A shake-up in the Pearl River Delta manufacturing hub is 'normal' as Guangdong upgrades its economy and technology to enable sustainable growth, the provincial governor said yesterday.
Commenting for the first time on the demise of an estimated 10,000 delta factories in the past few months amid the province's economic transformation, Huang Huahua said labour-intensive and low-value production activities would be moved out to make way for services-led development.
The State Council had approved measures to aid the transition, which included allowing Guangdong's Sino-foreign joint ventures, foreign firms and processed-exports producers to distribute goods around the country as well as offering incentives to help them migrate to more remote areas, he said.
'Companies come and go, and the number goes up and down, which is normal,' Mr Huang said on the sidelines of the annual National People's Congress meeting. 'Frankly, Hong Kong manufacturers, especially those in labour-intensive industries, will be better off moving to the west.'
He said the delta's land supply was running out while labour and electricity costs were rising so much that it was cutting profitability.
Three major trade bodies, the Federation of Hong Kong Industries, the Chinese Manufacturers' Association and the Hong Kong Small and Medium Business Association, have said they expect more factories will be forced to relocate. They estimate that at least 10,000 factories out of the roughly 90,000 in the delta have folded in the past few months.
Many manufacturers say they have been hit by a combination of yuan appreciation, soaring raw material prices and production costs, stringent environmental controls, the global economic slowdown, and the new labour and tax rules.
Mr Huang warned that Guangdong would roll out policies regulating electricity consumption to resolve a supply crunch. The measures include ordering about 10 types of energy-consuming industries to unplug from the power grid.
Responding to criticism from some Hong Kong investors that they were forced out after doing their duty to bring affluence to the province, Mr Huang denied Guangdong had dumped them.
Despite the government's incentives, many Hong Kong factory owners are reluctant to move their production lines, saying it makes no sense until the entire value chain moves and sophisticated infrastructure is available.
Hong Kong accounted for 60 per cent of Guangdong's foreign investment, providing the growth engine of the Pearl River Delta's 2.5 trillion yuan gross domestic product last year, Mr Huang said. The delta generated about 80 per cent of the province's GDP last year, he added.