Hong Kong Manufacturing SMEs: Preparing for the Future

23In recent years, China has become more concernedabout product safety. The main focal point in thePearl River Delta region has been the toy industry.In 2007, 1,454 of the 1,725 toy factories inspectedin Guangdong were found to have safety flaws.Roughly 764 toy factories in Guangdong lost theirexport licences or had them suspended over productquality concerns and 690 were ordered to renovateplants and improve quality standards. A total of 774people were arrested. 52 Since Guangdong is thedominant toy producer in China, it was expectedthat the toy safety issues would hit the provincemore than other locations in China. In the firstquarter of 2009, EU announced 143 toy recalls,134 of which focused on products made in China.During the same period, US and Canada announced13 toy recalls, all of which involved products madein China. 53 In mid-2009, the EU and US enactedtheir new toy safety directive and toy safetystandards respectively, which made the situation fortoy exporters in Guangdong even more difficult.The garment and textile industry is another sectorwith increasing product safety concerns. In 2009,the EU announced 122 garment and textile recallsinvolving China-made products, a 184 per centincrease over 2008, and the US announced 33garment and textile recalls related to China-madeproducts, a 57 per cent increase over 2008. 54Environmental and product safety issues are likelyto have a disproportionate effect on the Pearl RiverDelta going forward. The Central Governmentseems intent on enforcing rules and regulationson export-oriented, foreign-invested facilities thatit considers as adding limited value to China’seconomy. At present the Pearl River Delta isdisproportionately represented in these industries.The Hong Kong manufacturing managersinterviewed for the present project indicated thatHong Kong firms had to follow all the relevantregulations and this put them at a competitivedisadvantage versus Mainland companies and othercompanies that do not. This led to expressed fearsthat the additional costs incurred in following theappropriate regulations might place some HongKong companies at such a disadvantage that theirviability could be under threat. To the Hong Kongmanagers, the issue frequently was not the natureof the rules and regulations, but rather the potentialfor asymmetric enforcement leading to competitivedisadvantages.52 “Guangdong toymakers lose export licenses,” ChinaEconomic Review, 2 November 2007. “764 toy factories inGuangdong hit with export ban,” The Standard, 2 November2007.44 Gazette of Environment Situation in GuangdongProvince 2008.53 HKTDC, “Analysis of Toy Recalls,” 18 June 2009.54 Hong Kong General Chamber of Textiles, “IncreasingRecalls of Mainland Textiles by US and EU,” 16 April 2010.textileschamber.org.