF trustee and had not made any contributions to its employees.
Retail-sector lawmaker Peter Shiu Ka-fai was sympathetic towards SMEs that failed to repay their loans, saying it was a reflection of the hard times Hong Kong businesses have been through since the pandemic.
“While there are some fraud cases, I believe the majority simply couldn’t pay off their loans because of the economic downturn,” he said.
“Of course, the government would want to get back all the money. But we have to face the reality that the economy of Hong Kong after the pandemic has not performed as well as expected.”
Hong Kong has more than 360,000 SMEs, which account for 98 per cent of enterprises in the city and employ about 45 per cent of the private sector workforce.
Shiu said he believed the government needed to do more to attract funds, talent and tourists to the city for SMEs to bounce back.


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Hong Kong SMEs’ loan defaults balloon to HK$14.72 billion burden on government

The government can only create a better business environment for the whole economy, a lawmaker says. Photo: Sam Tsang

SMEs employ about 45 per cent of the private sector workforce in Hong Kong. Photo: Xiaomei Chen

Fitness chain Physical owed more than HK$10 million in loans under an SME scheme. Photo: Nora Tam

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Claw machine arcades are popping up across Hong Kong. Photo: Sun Yeung

Young people at a selfie shop in Mong Kok. Photo: Sun Yeung

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Illustration: Lau Ka-kuen 

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News

Hong Kong

Businesses have gone bust despite fully backed loan scheme to help them stay afloat and avoid lay-offs


Businesses have gone bust despite fully backed loan scheme to help them stay afloat and avoid lay-offs.


Hong Kong society