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Survey shows that Hong Kong’s business environment and competitiveness are top concerns for business community

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A consolidated surplus of HK$70.8 billion for FY2014/15 is expected Business community's concern on environmental protection The promotion of aviation financing and leasing industry

For the third consecutive year, PwC surveys senior executives before the budget announcement

Hong Kong, 10 Feb 2015 - A survey by PwC has shown that nearly seven out of ten (67%) senior executives rank Hong Kong’s business environment and its competitiveness as their top concerns. Close to half (47%) of respondents believe that the opportunities and challenges brought by the Free Trade Zones (FTZs) in mainland China are crucial for these two areas.

For the third consecutive year, PwC has surveyed its clients in the run-up to the Hong Kong Budget in order to identify what issues across Hong Kong society as a whole are demanding their attention. This year’s survey collected 236 responses between 26 January and 9 February, with the majority of respondents being senior executives.

This year’s findings show 67% of respondents listing “Hong Kong business environment/competitiveness” as their top concern, followed by “property market / land policy” (23%). These results are broadly in line with PwC’s 2014 survey, when the figures were 63% and 26% respectively.

When asked to focus in on their three major concerns for Hong Kong’s business environment and competitiveness, close to half (47%) believe that the most important issue is to “position HK to embrace the opportunities and take on the challenges of the FTZs in Mainland China”. This is down from a 61% rating in 2014. In second place comes “further support for pillar/ priority industries”, which rose from 18% last year to 27% this year. In third place, “tax incentives for specific industries” and “tax rate adjustments/ tax reform” both scored 9%. This indicates how close tax measures are to the heart of the business community.

“The survey shows that as more FTZs are being set up in mainland China, the Hong Kong business community is gaining a better understanding of FTZ policy. In response it is directing its attention to how Hong Kong can further support pillar/priority industries and adjust tax policies to keep Hong Kong businesses competitive,” says PwC Hong Kong tax partner K K So. “As far as promotion of industries is concerned, PwC welcomes the measure announced in the recent policy address by the Chief Executive regarding the aviation financing and leasing industry in Hong Kong. We believe that this important development will bring about exciting new opportunities in three of Hong Kong’s pillar industries: namely financial services, logistics and services. We look forward to the government drawing up the relevant tax measures to promote aviation financing and leasing so as to strengthen Hong Kong’s position as an international centre for this important industry.”

The survey also reveals consistent concerns regarding the property market and land policy between 2014 and 2015. Ranking first, with 49% in 2014 and 44% in 2015 is “increase land supply/ speed up land sales and urban renewal”. Next comes “regulate property prices through administrative measures” (28% and 30% respectively), followed by “increase public housing and improve its allocation” (17% and 20% respectively).

When looking at demographic challenges, “further invest in education / training” again comes top at 33%, although this is slightly down on last year’s figure of 38%. “Retirement protection / MPF” moves up from third place last year (18%) to second place on 25%. In third place comes “strengthen medical / healthcare services” (18%), which was 23% last year.

“Improving air quality” remains the highest environmental protection issue, though it slips to 51%, down from 60% last year. “Waste management / recycling”, which stood at 27% in 2014, edges up slightly to 26% in 2015. The third major concern is “incentives for businesses to go green”, which moves up from 10% last year to 17% in 2015.

“Environmental protection is important for Hong Kong to retain its competitiveness and attract foreign investment,” says PwC Hong Kong tax partner Agnes Wong. “The survey indicates that over half still believe that improving our air quality is a top environmental concern and a key issue for the business community. We believe that air quality is an important factor for talent thinking about working in Hong Kong. Hong Kong’s overall competitiveness is enhanced when these people want to carry on working here. More respondents this year want to know how the government will incentivise businesses to go green. This shows that businesses are positive about going green, provided a corresponding policy is in place.”

Alongside these survey findings, PwC today revised its forecast for the overall budget surplus which the SAR government will record for the year 2014/15. Calculated on SAR government financial figures as of 31 December 2014, PwC now predicts total revenues of HK$479.3 billion for the year 2014/15. Revenues from profits tax and salary tax will be HK$133 billion and HK$67.2 billion respectively. Total stamp duties could amount to HK$79.5 billion. This year’s expenditure will stand at HK$398.8 billion. Taking into account that the government had earlier announced that it would buy back HK$9.7 billion in government bonds, this brings this year’s surplus to HK$70.8 billion in total. We forecast that by the end of March 2015, Hong Kong’s financial reserves will stand at HK$799 billion, equivalent to 24 months of total government expenditure.