Japan's earthquake and the Middle East turmoil have dealt yet another blow to Hong Kong manufacturers across the border, according to the Federation of Hong Kong Industries.
Supplies of electronics, hi-tech components and car parts in Japan have been choked off by electricity rationing and damaged transport infrastructure after the earthquake and a subsequent tsunami hit the world's third-largest economy last Friday.
Federation deputy chairman Stanley Lau Chin-ho said yesterday that dwindling and fickle supplies of components had disrupted the entire supply chain, while Japan's consumer market was also hit hard.
Problems had also arisen from the Middle East, where buyers had demanded to put on hold shipments of finished goods as social unrest continued to bite, he said.
'The external environment adds fresh pressure to manufacturers,' Lau said. 'They are already at the crossroads squeezed by shifting policies in the Pearl River Delta.'
Watch makers were particularly hard hit, chasing after fickle supplies of components for mechanical movements and steel parts, among other items. The production and shipments of core suppliers Seiko and Citizen were being disrupted by power rationing and damaged transport networks, he said.
According to Morgan Stanley, China had the biggest trade surplus with Japan in textiles and the biggest trade deficit in machinery and electrical equipment. Trade in machinery and electrical equipment was the locomotive of growth in both exports to and imports from Japan, it added.
Lau said room for manufacturers to survive was shrinking as mainland policies tended to favour labourers.
As a key part of the next five-year plan to 2015, Premier Wen Jiabao stipulated that the minimum wage should be raised by at least 13 per cent annually, while welfare and working conditions should be enhanced to improve migrant workers' living standards and spending power.
'Guangdong's minimum wage will rise even faster and steeper and will be doubled by 2015,' Lau said. 'The coming three years will be a critical period for the survival of Hong Kong manufacturers.'
Shenzhen plans to raise employers' contribution to workers' retirement funds by 3 percentage points to 13 per cent per month in summer while keeping the existing contribution by labourers at 8 per cent. This means a worker will have 21 per cent of his monthly income funnelled to the fund, up from 18 per cent.
In addition, bosses in Shenzhen will have to pay 2 per cent of the monthly salary to an unemployment fund, which a worker is allowed to withdraw from should he lose his job.
Lau said Hong Kong manufacturers must upgrade themselves or change their business models if they wanted to stay in the Pearl River Delta, or else they risked being pushed out of business. He predicted about one in every three Hong Kong factories in the delta, or about 22,000 out of 65,000, would go under.