Global crisis, labour laws hit PRD plants

Hong Kong manufacturers are forced to shut or cut production in response to the 2008 economic crisis and mainland contract rules

PUBLISHED : Wednesday, 05 September, 2012, 12:00am
UPDATED : Wednesday, 05 September, 2012, 1:37am

About 15 per cent of Hong Kong manufacturers operating in the Pearl River Delta have either curtailed production or closed down since the global economic crisis of 2008 and the implementation of new labour contract laws.

More factories would shut if the downturn continued to hurt exporters in the export hub, a leading industrial trade body warned yesterday.

Deserted factories are now commonplace in industrial areas across Guancheng, Changan, Humen and Tangxia, in Dongguan, the first place Hong Kong manufacturers established on the mainland about 20 years ago, said Stanley Lau, the deputy chairman of the Federation of Hong Kong Industries.

Several thousands of the about 50,000 factories owned by Hong Kong companies in the delta had closed, Lau said.

Dongguan, an export-oriented city, has been hard hit since export demand from Europe and the United States waned. Growth in the city's gross domestic product dropped to 2.5 per cent year on year in the first half from 8 per cent a year earlier.

It lagged behind all the major cities in Guangdong province and fell short of the national guideline of 7.5 per cent growth for this year.

The city's export value growth plunged to 6.1 per cent from 15.9 per cent.

Factories had seen their orders cut by as much as 30 per cent since 2008 because of the sluggish consumer demand in the West, Lau said.

Wilson Shea, the owner of packaging material manufacturer Success Products, said its current orders were just 70 per cent of what they were in 2010. The drop prompted him to cut the number of workers to 60 from more than 300 in 2008.

"I have even shut down the kitchen and laid off the four full-time staff to cut costs," he said.

But Shea is not alone. The introduction of the minimum wage and new labour contract laws on the mainland have forced scores of factories out of business.

"About 30,000 factories in the province have closed down since 2008," said Edward Tsui, a vice-president of the Chinese Manufacturers' Association of Hong Kong.

The new law enforces permanent contracts between factories and workers, versus the time-definite contracts of the past. In addition, workers employed for 10 years in the factory are entitled to as much as 100,000 yuan (HK$122,160) compensation on termination of their contracts.

"The incentives for workers to work harder have been compromised as they would rather be fired in some cases," Tsui said.

Moreover, the labour shortage in Guangdong is still acute as immigrant workers, who used to be the major labour source for factories in the southern region, have become reluctant to leave their regions as local economies closer to home start to flourish.

Factories are now leaving Guangdong to relocate to other cities in Jiangxi or Hunan to take advantage of lower costs. Some were even winding up and moving to Bangladesh, Cambodia, Indonesia and Vietnam where they could halve their operating costs, Lau said.

In response to the difficulties being faced by the manufacturers, the Guangdong government tried to ease their pain by delaying the rise in minimum wages, he said. The new minimum wages were supposed to be launched in January.