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Guangdong Wants Hong Kong Plants To Stay

Guangdong wants HK plants to stay

Concerns over global slowdown prompt backdown on move against low-value factories

Denise Tsang – Updated on Jul 04, 2008 – SCMP

Guangdong has changed its mind on kicking out tens of thousands of Hong Kong-owned factories involved in low-value and highly polluting manufacturing amid fears an exodus will worsen the impact of a global economic slowdown on the province.

The province yesterday announced plans to encourage more Hong Kong factory owners to stay and upgrade their businesses rather than relocate to more investment friendly regions in western China.

Guangdong vice-governor Wan Qingliang, marking the 30th anniversary of mainland economic reforms, called for closer co-operation between the province and Hong Kong to “jointly overcome unprecedented challenges” from the sinking US dollar, spiralling costs and the growing divide between the two neighbours.

Mr Wan, who described Guangdong and Hong Kong as intimate brothers, said the provincial government had earmarked 40 billion yuan (HK$45.53 billion) to expand road infrastructure and utilities in mountainous areas in the northeast and southwest of the province to help factory relocation.

His remarks are in stark contrast to governor Huang Huahua’s comments in March when he championed Guangdong’s transformation from a low-end manufacturing hub into a service-backed economy.

At the time, Mr Huang said the Pearl River Delta was losing its cost advantages on land and labour and encouraged Hong Kong manufacturers engaged in low-end and energy-consuming industries to move out of the province.

After decades of making cheap toys and clothes for export markets, Guangdong is seeking to burnish its reputation by encouraging more high-end industry in the form of electronics, services and information technology.

But the move to push out the low-value, labour-intensive industries is now being softened amid fears the province will lose one of the backbones of its economy.

“The country’s new policies on trade and industry structure led to more restrictions in Guangdong-Hong Kong co-operation,” Mr Wan said at the beginning of a three-day Guangdong Trade Fair in Hong Kong.

“Despite the unprecedented challenges, we must overcome them together and break new ground through further co-operation.”

Mr Wan added that Guangdong would improve rail, road and energy infrastructure to facilitate factories relocating to remoter parts of the province while helping exporters to upgrade their businesses to plug into the domestic consumer market.

Hong Kong Chamber of Small and Medium Business president Dennis Ng Wang-pun said Mr Wan’s friendly tone was much-needed at a time when a wave of factory shutdowns had intensified.

“The message is very clear and encouraging,” Mr Ng said at the trade fair. “Three months ago, the province was hailing the slogan of phasing out the secondary [manufacturing] industries and introducing the tertiary [service] industries, but now it is upgrading the secondary industries and introducing the tertiary industries.”

Some manufacturers attribute the softened tone to concerns by provincial leaders that it is not a good time to encourage factories to move out when a recession is looming in the United States.

On the domestic front, Guangdong faces stiff competition for Hong Kong capital from provinces such as Hunan, Jiangxi, and Guangxi and the Chongqing municipality.

Some trade groups estimate that 20,000 of the 65,000 Hong Kong-owned processing trade exporters will be forced to shut down by the end of this year under the weight of soaring raw materials, labour and fuel costs as well as tougher environmental controls.

“If the drain of foreign investors, namely those from Hong Kong, worsens, it will raise a big question mark about whether Guangdong will be able to achieve its targeted 9 per cent economic growth in each of the next five years,” said Yeung Chi-kwong, who runs a shoe factory in Longhua, Shenzhen.

Mr Wan said that Hong Kong accounted for 50 per cent of Guangdong’s US$14 billion foreign investment last year and was a core contributor to the province’s exponential economic growth over the past 30 years.

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