Standard Chartered and the Hong Kong Trade Development Council (HKTDC) jointly released the latest Standard Chartered Greater Bay Area Business Sentiment Index (GBAI), which showed resilient current business performance after the so-called US ‘Liberation Day’ tariffs shock, supported by front-loading of orders and production. Meanwhile, businesses were cautious on the outlook as expectations softened but remained positive.

The "current performance" index for business activities eased marginally to 53.1 in Q2 from 53.5 in Q1. A breakdown of index components supports the front-loading narrative; “Production/sales” was the strongest performer among the eight main sub-indices, in terms of both absolute score (57.1, the highest in a year) and change (+4.2 pts). Other positive drivers include “Fixed asset investment” (+2.0pts), “Profits” (+1.1pts) and “Raw material inventory” (+0.1pts).

Meanwhile, the “expectations” index for business activity fell to 52.0 in Q2 from 54.3 in Q1. This is the weakest level since Q4-2022, but the fact that expectations stayed above the 50 neutral mark provides some relief. There is a broad-based deterioration across sub-components as seven of the eight expectations sub-indices fell, and the exception was “Capacity utilisation". “Financing scale” (-5.1pts), “Finished goods/services price” (-4.8pts) and “Production/sales” (-2.6pts) saw the biggest declines in the quarter.

By sector, “Innovation and technology” outperformed (+6.3pts for “current performance” and +5.5pts for “expectations”), while “Manufacturing and trading” showed short-term resilience (-0.4pts and -2.1pts) as rush orders ahead of US tariff implementation have kept manufacturers busy. ‘Retail and wholesale’ disappointed (-1.0pts and -4.1pts), despite the perceived effectiveness of China’s consumer goods trade-in program.

Across GBA cities, there was setback for Hong Kong and Guangzhou. Hong Kong saw the biggest drops among GBA cities (-9.8pts for “current performance” and -10.5pts for “expectations”) in the quarter. This partly reflects its vulnerability to the external environment and domestic consumption struggles. Guangzhou fell 9.3pts for “current performance” and 6.3pts for “expectations”.

Kelvin Lau, Senior Economist, Greater China and North Asia, Standard Chartered, said:

“The looming tariff uncertainty has driven the front-loading of orders and production in the second quarter, while also accelerating AI development. Looking ahead, the findings revealed a more cautious view of GBA businesses amid the uncertain business outlook in the second half, especially regarding the outcome of bilateral trade deals after the 90-day pauses. Additionally, Hong Kong's economy saw steady expansion in the first quarter. Given the significant proportion of external economic activities relative to its GDP, international trade and tariff policies are crucial for Hong Kong.”

For thematic questions, only some 10% of respondents saw a material direct impact from US tariff hikes. Notably, tariff pauses and exemptions provided relief on the impact, this underscores the importance of maintaining the recent US-China trade truce and quickly finalising other bilateral trade deals in Q3.

In terms of the impact of doing business, 41% of the respondents said US tariff hikes would delay the implementation of their business plans.

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