Slowdown takes a toll on industries

Updated: 2008-12-30 07:31

By Joey Kwok(HK Edition)

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The financial tsunami has triggered panic around the world, with its impact taking a heavy toll on a variety of industries in Hong Kong.

Turmoil in the global credit markets has severely weighted down earnings of the banking and finance industry, which triggered a wave of job cuts among local banks.

Starting from September, Europe's largest bank HSBC laid off 4 percent of its worldwide back-office staff, including 100 employees in Hong Kong. Two months later, the global banking giant further axed 450 jobs in the territory in its second round of layoff.

In early November, Southeast Asia's biggest bank DBS trimmed its workforce by 6 percent, or 900 jobs, in its Hong Kong and Singapore operations, after reporting its steepest profit decline in two years.

Standard Chartered Bank, a UK-based lender focused on emerging markets in Asia,shed 200 jobs - 4 percent of its staff - in Hong Kong in early December.

Billy Mak, an associate professor at Hong Kong Baptist University, said banks in Hong Kong may further reduce their staff numbers in the first half of 2009, as they are facing pressure to cut cost for profits' sake.

"The banks may encounter difficulty in their operations in the future, as the non-interest income used to account for 30 to 40 percent of their profits," Mak said.

The tightened credit of banks and weaker export orders have forced thousands of Hong Kong-owned factories in the Pearl River Delta (PRD) region to close shops.

In early October, Hong Kong toy maker Smart Union Group closed down its two factories in Dongguan, throwing almost 7,000 workers into unemployment.

Raymond So, an associate professor of finance at Chinese University of Hong Kong, said around 5,000 factories in the region had already closed down amid the financial meltdown.

"The Christmas sales in the US tumbled around 20 to 30 percent this year, which means the export market for the mainland has significantly shrunk," So said.

He added that the closure of a few factories in the PRD region will trigger the banks to tighten their credits accordingly. Other factories in the region will, thus, be running out of cash.

"It is a chain reaction. The economy will therefore more and more sag," So said, also noting more Hong Kong-funded factories in the PRD may close down in 2009.

Volatile market in the second half of the year also caused blue-chip company CITIC Pacific to suffer enormous loss from accumulator trading.

The company, controlled by the biggest state-owned conglomerate CITIC Group, revealed in mid October that it has lost HK$15.5 billion from making mistaken currency bets on the Australian dollar.

CITIC Pacific managers said they had acknowledged the problem since early September. Two of the company's senior finance executives have resigned because of poor judgment on the investment. Its parent CITIC Group later agreed to buy HK$11.6-billion convertible bonds from CITIC Pacific, at a conversion price of HK$8 per share, as bailout.

The bankruptcy of Lehman Brothers in September has also severely affected more than 40,000 holders of Lehman's minibonds in Hong Kong.

The Hong Kong Association of Banks said in early December that legal complication had stood in the way of the minibonds buy-back process, as the trustee HSBC faced a legal challenge from the lawyers representing the liquidator of Lehman Brothers.

As many as 18 local banks, also the minibonds distributors in Hong Kong, promised later on to provide HK$100 million to help protect the minibond investors amid the legal tussle.

Stepping into 2009, economists expect it may take quite a while for the territory's economy to bounce back.

"The year 2009 will be a time of recession in Hong Kong," So said, adding that the key for an economic recovery will largely depend on how the US government deals with the current crisis, especially the financial problems facing the "Big Three" US automakers.

(HK Edition 12/30/2008 page2)