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HK groups may close 20,000 mainland plants as costs rise

(China Daily/Agencies)
Updated: 2008-06-28 10:49

Hong Kong companies may shut 20,000 factories in the neighboring Guangdong province this year due to increased costs from higher fuel prices and wages, an industry association said.

"At the end of this year, maybe only 50,000 Hong Kong-owned businesses will remain," from about 70,000 in the province, according to Danny Lau, chairman of the Hong Kong Small and Medium Enterprises Association.

"The increase in fuel costs comes on top of several other major issues firms have been grappling with recently," he said. Rising employee expenses and the appreciation of the yuan all added to the complications.

The government last week raised gasoline and diesel prices by at least 17 percent, the second increase in seven months, after global crude oil prices surged to record highs. The yuan gained 4 percent against the dollar in the first quarter, cutting demand for domestically made goods in overseas markets.

Employee costs have jumped 30 percent this year at Kam Pin Industrial (HK) Ltd, Lau's company. The maker of building materials, which employs 300 workers on the mainland, has also seen an almost doubling of fuel costs this year, Lau said.

Higher employee costs in Guangdong prompted Foxconn International Holdings Ltd, based in Shenzhen, to set up production sites in lower cost Hebei and Shanxi provinces in northern China, Samuel Chin, chairman of the world's biggest contract maker of mobile phones, said last week.

"China's export competitiveness is definitely declining fast," said Sun Mingchun, an economist with Lehman Brothers Holdings Inc in Hong Kong. The volume of goods and services sold overseas has declined to "single-digit" growth, he said.

Profitability of Hong Kong-owned manufacturers was also hurt by lower export rebates from the government, the association's Lau said. Last year, The government cut rebates on overseas sales of products including textiles, toys and steel products as part of efforts to lower energy consumption and ease trade friction with the US and Europe.

About 10,000 Hong Kong-owned factories in southern China may shut or cut operations, Stanley Lau, vice-chairman of the Federation of Hong Kong Industries, said last month.

Hong Kong companies invested $280 billion on the mainland between 1978 and 2006, accounting for more than 39 percent of the mainland's FDI during the period.