Hong Kong-owned small and medium-sized mainland-based manufacturers are bracing for a rough ride as higher interest rates at home and increased competition from countries throughout the region jeopardise market share and growth. 'There's nothing we small potatoes can do,' said Denis Lee, managing director of luggage and handbag manufacturer Kingscore Industrial. Mr Lee should know. As chairman of the Government's Small and Medium Enterprises Committee, he advises leaders on policies affecting the SAR's 298,000 small and medium-sized businesses. His firm, Kingscore, which employs 200 workers at a factory in Huizhou, Guangdong, is one of Hong Kong's tens of thousands of mainland-based small manufacturers preparing for tough times ahead. Such difficulties are certain to cast shadows over the SAR in terms of lost services and revenues. 'We're tightening our belts and we're seeing where we can cut costs,' Mr Lee said. He believed the region's economic instability was already forcing Hong Kong's mainland-based manufacturers to lose their competitive edge, due in part to higher costs of securing bank capital. Hong Kong manufacturers are primarily self-financed. But for those companies that rely on local bank lending to bolster working capital, the costs are rising, said Ian Perkin, chief economist for the Hong Kong General Chamber of Commerce. The higher costs of funds are likely to cause Hong Kong investors to reassess their investment priorities, not just in the mainland, but in Hong Kong and other places as well, Mr Perkin said. Beyond higher interest rates, Hong Kong firms in the mainland are also beginning to feel the sting of the region's currency devaluations. Some small manufacturers and traders are reporting their customers are migrating to other markets. 'It's just beginning,' Mr Lee said. 'You cannot see the results so quickly.' Anecdotal evidence suggests the pinch has begun as international buyers have started to make their order books for the coming year. Joop Litmaath, managing director of trading firm Scarfell Enterprises, said bottom lines for mainland manufacturers and traders were shrinking as international competition grew. 'My merchandising staff are being squeezed harder and harder by foreign clients,' he said. 'So we need to squeeze our clients harder and harder. 'Overseas buyers from Europe and the United States have a much better choice in areas like Thailand, the Philippines and Malaysia because of much weaker currencies. 'They're telling us they can buy the same products at 20 to 30 per cent cheaper elsewhere.' Mr Litmaath explained that Hong Kong companies dealing in mainland-produced ceramics for example, were being pressed by competition from Thailand, where the declining baht had driven down prices to levels the Chinese companies were previously selling at.