HK SMEs withdraw from mainland
China By Olivia Chung
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.
The
World Bank recently raised its forecast for
China's economic growth in 2007 significantly, to
10.4%, up from the 9.6% growth
predicted in November.
"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. However, Hong
Kong-invested SMEs in the PRD, which are mainly in
manufacturing, do not seem to be benefiting from
China's booming economy.
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.
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Kong SMEs have withdrawn from the PRD market by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.
He expects the withdrawal
of Hong Kong SMEs in the PRD region to continue
because of the frequent changes in the business
environment there.
"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.
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.
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.
"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.
"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.
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.
"The new generation of migrant
workers are different from the old ones and they
sometimes demand too much," Chiu said.
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.
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.
"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.
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.
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.
"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.
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.
"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.
"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.
The promising market
for plastic waste recycling in China is another
reason for turning his company into a domestic
one, Lee said.
"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.
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.
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.
"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.
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.
A few days after publishing a
recruiting advertisement, the factory successfully
hired 130 experienced workers in the Hong Kong.
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.
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).
Olivia Chung is a senior Asia
Times Online reporter.
(Copyright 2007
Asia Times Online Ltd. All rights reserved. Please
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