33 2007-6-6 09:23 AM
HK SMEs withdraw from mainland China
HONG KONG - Despite China's promising economic growth, about one-third of Hong Kong-invested small and medium-sized enterprises (SMEs) in the Pearl River Delta (PRD) region, a key manufacturing base in southern China where Hong Kong investment concentrates, have been suffering serious setbacks, and some of them have pulled out of the market entirely.
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The World Bank recently raised its forecast for China's economic growth in 2007 significantly, to 10.4%, up from the 9.6% growth*x6T4B ?X0]
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predicted in November.
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"The international economy is far better than we thought, and China's domestic policy stance is less tight than expected; [those are] the two reasons why we revised up the forecast," said Bert Hotman, chief China economist at the World Bank's Beijing office. 3e| Q0l"z SG
However, Hong Kong-invested SMEs in the PRD, which are mainly in manufacturing, do not seem to be benefiting from China's booming economy.
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According to the Hong Kong Small and Medium Enterprises and Labor Cooperation Association, more than one-third of the 8,000 Hong Kong SMEs, which are usually involved in the processing and assembly factory business (PAFB), in the PRD region have encountered significant changes in the local business environment in recent years, such as increasing taxes and a shortage of labor. gh g0j:_
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Among them, more than 2,600 Hong Kong SMEs have withdrawn from the PRD market by either closing their ventures or selling most of their companies' shares to mainland partners in the past three years, said David Chiu, chairman of the association.
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He expects the withdrawal of Hong Kong SMEs in the PRD region to continue because of the frequent changes in the business environment there.
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"Since land prices and wages in PRD cities like Shenzhen, Dongguan and Foshan are getting higher and higher, the PRD region has lost its competitive edge in costs compared with neighboring regions," Chiu said. QZ&WG(c w }T$^+q
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Chiu, who also owns a toy factory in Tonghai in Dongguan city, blamed "the unreasonable demands" from workers and increasing costs, and said he is looking for a mainland buyer for his plant.
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In addition to wages being driven up by the serious shortage of labor in Guangdong, the new generation of migrants working in the PRD region take advantage of their stronger bargaining power to demand better welfare and living conditions, which has created a headache for employers. :ML,`
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"Workers, particularly those [aged between 18 and 40], are the most troublesome to us as they fight for comfortable accommodation that they only share with three other workers in a room with a water dispenser, television and sometimes an air-conditioner. However, if I make changes according to what they want, I would have to tear down my 13-year-old buildings and build new ones," Chiu said.
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"Having seen new or better offers given by other companies, some of the workers even tried to do something unacceptable like holding strikes to force us to sack them so that they could get compensation and hop to another company," he said.
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Having faced "unreasonable demands" from workers, Chiu chose to scale down his investment gradually on the mainland through "natural loss" of staff. His plant now employs only 40 people, whose monthly wages range from 900-2,500 yuan (US$118-$326), higher than the official minimum wage of 680 yuan. Five years ago, Chiu's factory had more than 300 people. -R
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"The new generation of migrant workers are different from the old ones and they sometimes demand too much," Chiu said.
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Besides, policy changes by local governments and the shortage of electricity and water have strengthened the resolve of SMEs to withdraw from the area, Chiu said. $p:ar-lC
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Since the region enforced stricter pollution controls last July, many SMEs, such as those involved in paper manufacturing, have been forced to close down or relocate to remote areas of the delta.
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"Besides, as we SMEs are not big investors or big brands, local cities with economic takeoff seemed to like bullying us by imposing various kinds of charges or taxes on us as they please, such as sewage tax, education and security charges and whatever," Chiu said.
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Taking the village where his factory is located as an example, Chiu said that of the 68 Hong Kong SMEs operating there, 20 have been closed over the past two years. G;B Pzd5G
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Apart from looking for opportunities to sell the plant, Chiu has been trying to turn his company into a trading operation, receiving orders from overseas and outsourcing manufacturing to mainland companies, which can survive because of their closer relationship with local governments despite a generally harsher business environment. 9G
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"This is the increasing trend - that Hong Kong SMEs become a middleman between overseas markets and mainland SMEs, and help improve the design and packaging of the products produced by mainland companies," he said.
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Facing similar problems, Hong Kong-invested Telford Envirotech Group in Dongguan, which does plastic-waste recycling and produces plastic flowers, decided a few years ago to turn itself into a domestic company, with its mainland partner becoming the legal licensee of the firm. /Z&I oy:o N5|*T
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"Since then, the plant has grown bigger, with its workforce doubling to more than 600 people, which has confirmed that our decision to sell part of the company's shares to our mainland partner was correct," said Lee Hing-tak, board director of the company. By2A1~ B;e}
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"As mainland companies usually have a closer relationship with local governments and know how to deal with them when coming across various kinds of issues such as taxes and charges, our mainland partner has created a better business environment for our company," he said.
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The promising market for plastic waste recycling in China is another reason for turning his company into a domestic one, Lee said.
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"As an original company engaging in production and export sales in the form of PAFB, domestic sales of raw materials or finished products is not permitted until [it has] obtained government approval and paid back import duties. Once turning into a domestic company, we can solve the above troubles," he said. m5o Z0B{P'd!y W
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Besides, the continuous appreciation of the yuan, which has had a negative effect on Hong Kong companies doing business in the form of PAFB, now gives a competitive edge to Telford Envirotech Group, which relies on foreign raw materials and focuses on developing domestic sales.
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With a stronger yuan, cuts in export-tax rebates and increasing production costs, Onwel Group of Companies closed its 18,580-square-meter garment factory at Changping in Dongguan in 2005 and set up a plant in Kwai Hing in Hong Kong. G1Z.qh\
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"The major reason for us to move the factory back to Hong Kong is the local government's intention to move us to remote areas," said Onwel boss Hu Jiefu.
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The governments "want us to move to south-central China, such as Hunan and Hebei, which cannot meet the needs of our company, [which] requires experienced workers and handing the shirts to overseas customers on time. Besides, who knows when we will be asked to move again? Therefore we decided to come back to Hong Kong," he said.
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A few days after publishing a recruiting advertisement, the factory successfully hired 130 experienced workers in the Hong Kong. &y7E nB0w ~8} j Z
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Despite each Hong Kong worker being paid a monthly salary of HK$6,000 (US$770), double that of mainland workers, Wu believes their "100% made in Hong Kong" brand shirts can find a market in Hong Kong as well as overseas.
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Wu expects to expand the factory in two years by recruiting 500 people and enlarging the plant to 20,000 square feet (1,858 square meters). N.U&RT6~)V+g
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[i][b]Olivia Chung[/b] is a senior Asia Times Online reporter.[/i]