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Urbanisation Poses Challenges, Opportunities on Chinese Mainland
HKTDC Export Index Falls Slightly Amid Weak Hiring Sentiment

16 September 2010 – Hong Kong manufacturers facing rising labour costs on the Chinese mainland should upgrade their production capabilities in the Pearl River Delta (PRD), according to Edward Leung, Chief Economist of the Hong Kong Trade Development Council (HKTDC). Speaking today at a press conference, Mr Leung also revealed the latest HKTDC Export Index findings, which showed that the city’s confidence in export prospects for the third quarter had dipped slightly. The index, which stood at 56.2, remains in expansionary territory, but increasing costs will remain an issue as economic development gathers speed in China’s inland provinces. 

Published each quarter since December 2006, the index monitors export confidence among major industries in Hong Kong. 

Mr Leung said the slight decline of the index signals a slower rate of export expansion in the near term, and a slight erosion of export confidence for all major markets. “The survey also reveals that the hiring sentiment is weak for most industries,” said Mr Leung. “It could partly be attributed to the problem of higher labour costs on the mainland.” 

Labour Costs
The index shows that confidence on the Chinese mainland dropped from 56.8 in the second quarter to 52 in the third quarter. Exports to the Chinese mainland are still expected to grow over the near term, though at a much slower rate, said Mr Leung. Some 79 per cent of respondents expect higher labour costs on the mainland in the third quarter, down from 84 per cent in the second quarter. Among those who said they experienced higher labour costs, 57 per cent said the increase was more than 10 per cent over the past three months. Asked how they dealt with increased costs, 64 per cent said they passed the costs on to their buyers, while 54 per cent said they rejected orders with low or no profitability, and 53 per cent launched new products to allow them to negotiate higher prices.

“The higher labour-cost problem is the result of the labour-shortage problem,” said Mr Leung. “Instead of a short-term hassle, this will be a long-term problem facing Hong Kong manufacturers who operate in the Pearl River Delta region.”

Coastal Change
Mr Leung, noting an article in the latest issue of the HKTDC Trade Quarterly, which was distributed at the media conference, said that the mainland’s coastal regions, notably the PRD, are becoming less attractive to migrant workers. “As economic development gathers speed in inland provinces and more local jobs become available thanks to industrialisation and urbanisation, the PRD’s attraction is fading,” he said.

Besides the narrowing income gap between the inland and the coastal provinces, other issues contribute to the problem, according to Mr Leung. “Although members of the new generation generally aspire to live in coastal cities, many are still more likely to settle for inland cities. The trend is particularly true in newly established small cities, where the cost of living and property prices are affordable.” He added that the government has also relaxed eligibility criteria for residence in the small cities to encourage their relocation.

Only 22 per cent of respondents facing the labour cost problem said they had explored an alternative production base to the PRD. Nevertheless, Mr Leung emphasised that factories there could no longer rely on hiring young and entry-level workers to expand production or even sustain existing capacity. “To tackle the labour problem in the coastal region, factory operators will have to consider other options, including adjusting overall production planning and increasing their level of mechanisation.”

Opportunity amid Adversity
Mr Leung reminded Hong Kong businesses that urbanisation on the mainland is generating opportunities for retailers and their suppliers. “Urbanisation will also promote the development of the tertiary industries, creating more high-income jobs for salaried workers and more high-profile spending on services.” Mr Leung added that, since more than 10 million people continue to move into mainland cities each year, Hong Kong construction and engineering firms should benefit from the pressing demand for housing hotels and office buildings. “There is no doubt that the mainland’s massive urbanisation will bring plenty of rewards to Hong Kong companies, ranging from exporters to professionals.”

Media Enquiries
Please contact the HKTDC's Corporate Communication Department:

Joe Kainz
Tel: (852) 2584 4216
Email: joe.kainz@hktdc.org

About the HKTDC
A statutory body established in 1966, the Hong Kong Trade Development Council (HKTDC) is the international marketing arm for Hong Kong-based traders, manufacturers and service providers. With more than 40 global offices, including 11 on the Chinese mainland, the HKTDC promotes Hong Kong as a platform for doing business with China and throughout Asia. The HKTDC also organises trade fairs and business missions to connect companies with opportunities in Hong Kong and on the mainland, while providing information via trade publications, research reports and online. For more information, please visit: www.hktdc.com 

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