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Drastic changes have HK firms fighting to survive
He Huifeng
Updated on Jan 15, 2008
Hong Kong entrepreneurs expect this year to be toughest yet for their businesses in the Pearl River Delta and see little the upcoming Guangdong People’s Congress can do to ease the pain.
Peter W. H. Chan, managing director of Shin Ho Cable Holdings Company, who also serves as vice-chairman of the Shenzhen Enterprises Association of Foreign Processing and Assembling, says the crunch time will be March. “Whether to close down the factory, to move out or to try to survive in the delta, March will be the key time for our Hong Kong enterprises in terms of finding out the answer,” he said.
Mr Chan, a member of the Shenzhen People’s Political and Consultative Conference, says all things will be clear for Hong Kong bosses at that moment because all the after-effects of the Taiwan election, the economic downturn and the new labour law will begin to be felt.
He says many Hong Kong businesspeople are postponing their final decision about whether to stay or go.
“They will wait and see how many migrant workers come back, how much they will ask for in wages and how high the rents and inflation will skyrocket,” he said. "There is only one thing we all have confirmed. The
short-term business environment in Guangdong is getting worse for Hong Kong factories.
“If you can make a profit, just stay. If not, leave. This is what is happening in Guangdong’s manufacturing industry, and it is also the attitude of local governments.”
In the past two decades, more than 90,000 export processing firms have been operating on the mainland, with nearly 70,000 of them in Guangdong. Of those, about 57,500 owe their existence to investment from Hong Kong and employ 9.6 million workers, according to the National Bureau of Statistics.
Guangdong authorities have been spurring these factories to upgrade or move to other areas at a time when labour shortages, rising raw material
prices and new standards set by importers mean the industry’s best times are behind it.
In the hope of surviving in the delta, Mr Chan has spent years improving his products to increase his profit margin.
“I came to Shenzhen and established the factory 29 years ago, expanding my business from 26 workers to 1,800 workers,” he said.
“Now we are focusing on high-value products, like the cables for high definition multimedia interface and minimally invasive surgery.”
Large-scale manufacturers are likely to have the room to stay in the delta but small-scale ones are another story.
Peter Chai Kwong-wah, president of Hong Kong Small and Medium Enterprises General Association, says there is a rising trend of Hong Kong factories leaving the delta. Heavy taxes, the roll-back of tax rebates and the new labour law are most to blame for the worsening manufacturing environment, he says.
From July 1, the central government cut or eliminated export tax rebates for 2,831 commodities, representing 37 per cent of the total number of items listed on customs tax regulations.
The government also said that the cost of producing the 2,831 commodities would increase as a result of the changes to the export tax rebate regime. The aim was to shift capital investment towards other “high-value-added and hi-tech” industries.
The new labour contract law puts greater emphasis on protecting employees and will also increase the labour costs of most Hong Kong-backed enterprises. “The labour law will be a big blow to us since workers can leave our factories anytime and go on strike,” Mr Chai said.
“The official corruption, the new tax and labour regulation changes come together to snatch away our poor profits. More than 10 per cent of association members told me they had no defence any more and planned to close down their factories in Guangdong.”
Mr Chan estimates that at least two-thirds of Hong Kong entrepreneurs will close their factories in the delta or move their businesses to other areas after the Lunar New Year.
“Only 30 per cent, those with liquid funds or high technology, can survive and upgrade their business in the delta,” he said. Both Mr Chan and Mr Chai say the hard reality of relocation and closure of Hong Kong enterprises is exactly what the government wants.
The presence of several tough policies and rules last year represent the government’s attitude towards Hong Kong manufacturers who once
made a great contribution to the economic development of the delta, they say.
They also do not expect the new provincial party chief and the people’s congress to solve their business problems. They say the government has already fixed its plan and there is almost nothing Hong Kong businesspeople can change.
They hope mainland governments can consult with Hong Kong, Taiwan and foreign investors next time before launching these kinds of far-reaching policies and laws.
“I hope more young elites, who are open and familiar with our businesspeople, can be brought into the provincial people’s congress,” Mr Chan said.
“The more changes we adapt to and the more we can understand the governments, the less pain our Hong Kong enterprises will suffer.”
These two Hong Kong manufacturers have struggled in the delta for dozens of years and have heard many stories from their peers about ups and downs in the industry.
Mr Chan has already set up his high-end product factory in Suzhou while Mr Chai is still deciding whether to stay in the delta or move his factory to Vietnam. Mr Chai says he will arrange for some members of his association to visit Vietnam.
“Two members have set up 2,000-worker factories there,” he said.
“The members told us the price of living and labour and preferential duties in Vietnam were just as wonderful as the Guangdong of 20 years ago.”
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