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Power cuts run deep for HK firms

South China Morning Post — 23 May 2011

Hong Kong manufacturers in the Pearl River Delta are battling to maintain operations in the face of power shortages which are disrupting production and pushing up costs.

Some have complained of power cuts of up to three days a week in Shenzhen and of two days in Dongguan, a production hub, forcing them to resort to dirtier and more expensive diesel generators, and disrupting production schedules.

Key industry bodies have predicted that increasing difficulties in the delta, dubbed the world’s workshop, will force more factories out of business.

Sources close to the Hong Kong Economic Trade Office in Guangdong said the number of Hong Kong factories dwindled to about 35,000 at the end of last year from 39,000 at the beginning of the year and from the 2007 peak of 80,000.

Hong Kong Small and Medium Enterprises Association chairman Danny Lau Tat-pong said manufacturers “had their backs to the wall” because of a series of challenges, including power shortages, rising wages and raw material costs, a state policy of upgrading industries, a rising yuan and Middle East political turmoil.

“It is not just difficult,” Lau said. “It is extremely, extremely difficult.”

A manufacturer producing high-fidelity equipment and amplifiers in Shenzhen queried the situation on one social networking site, saying: “How can we survive with suspension of electricity two days a week!”

Ricky Yeung, a manufacturer of high-end cooking utensils under the “Siliconezone” brand, said electricity at his factory in the Boan district of Shenzhen had been suspended every Tuesday, Thursday and Saturday since the start of this month.

The mainland looks set for its worst power shortages since 2004 owing to limited coal supplies. Yeung said the power cuts were also caused by maintenance work at some power plants, and the Shenzhen municipal government had ordered factories and power plants to cut emissions to clear the air before a sports gala for university students in August.

However, these initiatives would not work, because manufacturers, including Yeung, would use diesel-fuelled generators.

“I have no choice but to turn them on,” Yeung said. “I don’t want to because it costs about 1.5 times more than electricity from the power plant.”

Yeung said the power situation was worrying, with the peak production season looming next month.

Lau, who runs a factory near Dongguan producing curtain walls for skyscrapers, said he was faring better, with power cuts only a once a week.

The cuts come as manufacturers are already reeling from a rising yuan. Spot yuan strengthened against the US dollar at 6.4926 on Friday from Thursday’s 6.5039. The yuan has now appreciated 5.14 per cent since it was de-pegged from the greenback in June 2010, and 1.47 per cent since the beginning of this year.

Economists with brokerages such as Morgan Stanley, UBS, Deutsche Bank and Goldman Sachs have predicted that the currency will rise by 5 per cent to 6 per cent this year.

Another blow for manufacturers has been the government’s policy of boosting minimum wages, which are expected to grow by at least 13 per cent annually in the next five years, to drive domestic consumption as the mainland shifts away from exports.

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