Surging land costs in Myanmar are a challenge for Hong Kong-owned factories in the Pearl River Delta, whose owners long for access to the abundant supply of cheap labour in the country in the face of shortages in the coastal areas of mainland China.
A mission to Myanmar last week, led by the Hong Kong Trade Development Council (TDC) and comprising 160 delegates from a wide range of industries including textile and clothing, car parts, packaging, electroplating, infrastructure and financial, began with high hopes of finding investing opportunities but ended with little success, due partially to high rental costs and concerns over an unstable electricity supply.
Factory rents in the Hlaing Thar Yar Industrial Zone, the second-largest such zone in Yangon, have risen 20 to 30 per cent over the past year to US$5 per square metre per month, a level the delegates said was on par with mainland China.
"The opening up of Myanmar has lured investors from across the globe," said Peter Ho, a director of CS Marketing, an industrial uniform manufacturer. "Hong Kong investors are not of the utmost importance to them now as they are looking to upgrade their technology in manufacturing."
Myanmar's Deputy Minister for Industry U Thein Aung said Hong Kong manufacturers were "late" if they wanted to form joint ventures with local partners to acquire large sites of industrial land in Yangon.
A Japanese consortium led by Mitsubishi acquired a 49 per cent stake in the Thilawa Special Economic Zone in November last year with an area of 2,342 hectares, four times bigger than Hlaing Thar Yar. Companies in the zone are entitled to a five-year tax holiday and other incentives, including 50 per cent relief on income tax for overseas products.
Last year, about 15 per cent of the US$41.5 billion in foreign direct investment into Myanmar came from Hong Kong, behind mainland China with 34 per cent and Thailand with 23 per cent.
The average labour cost in the country ranges from US$80 to US$200 a month, compared with more than US$350 in Guangdong. But electricity supply is periodic and is available five hours daily. For the rest of the time, factories need to use their own generators at a cost 15 per cent higher than the power grid.
Fred Lam, the executive director of the TDC, said the high land cost in Myanmar was unfavourable to manufacturers, but its backward infrastructure would create a huge opportunity for investors. "For the next mission, we will bring along professionals from the infrastructure and power supply sectors as the opportunity is promising."