Guangdong to ease pressure on factories
Guangdong is to offer incentives to shore up processing trade - manufacturing that relies on imported raw and auxiliary materials, parts and components - throwing a lifeline to Hong Kong factory owners struggling in an increasingly hostile environment.
In her first official visit to Hong Kong tomorrow since becoming provincial vice-governor this year, Zhao Yufang is expected to reveal tax and administrative arrangements to ease the pain of factories moving up the technology ladder and value chain.
The incentives could not come at a better time for Hong Kong-based factory owners who are being hit by rising inflation, wobbly export markets, labour and power shortages and a stronger yuan.
'It gives us some cold water in the scorching heat, which is better than nothing,' a Federation of Hong Kong Industries official told the South China Morning Post after meeting with Zhao on Monday. 'We need to have confidence restored.'
Manufacturers complain that business confidence in the future of the Pearl River Delta - the so-called 'factory of the world' - is now lower than during the global financial crisis as soaring raw materials prices and wages continue to bite.
According to the latest Hang Seng Bank research report, China's export growth will slow further in the second half of this year as the US economic recovery runs out of steam, Europe tightens spending and Japanese demand slows as a result of the March tsunami and earthquake. It forecast China's export growth will slow to 18 per cent this year from 31.3 per cent last year and import growth will taper off to 22 per cent from 38.7 per cent.
Other data is also pointing to tougher times ahead. The two purchasing managers' indexes tracking the nation's manufacturing activities edged closer to the watershed line of 50 in June, with the Federation of Logistics & Purchasing PMI drifting to 50.9 last month from 52 in May and the HSBC/Markit PMI down to 50.1 from 51.6 under the weight of economic and property cooling measures. A number under 50 signals manufacturing is contracting.
The Federation of Hong Kong Industries predicted earlier this year that about one in every three or four processing trade factories owned by Hongkongers in the Pearl River Delta could go bust over the next couple of years.
To ease manufacturers' difficulties, it is expected Guangdong officials will roll out some incentives such as extending the tax-free period on imported machinery for three more months, sources said. The machinery is subject to a 17 per cent value-added tax.
The tax arrangement would help the cash-flow of manufacturers, who are changing their operations from processing trade manufacturing into foreign-funded commercial enterprises that are allowed to distribute finished products on the mainland.
The central government is now encouraging Hong Kong manufacturers to create their own brands and distribute products on the mainland market. Other incentives would include helping manufacturers obtain bank loans with favourable terms for environmentally-friendly manufacturing, the sources said.
In its next five-year plan, Guangdong wants to shift to higher value-added exports such as cars and high-tech machinery and equipment, from labour-intensive, energy- consuming and polluting industries such as textiles, garments and shoes.
