Hong Kong has been the single largest source of foreign direct investment (FDI) in the PRD, according to the latest study of the Federation of Hong Kong Industries. It was found that Hong Kong-funded enterprises accounted for 72% of the total number of foreign-invested enterprises, and these enterprises account for approximately half of the manufacturing enterprises in PRD, implying that one in every two enterprises in PRD is related to Hong Kong. It was estimated that these Hong Kong-funded enterprises established about 55,200 manufacturing enterprises and 57,500 factories in the PRD, hiring 9.6 million employees.
The Study report pointed out that maintaining the vibrancy of the production base in the PRD region is crucial in sustaining the region’s economic strength. The report urged the Guangdong and HKSAR governments to step up cooperation to advance and upgrade the manufacturing industries in the region, so that they would be able to confront new challenges brought by globalisation and increasingly stringent environment protection requirements.
The FHKI releases the Made in PRD – Challenges and Opportunities for HK Industry study today (Thursday). The report provides updated information on economic activities carried out by Hong Kong manufacturers in the PRD. It analyses the role played by this enormous economic region in the promotion of the Hong Kong and Guangdong economies as well as in fostering the development of the country.
FHKI chairman Kenneth Ting said that in view of the fast-changing global market and rapid economic development of the Mainland during the past few years, the Hong Kong/PRD partnership has continued to evolve. To update its first Study Made in PRD: The Changing Face of HK Manufacturers, released in 2003, the FHKI once again commissioned the Hong Kong Centre for Economic Research to embark on this new research. Mr Ting hopes that the Hong Kong and Guangdong governments would seriously consider the recommendations proposed by the report, in particular, to provide supportive measures against the backdrop of Guangdong’s Eleventh Five-Year Plan.
The Made in PRD – Challenges and Opportunities for HK Industry conducted its questionnaire survey from September 2005 to March 2006, covering nine cities in the PRD: Shenzhen, Dongguan, Huizhou, Guangzhou, Zhuhai, Zhongshan, Jiangmen, Foshan and Zhaoqing. The sampling framework was selected by stratified random sampling method. A total of 5,030 enterprises responded to the selection test and came up with 2,529 valid questionnaires.
Depicting the current partnership between Hong Kong and Guangdong, the Director of Hong Kong Centre for Economic Research Professor Y C Richard Wong pointed out that at the end of 2005, 65 per cent or USD 105.4 billion of total cumulative FDI invested in Guangdong came from Hong Kong, making it the dominant foreign investor in the Province. However, during the past two decades, the Hong Kong/Guangdong partnership has gradually evolved into a highly complex division of labour that is no longer based on the original model of “a shop in the front and factory in the back”. In the past, joint ventures were primarily funded with Hong Kong capital, where clients and factories were controlled by Hong Kong businessmen. The business model has gradually changed into a dual pattern, combining export and domestic sales instead of concentrating solely on an export-oriented mode. Hong Kong-funded enterprises and Guangdong enterprises today cooperate on a much more equal footing than they used to, and the lead positions are no longer necessarily taken by Hong Kong-funded enterprises.
Prof Wong continued, “The Study found that only half of the surveyed enterprises had offices or factories in Hong Kong. The economic development of Guangdong, the advanced communication network and the convenience of customs clearance between Guangdong and Hong Kong made it possible for these enterprises to use Hong Kong’s services without setting up branches in the territory. Of the Hong Kong services used by Hong Kong businesses in the PRD, import and export services, logistics, customer relationship management, retail and wholesale, and finance and insurance services accounted for larger proportions. The survey estimated that the ratio of Hong Kong employees to Mainland employees was 1 to 170 in the PRD Hong Kong enterprises and factories. Compared to the ratio of 1 to 120 found in the 2003 Report, there has been a significant decline.
According to the report, Hong Kong has established itself as a hub for logistics and financial and production services. It is the most direct and obvious liaison platform between the multinational companies and the Hong Kong-funded enterprises in the PRD, providing a pivotal role in linking the latter with global supply chains. If this neighbouring production base of Hong Kong can continue to grow, sufficient volume of money, goods and service flows will be generated into the territory, thus helping to sustain Hong Kong’s position as an international business hub.
Made in PRD Study Steering Committee chairman Andrew Leung believes that further promoting the Hong Kong/PRD synergy is instrumental in sustaining the long-term prosperity of the Greater PRD and the Mainland. Therefore, it is essential that the Hong Kong and Guangdong governments adopt insightful approaches to strengthen this partnership.
Mr Ting opined that the Greater PRD must move up the value chain and transform into a world-leading green manufacturing centre so that its competitive advantages can be enhanced. However, sufficient time should be given to enterprises to transform. The authorities should formulate consistent policy and provide clear implementation guidelines. This process is crucial so that the existing economic strength of the PRD manufacturing base will not be jeopardised.
On the basis of the proposed strategies laid down under the HKSAR Government’s Action Agenda of “China’s 11th Five-Year Plan and the Development of Hong Kong”, the FHKI suggested that a high-level special task force should be formed to coordinate various supports provided by different government departments for Hong Kong manufacturers in the PRD production base. The task force should also establish a communication platform with ministries and bureaus of the Central and Guangdong governments to help establish dialogue and exchanges between Hong Kong manufacturers and the officials on policies affecting industries.
The FHKI suggests that the HKSAR Government should consider setting up environmental industry parks in the major PRD cities to cater the needs of Hong Kong manufacturers affected by Guangdong’s policies of industrial restructuring and pollution control. The HKSAR Government should also provide financial support to help Hong Kong manufacturers in the Mainland to conduct environmental audits. New initiatives should be introduced under the SME Funding Schemes to encourage and assist Hong Kong manufacturers install pollution control facilities.
Mr Leung said that the ad valorem imports and exports charge paid by Hong Kong manufacturers amounted to over 1 billion dollars a year. It is reasonable that the HKSAR Government should use some of this revenue to support the well-being of Hong Kong industry, such as promoting Brand Hong Kong and helping Hong Kong enterprises to open up the Mainland market.
Mr Ting concluded, “The FHKI will submit concrete policy proposals to the Hong Kong and Guangdong governments on how to support the development of PRD industries. We urge the authorities to seriously consider our recommendations and introduce effective measures to enhance the competitiveness of the PRD, thus ensuring the prosperity and growth of the region be sustained. ”
