Greater Bay Area Business Confidence Reaches Multi-Year High Amid Trade Truce Stability

The Standard Chartered Greater Bay Area Business Confidence Index (GBAI) reached multi-year high levels in the third quarter, reflecting a broad-based recovery in business sentiment following reduced external uncertainty after the extension of the US-China trade truce. The quarterly survey, jointly conducted by Standard Chartered and the Hong Kong Trade Development Council, showed both current performance and expectations indices climbing significantly during the July-September period.

The current performance index for business activities edged up to 54.7 from 53.1 in the second quarter, while the expectations index rose more substantially to 55.7 from 52 in the previous quarter, marking four-year and two-year highs respectively. The improvement occurred during the survey period from early August to early September, when the US extended its trade truce with China by another 90 days to November while also reaching multiple trade agreements with major trading partners.

Irina Fan, Director of Research at HKTDC, noted that "across GBA cities, nearly all 'current performance' and 'expectations' rose quarter-on-quarter. In particular, Hong Kong saw the strongest rise in confidence among all cities, with the 'current performance' and 'expectations' sub-indices edging up a respective 8.3 pts and 7.3 pts to 52.2 and 53.6 in the quarter, underpinned by the continued trade frontloading and robust financial activities."

The recovery was broad-based across sub-indices, with six of the eight current performance components showing quarter-on-quarter improvement. New orders saw the most dramatic increase, jumping 8 points to 57.5 from 49.5 in the second quarter, while prices of finished goods and services rose 4.1 points to 58.8 from 54.7. The optimism in business outlook was even more pronounced, with all expectations sub-indices remaining well above the neutral mark.

Hunter Chan, Economist for Greater China at Standard Chartered, commented that "the survey findings are in line with the positivism we have seen across the markets in the third quarter following the extension of US-China trade truce and expectation of continued dialogue between the two countries during the survey period. However, the persisted trade uncertainty may hold back the business sentiment again."

Among the expectations components, production and sales saw the strongest rebound with a 5.3-point increase, followed by financing scale (+4.8 points), fixed asset investment (+4.2 points), and profit (+3.9 points). The survey also revealed that exploring overseas markets remains a key strategy for GBA corporations, with 24.5% of companies adopting this approach to mitigate potential risks amid increasing external uncertainties and competition challenges in the Chinese Mainland.

The survey examined the impact of excessive competition, or "anti-involution," finding that most respondents (63.5%) indicated they had not been affected by excessive domestic competition, while 3.1% said they benefited from it. Approximately 29% reported moderate impact and 5% indicated significant impact. Among affected businesses, over 70% experienced negative effects on profit and sales, while only around 40% indicated disruptions to hiring and investment.

Companies are adopting multiple strategies to address competition challenges, including brand building and marketing (36.3%), cost control and inventory management (35.6%), and providing value-added services (29.7%). The GBAI represents the first forward-looking quarterly survey examining business sentiment and synergistic effects across GBA cities and industries, compiled from surveys of more than 1,000 companies across manufacturing, trading, retail, wholesale, financial services, professional services, and innovation and technology sectors. Additional research materials are available through HKTDC Research and the full report can be accessed at http://bit.ly/4oiGQDU.