HK needs to bring back manufacturing, albeit high-end

November 20, 2019 18:57
A file picture shows some industrial buildings in Ngau Tau Kok. Hong Kong needs to revive its manufacturing sector, but with select high-end segments, the author says. Photo: HKEJ

Hit by months-long social unrest and the Sino-US trade war, Hong Kong’s economy has entered a technical recession and the prospects going forward appear anything but promising.

The government has launched a series of relief and livelihood measures targeting low-income households and some hard-hit industries such as retail and tourism, but the "sweeteners" won't be able to offset a key structural problem in the economy: the absence of a viable manufacturing sector.

During the 1950s, Hong Kong witnessed manufacturing, albeit light industry, get off the ground in a significant way, and then take off substantially in the decades that followed, becoming a major pillar of the economy.

However, things began to take a turn later when China began a program of nationwide reform and opening up.

As a result, from the 1980s onwards, a lot of entrepreneurs in Hong Kong began to tap into the cheap land and labor in the mainland by moving their manufacturing plants across the border. This led to the gradual and continuous decline of the manufacturing industry here.

The relocation of the city’s factories to the mainland in the 1980s, and then even further to South Asia, Southeast Asia and Africa over the past decade, represents not only massive capital outflow but also many job losses to Hong Kong, which will have far-reaching implications for the local employment market, tax revenues, retirement benefits and social stability in the long run.

The decline of the manufacturing sector has, as a matter of fact, already given rise to the issue of structural unemployment in the city, particularly among the young people.

According to the first quarter data of 2019 released by Hong Kong's Census and Statistics Department, the unemployment rate among local youth aged between 15 and 29 stood at 6.1 percent, which was almost three fold the city’s overall unemployment rate.

Meanwhile, the overall unemployment rate in the tourism business and peripheral industries like retail, hospitality and catering, which are currently providing some 600,000 jobs, has hit 4.5 percent, and is likely to deteriorate further in the coming days, largely due to the recent social instability.

As we can see, the profitability of the service industry is highly vulnerable to political uncertainties and other external factors.

Given this, I believe it is time for the government, the business community and the society at large to reconsider jump-starting the manufacturing sector, particularly the high value-added industries, which can provide more stable jobs for local people and higher yields for investors.

Let’s take a look at Germany and Japan. Not only are the high-end and state-of-the-art manufacturing sectors of the two countries having a huge advantage in the global market, they are also providing jobs for nearly 20 percent of their populations.

In rekindling manufacturing, Hong Kong shouldn't look to bring back the traditional labor-intensive manufacturing such as the textile and electronic product assembly industries, as these industries will see human workers increasingly replaced by much more efficient and cost-effective robots.

Instead, we should seek to introduce the more competitive, sustainable and irreplaceable high-end manufacturing industries.

If we can do that, it can not only provide a long-term solution to the deep-seated unemployment issue, it may also put Hong Kong at the global forefront of some of the cutting-edge technologies such as aerospace engineering, biopharmaceuticals and new energy development.

This article appeared in the Hong Kong Economic Journal on Nov 8

Translation by Alan Lee

[Chinese version 中文版]

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HKEJ contributor