Legislators called for the government to do more to rescue local small and medium enterprises (SMEs) amid the financial turmoil to avert huge unemployment and factory closures.

They made the requests yesterday on the first day of a three-day debate on the Motion of Thanks on the Chief Executive's Policy Address.

Andrew Leung Kwan-yuen from the industrial constituency estimated that about 20,000 or one-fourth of Hong Kong-owned factories on the mainland will close.

"The impact has been far worse than expected," he said.

Leung noted that banks tightening their credit line and raising loan interest rate have put SMEs in crisis. If the situation continues, more enterprises will go bust and will push up the unemployment rate, he said, adding approximately half of the jobs in private organizations are provided by local SMEs.

Another industrial constituency lawmaker Lam Tai-fai said other factors including the new Labor Contract Law implemented this year on the mainland and the appreciation of renminbi have largely raised operating costs, which makes it more difficult for SMEs to survive.

"The industrial sector is in a drought now," Lam said.

He also estimated that about 10,000 Hong Kong SMEs in Pearl River Delta will close in the coming year.

Albert Lau, vice chairman of the Hong Kong Small and Medium Enterprises General Association, said the immediate impact of the economic slowdown on many SMEs is insufficient cash flow.

"If we don't have enough cash to pay the rent and the staff, there is nothing we can do but to close the factories," he said. "The government's two-year guarantee to all bank deposits should have given the banks relief in terms of liquidity, so why can't they help us now?"

The government announced enhancement measures to the SME Funding Schemes Tuesday, but Lau said the government could do more.

Under the Loan Guarantee Scheme, the government and banks each shoulder half of the loan risk. The government should raise its guarantee so that banks can relax their credit line, he said.

Leung also suggested the government implement more measures including asking the Hong Kong Export Credit Insurance Corporation to extend its guarantee and services to non-export businesses.

Meanwhile, lawmakers urged the government to reposition the city's business structure.

If the SAR government does not nurture the development of the industrial sector in Hong Kong, the sector will vanish and a lot of people will lose their jobs, Lam said.

Ip Wai-ming from the labor constituency found that Hong Kong has been relying on the financial and service sectors and he believes it is such reliance that has put the city in such a difficult situation now. He proposed that Hong Kong should develop multiple industries to ensure stable employment.

The three-day debate will continue today.

(HK Edition 10/30/2008 page1)