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Delta Factories Face More Curbs On Production

Denise Tsang – SCMP – Jan 30, 2008

The Ministry of Commerce is set to unveil a new round of measures to discourage energy-gulping and polluting industries in the Pearl River Delta by placing restrictions on 1,000 types of products. The Federation of Hong Kong Industries said the restrictions would add to the troubles already being faced by tens of thousands of manufacturers across the border, including new labour laws, higher interest rates and a stronger yuan.

Under the plan, the government will soon slash or cancel value-added tax refunds on as many as 1,000 types of products, according to the trade body’s deputy chairman, Stanley Lau Chin-ho. That follows restrictions placed on about 590 types of products last month and about 2,600 in June.

Although not specified, the products are expected to be low-cost items that consume a lot of energy and are labour-intensive to make.

Beijing is attempting to discourage low-end manufacturing to cut pollution, save resources and get the country to climb the technology ladder.

“The new rule is expected to hit after the Lunar New Year,” Mr Lau said. “Pressure is mounting on manufacturers, who have been hit by one problem after another.”

Of the more than 90,000 export processing firms on the mainland, almost 70,000 are based in Guangdong and 57,500 are invested in by Hong Kong firms. They employ 9.6 million workers, according to National Bureau of Statistics data.

Restriction on these manufacturers combined with new taxation, a new labour law, higher lending costs and tighter pollution controls had led to the demise of more than 1,000 shoe manufacturers and 1,000 toy producers in the Pearl River Delta.

Simon Shi Kai-biu, president of the 1,000-member Hong Kong Small and Medium Business Association, said more than 10,000 Hong Kong-owned processing exporters were on the verge of collapse, particularly in the lead-up to the Lunar New Year.

Mr Shi said employers and workers must sign employment contracts by January 31, specifying benefits and obligations of both parties.

“This is a critical time for manufacturers,” he said. “They are being chased by suppliers and bankers to settle payments before the Lunar New Year while locked in disputes with workers over labour contracts.”

Workers were demanding employers settle compensation levels before signing labour contracts but many employers had refused to do so, said Eddie Lam, a Hong Kong-based shoe manufacturer.

“In many cases, employers and workers do not know who is right or wrong because no detailed interpretation of the law from the government is available yet,” Mr Lam said.

A poll of 400 foreign firms in Guangdong by the Hong Kong Professionals and Executives Association showed 70 per cent of businesses said the new law would force them to close operations or withdraw investment.

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