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The PRD World Factory: Challenges and Opportunities for Hong Kong Industry 30 Years Later

The PRD World Factory: Challenges and Opportunities for Hong Kong Industry 30 Years Later. Dennis Yau Director-General Federation of Hong Kong Industries 21 October, 2008. Outline. Overview of PRD manufacturing base Changing business environment Resulting trends and tendencies

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The PRD World Factory: Challenges and Opportunities for Hong Kong Industry 30 Years Later

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  1. The PRD World Factory: Challenges and Opportunities for Hong Kong Industry 30 Years Later Dennis Yau Director-General Federation of Hong Kong Industries 21 October, 2008

  2. Outline • Overview of PRD manufacturing base • Changing business environment • Resulting trends and tendencies • Adaptation strategies for manufacturers • Opportunities • Conclusion

  3. 350 billion USD of accumulative Hong Kong investment in PRD About one in every two enterprises in the PRD is related to Hong Kong 55,200 Hong Kong funded manufacturing enterprises in PRD, employing 9.6 million employees Nearly 90% of manufacturing enterprises with Hong Kong investment import and export their products via ports in Hong Kong Overview of Manufacturing Base in PRD Data source: FHKI PRD survey 2007

  4. Changing Business Environment (Domestic) • The 11th Five Year Plan and the Industrial Upgrade Scheme of Guangdong set out new directions for China’s economic development • Encourage industrial upgrade • Encourage industrial relocation • Push for green manufacturing • Create a harmonies society

  5. Changing Business Environment (Domestic) • Policy Implications • Restrictions in processing trade export • The relocation drive from coastal regions to Midwest regions • Tightened environmental standards and supervision • Increase wages of workers (up 20% since 2007))

  6. Changing Business Environment (International) • Continuing RMB appreciation (up 15% against USD since 2006) • Soaring prices for raw materials and oil in global market • Depressed international demand following global economic downturn • Higher safety standards and certification requirement (Toys safety issue, EU’s RoHS etc)

  7. Resulting Trends • Production costs in PRD soar by over 20% • Export growth rate declines (export rate dropped by 6% from January to April 2008, trade surplus decreased by USD 5 billion) • Increasing number of SMEs choose to close down their manufacturing factories in PRD • Relocation of manufacturing enterprises to other parts of China or outside China • Efforts in green manufacturing intensify

  8. Adaptation Strategies • Relocation - To eastern and western parts of Guangdong Province - To Western China and Pan-PRD • Outsourcing - Further division of labour between large manufacturers and SMEs

  9. Adaptation Strategies (cont’) • Upgrading - Development of high value products via design & innovation and branding - Employing green manufacturing process • Opening up the domestic market - establishing an effective domestic distribution network

  10. Opportunities • Chinese domestic market is still booming, with increasing demand for higher end products • Manufacturing industry as a whole will move up along the value chain, following the upgrading of industrial restructure • Manufacturing bases can be expanded to Pan-PRD areas, where production costs remain low

  11. Opportunities (cont’) • Hong Kong’s role as regional distribution and logistic center stays unchanged • Environmental industries and technologies emerge as a fast growing sector : enterprises in PRD need importing of green equipment and technologies

  12. Conclusion • An era of transformation and restructuring is unfolding for the manufacturing industry in PRD • Manufacturers and out-sourcing buyers should focus on the Chinese market beyond the PRD • Green manufacturing and higher value-added production will be the fashion of coming years

  13. Thank you!

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