Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: Thank you for listening.
Speaker: You're listening to the HSBC Global Research Macro Viewpoint, where we speak to the economists and strategists behind some of our key reports published over the past week.
Speaker: Coming up this week, we look at how China is boosting support for smaller technology companies.
Speaker: As offices remain half full across the developed world, we look at what the next phase of the pandemic means for cities.
Speaker: And what's on the mind of UK consumers.
Speaker: We assess the key takeaways from our latest proprietary survey of 2,000 people.
Speaker: This podcast was reported on Thursday the 31st of March 2022.
Speaker: Our full disclosures and disclaimers can be found in the link attached to this podcast.
Speaker: Hello, I'm Mary Watkins.
Speaker: And I'm Piers Butler.
Speaker: Small and medium-sized enterprises are critical to China's economy, accounting for over 60% of GDP.
Speaker: And Beijing is stepping up its policy support to develop SMEs in the tech sector, so-called little giants.
Speaker: Chu Hongbin, chief China economist, joins us from Hong Kong.
Speaker: Hongbin, welcome to the podcast.
Speaker: Thank you.
Speaker: So China is heavily investing in its tech sector, but it's not only the big national champions that are driving this, is it?
Speaker: You are absolutely right.
Speaker: Despite all those headline stories in the international media about how China's national champion is making significant progress in terms of technology upgrading in recent years, Beijing has actually consistently tried to make more efforts to nurture the dynamic and innovative small and medium-sized enterprises.
Speaker: For instance, back a few years ago, Beijing introduced a new program called Little Giants.
Speaker: The whole purpose of this program is to try to nurture a few of the innovative SMEs basically to upgrade their technology.
Speaker: Currently, there are around 5,000 national level Little Giants, and the goal is to expand this to 10,000 by 2025.
Speaker: 10,000 companies still sounds like a fairly small number in terms of China's overall technology output.
Speaker: What is it that makes these little giants so significant?
Speaker: Yes, given the massive amount of SMEs in China, it is very difficult for the government to encourage all the SMEs to move forward in terms of technology upgrading at the same pace.
Speaker: Therefore, they need to be focused.
Speaker: They need to basically set up as a role model to show another SMEs how to effectively upgrade their technologies.
Speaker: And we all know that SMEs is accounting for over 60% of GDP.
Speaker: More importantly, also create more than 80% of urban jobs.
Speaker: So therefore, promoting the technology upgrading in SMEs is quite crucial for China's development in the future.
Speaker: And what criteria does an SME need to qualify as a little giant?
Speaker: Actually, we found out there's a quite high bar for any SMEs to be qualified as the national level little giants.
Speaker: They need to, for instance, have a significant market share in the particular technology sectors.
Speaker: They also need to have a high R&D spending.
Speaker: 7% of the revenue, which is quite high compared with the average of less than 2-3%.
Speaker: And more importantly, they also look at the management capabilities as well as the potential for those companies to develop into champion companies in specific technology areas.
Speaker: So what sort of policy support is being put in place to nurture these little giants?
Speaker: Yeah, there is a basket of policy initiatives to facilitate the growth in the little giants and another more dynamic SMEs.
Speaker: For instance, the tax incentives as well as government research grants to support them.
Speaker: At the same time, they also try to encourage the financial institutions to give more credit support to those better quality SMEs.
Speaker: And also, at the same time, the governments also try to help those smaller companies to work together with the industrial leaders, the big companies to do or join the research.
Speaker: And also they try to bring some of these SMEs into the key technology project, which is sponsored by the government.
Speaker: So international is pretty comprehensive package of measures to support the development in those companies.
Speaker: Hongbin, thank you very much.
Speaker: Thank you.
Speaker: Pandemic-related restrictions have been removed in much of the developed world over the past few months.
Speaker: James Pomeroy, global economist, has been looking at what this means for workers returning to the office and cities more broadly.
Speaker: So James, what are the data showing us about workers returning to offices?
Speaker: So there's a lot of different data we can look at to try and get a sense of how many people are going back into offices.
Speaker: The best data we think is from Castle Systems for the US and they're tracking the number of people going to offices based on the number of past scans into those buildings.
Speaker: And their numbers are suggesting that we've hit about 40% office attendance in the US.
Speaker: And it seems sensible to think that's a
Speaker: relatively similar number in other parts of the developed world based on a mix of Google mobility data and public transport data too.
Speaker: But what's interesting is that those numbers appear to be topping out a little bit.
Speaker: We're back at the levels we saw in November before the Omicron wave.
Speaker: And there's a little bit of evidence in some of the public transport usage data that those numbers aren't quite getting back to where they were previously on that uptrend.
Speaker: So we could be peaking out in terms of the number of people back in offices.
Speaker: What would it take to get these numbers higher?
Speaker: So what you'd need is people to change their attitude towards going back into the office.
Speaker: What we're seeing at the moment is workers who are very happy and comfortable working either on a hybrid model or working much more remotely.
Speaker: And we have seen workplace attendance and aggregate pick up much more.
Speaker: So this is people going back to jobs that
Speaker: can't be done remotely.
Speaker: But what we are seeing is a lot of workers who are very comfortable working remotely or happy working in a hybrid system.
Speaker: And you need that attitude towards that change.
Speaker: That's not necessarily something we think is likely because at the moment, what you've got is businesses saying they want to get people back in the office three or four days a week.
Speaker: And you've got workers saying they want to be back in the office one, two or three days a week.
Speaker: And there's a discrepancy there that means actually
Speaker: Whilst these numbers could keep grinding higher as more and more sort of comfort builds as we come out of the stage of the pandemic, what we could also see is that businesses have to change their expectations and not almost push people back into the office as much.
Speaker: And that could mean that this sort of 40 percent attendance could be closer to a peak than we might think.
Speaker: In terms of the impact on the economy, what does this mean for the world of work?
Speaker: So it's quite interesting in terms of the way businesses we think are going to have to adapt.
Speaker: We think we're going to have to see businesses think about in a very tight labour market what they can do to attract workers and workers value flexibility.
Speaker: They want to work in a flexible situation.
Speaker: There's a survey evidence that suggests that across most of the world, the ability to work flexibly is equivalent to about a 5% pay increase.
Speaker: And about 15 to 20 percent of workers say they would leave their job if they were told that they had to be back in the office five days a week.
Speaker: So this is an interesting dynamic where these tools, I guess, that businesses can use can be used in a way to either attract workers or retain workers.
Speaker: And that's why we think we could see a greater spread of remote working in the coming years, even from where we are today.
Speaker: So with people working from home more, what impact is this having on the housing market?
Speaker: So there's some really interesting data in the US where we get fantastic data from Zillow broken down by zip code.
Speaker: And if we take those individual zip code data and we look at the difference in densities in different parts of the country, we can see that almost all of the increase in house prices and rental prices has come from suburbs and exurbs.
Speaker: So basically suburban areas
Speaker: and rural areas.
Speaker: And that's really interesting because this continued spread of remote working or continued trend of remote working is likely to keep prices in those areas relatively elevated.
Speaker: The question is how much further can they go?
Speaker: And that will have a big determinant in the overall pace of house price growth, but also in terms of rental inflation, two very important metrics when central banks are setting policy.
Speaker: So we could continue to see this push for property in these parts of countries.
Speaker: And what that could do is push rental inflation even higher.
Speaker: It could push house prices even higher.
Speaker: And that's a world where central banks may feel a little bit more comfortable with higher interest rates.
Speaker: James, thanks for your time.
Speaker: Thanks very much.
Speaker: Sticking with the theme of the post-pandemic world, let's find out what's on the mind of UK consumers.
Speaker: In our latest proprietary survey, 2,000 people were asked 80 questions about the economy, food retail, clothing, and travel and leisure.
Speaker: Andrew Porteous, Co-Head of European Consumer Retail Research, is here to talk us through the findings.
Speaker: Andrew, welcome to the podcast.
Speaker: Thank you for having me on.
Speaker: So, Andrew, in terms of the overall economy, what were some of the key takeaways from the survey?
Speaker: So when we ask consumers about the economy, I think that the most notable takeaway here really is that consumers are really concerned about the cost of living.
Speaker: When we ask consumers what they were concerned about, 69% cited rising living costs as their primary concern.
Speaker: And that's the highest it's ever been in the surveys that we've conducted in this area.
Speaker: Also, there's a perception out there that savings will support spending this year, and that's reassured a lot of people.
Speaker: But the responses to our survey suggest that that might not be the case.
Speaker: When we asked consumers did they save money over the course of the pandemic, a lot said they did.
Speaker: Only 34% of consumers said no, but only 14% of consumers said yes, but they plan to spend those savings this year.
Speaker: 16% of consumers said they'd already spent the savings and 36% said they plan to save it.
Speaker: So it seems that savings might not be the big support to consumer spending that it might otherwise have been.
Speaker: You've looked at obviously all the consumer subsectors.
Speaker: What were the things that stood out from, say, food retailing, travel and ledger, food manufacturing?
Speaker: Yeah, absolutely.
Speaker: I mean, starting with the food retail side of things, and I think echoing that economic picture around inflation, we saw a notable deterioration in price perception.
Speaker: We asked customers across a broad range of areas about how the supermarkets were stacking up and price perception was one that dropped back probably as prices are going up across supermarkets.
Speaker: On the non-food side of things, it was much more about the normalization picture.
Speaker: And here we saw, for example, in consumers' top choices for where they buy clothing, that it was really the store-based operators that bounced back.
Speaker: So strong performances from the likes of Next and Primark, but a much weaker performance from the likes of ASOS and Boohoo, reversing some of those pandemic gains they've seen.
Speaker: Then on the travel and leisure space, it was really about the return to work and willingness to travel.
Speaker: So the number of respondents that were looking to travel this year more than doubled from last year's level and people looking for things to return back to normal there.
Speaker: So they were the main trends.
Speaker: I'd say overall across the survey, the two big themes that we would pick out is that concern over inflation, but also that normalisation as we emerge from a pandemic.
Speaker: Yes, everybody seems to want to book a flight and go on a holiday.
Speaker: Absolutely.
Speaker: Absolutely.
Speaker: So this is the sixth edition of this proprietary survey, which kicked off back in 2017.
Speaker: Have you observed over that period of time any changes in consumer behavior, any trends that you'd like to highlight?
Speaker: Yeah, absolutely.
Speaker: I think there are some trends and there are also some things that are consistent.
Speaker: I think taking the retail space, that trend towards in food, the growth of the discounters, which has been a big theme, is very clear from the surveys that we do.
Speaker: They've risen in prominence and are taking a bigger share of customers' baskets.
Speaker: In the non-food side, it's much more about the online piece.
Speaker: Those retailers have done very, very well over a longer period of time, as you've seen structural growth in that channel.
Speaker: At the same time, as I said, those consistencies.
Speaker: So in food retail, I point to the fact that what matters to consumers doesn't often change that much.
Speaker: So it's about location.
Speaker: It's about price and value for money.
Speaker: That's what really drives choice.
Speaker: I think on the leisure side, really, it's about the importance of those experiences, you know, the importance of holidays to people, of getting away.
Speaker: These are the areas that people like to spend their incremental pounds on.
Speaker: Eating out is also something that features prominently.
Speaker: And we see that in the data as well, with over a long period of time, growth in services and leisure outpacing the demand for hard goods.
Speaker: Andrew, thank you very much.
Speaker: My pleasure.
Speaker: Thank you for having me again.
Speaker: So that's all from us today.
Speaker: Thank you to our guests, Chu Hongbin, James Pomeroy and Andrew Porteus.
Speaker: Thanks very much for listening.
Speaker: We'll be back again next week.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint, Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
