Hong Kong Manufacturing SMEs: Preparing for the Future

34Hong Kong Trade DevelopmentCouncil (November 2007) 83In November 2007, the Hong Kong TradeDevelopment Council surveyed Hong Kong firmsoperating export processing facilities in the PRDon the impact of changes in export processingand environmental regulations. A total of 75.1 percent of respondents indicated that their exportprocessing operations had been affected by thechanges in export processing rules instituted in2007 and 24.9 per cent indicated their operationshad not been affected. A total of 44.5 per centindicated that the changes had led to an increasein input costs; 30 per cent had to pay customsduty deposits on inputs; and 25.2 per cent saw animpact on the availability of inputs from suppliers(note that some companies cited multiple effects).Despite the impacts, 78.3 per cent of the firmsindicated that they would not consider relocatingtheir operations from the PRD. The main reasonsthat were cited for this lack of interest in relocatingout of the PRD were cost of relocation (40.9 percent), their PRD business is still profitable (19.3per cent), they were not aware of other options(17.5 per cent), relocation to another region wouldweaken firm competitiveness (16.6 per cent), andothers (10.4 per cent).83 See Hong Kong Trade Development Council, “LatestDevelopment and Strategies of Hong Kong Companies”Processing Trade Business in the Pearl River Delta- SurveyFindings,” 30 January 2008.Overall, the outlook of the Hong Kong companieswas mixed. In the short-term (one to two years),more respondents felt their business would seerapid decline (7.4 per cent) than rapid growth (4.8per cent). On the other hand, more respondentsbelieved their operations would have moderategrowth (34.2 per cent) than moderate decline (28per cent). Similarly, on a three to five year timescale, more respondents believed export processingbusiness would rapidly decline (15.1 per cent)than rapidly grow (7.1 per cent). Slightly morerespondents believed their operations would exhibitmoderate growth (33.5 per cent) than moderatedecline (31.5 per cent) (see Exhibit 13).Exhibit 13. Outlook for the Business of HongKong Export Processors, November 2007ProspectsShort-term(1-2 years)% of RespondentsMedium-term(3-5 years)% of RespondentsRapid growth 4.8 7.1Moderate growth 34.2 33.5Unchanged 25.6 12.8Moderate decline 28.0 31.5Rapid decline 7.4 15.1Source: Hong Kong Trade Development Council.Many of the respondents indicated their companieswere taking action to maintain or expand theirbusiness in the PRD. A total of 42.4 per centindicated that they would look to increase sales inChina’s domestic market (presumably foregoingthe tariff breaks afforded to export processingproduction); 42.1 per cent were looking to increasedomestic sourcing of inputs (so they would not haveto pay import tariffs on the inputs); 34.7 per centwould consider changing from an export-processingoperation to a foreign-invested enterprise (therebyforegoing the advantages of export processingwhile also avoiding the restrictions associated withexport processing); 22.8 per cent indicated that theywould increase capital investment (presumably toautomate production and to improve environmentalperformance); and 16.3 per cent would investin green production (to improve environmental