19 July 2018
Rising wages and other costs, stricter environmental rules and weaker export markets have prompted some Hong Kong firms to pull out from the Pearl River Delta. Photo: Bloomberg
Rising wages and other costs, stricter environmental rules and weaker export markets have prompted some Hong Kong firms to pull out from the Pearl River Delta. Photo: Bloomberg

Why Pearl River Delta woes spell bad news for Hongkongers

Hong Kong companies with factories in the Pearl River Delta (PRD) have seen their number fall by over 40 percent since 2006. And the trend is expected to continue in the Year of the Goat.

Firms are pulling out due to rising wage and welfare payment costs, the inability to find workers and technical staff, and stricter environmental standards in the mainland, as well as weak export markets in Europe, the US and Japan.

All this is bad news for Hong Kong people. For the past 30 years, a job in a Hong Kong firm in the PRD, which is more likely to hire a Hong Kong person as a manager, accountant or supervisor than a mainland or foreign firm, has been an attractive choice, with good salary and bonuses and easy access to home for the weekend.

But now such job opportunities for Hong Kong people are shrinking, as the skills set among mainland people has greatly improved — many people there now speak better Mandarin and English than Hongkongers. They are also likely to have a better understanding of the China market and the means to access it.

“I worked in a Hong Kong factory in Guangdong for a year,” says Wong Siu-ming, a taxi driver aged 50. “I shared a room with one other Hong Kong person, while other workers lived in dormitories with up to 12 people. I earned double what I could at home.”

“Such jobs are increasingly few now. We passed on our skills to trainees in the mainland and they have taken over. We are not needed now,” he said. “The wage gap used to be 100 percent but has narrowed now.”

The peak was between 1980 and 2000, when companies rushed to relocate their factories from Hong Kong to the PRD to take advantage of the cheap land and labor and preferential policies. According to the Hong Kong Federation of Industries (HKFI), the number peaked at 55,000 in 2006 but fell to 32,000 at the end of 2013 and has continued to decline since then.

HKFI chairman Stanley Lau said rising labor costs had forced firms to leave the PRD and move to more remote areas of Guangdong province, Southeast Asia or move back to Hong Kong. “Over the long term, the situation will influence the logistics and finance industries in Hong Kong. Companies must improve automation and research and development of new products,” he said.

Yashi Electronics is a typical example. In the 1980s, it moved its factory from Hong Kong to Guangzhou and, in 1994, to Dongguan. At its peak, it made 800,000 items a month to be used in consumer products, employing nearly 5,000 people.

But rising costs and changes in taste have cut the labor force to 3,000 and the profit margin to two percent. This year it will be forced to reduce the labour force further. The company said sales in 2014 were 20 percent lower than in 2013 and that they will decline further this year.

Yu Dak-ming, a board member of the Chinese Manufacturers Association of Hong Kong, noted that “mainland factories are learning foreign technologies. Their R&D is better than that in Hong Kong. This is making it harder and harder for Hong Kong firms. They must adapt to these changes or face closure.”

Hong Kong firms are not the only ones leaving the mainland. On January 30 this year, Panasonic closed its last remaining TV factory in China, because of a sharp decline in television prices in North America and China. Earlier, Sanyo, Pioneer and Toshiba also ended their production in China.

A survey of 8,579 Japanese firms published in June last year found that, for the first time in 12 years, China had lost its place as the most desirable foreign investment destination, falling to fourth place behind Indonesia, India and Thailand.

For most Hong Kong people, a job in the PRD is attractive if it offers a good salary and the chance to return home at weekends. But, if the firm moves inland to Henan, Sichuan or other inland provinces – as the government wishes – it means home visits are more infrequent and expensive and the cuisine very different.

But given that working in the mainland has its downside, some are not feeling such a great loss even though the golden age of jobs in the Pearl River Delta has gone.

“I missed my family and could not adapt. I did not like to go to karaoke joints and drink. You need strong determination to resist the young women running after you. Some of my colleagues ruined their family and financial future by becoming involved with such women,” Wong said.

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Hong Kong-based writer, teacher and speaker

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