Southern China attracts manufacturers' interest

THE movement of Hongkong manufacturers to southern China is continuing to reduce unit production costs through cheaper land and labour costs.

This is having a number of effects on the Hongkong industrial market.

The Hongkong economy is shifting from a production-based to a service-oriented economy.

Manufacturers are shifting their production to cheaper economies, such as southern China, while maintaining their administration and sales operations in Hongkong.

These Hongkong-based operations require a different type of facility, hence the redevelopment of older industrial buildings into quasi-industrial buildings, which are finished to a high standard with large office contents.

These can satisfy the requirements of a sales or administrative operation, while costing substantially less than traditional commercial locations.

Products manufactured in China are normally re-exported and distributed through Hongkong, hence the continued importance of Hongkong as a warehousing and distribution centre.

This is evident from the growth and development of warehouse/godown buildings at the container port of Kwai Chung.

The inadequate provision of infrastructure and pressure on land use has meant that manufacturing and distribution operations have developed quickly in the New Territories around New Towns such as Sha Tin, Tuen Mun and Yuen Long.

This has been such a common trend that about 40 per cent of Hongkong's privately owned industrial stock is now located in the New Territories.

Access to the New Territories has been greatly increased via the Tate's Cairn, Lion Rock and Shing Mun tunnels.

This has meant demand from operations needing a more free-flowing transport system and improved working environment has pushed rents and prices up.

Siu Lek Yuen, for instance, near Sha Tin, has seen prices rise by more than 25 per cent during the past 15 months.

The new Evergain Centre, in Siu Lek Yuen, is a good example of a quality godown building, developed by Evergain Ltd, in conjunction with Nissho Iwai.

The building was completed last May and totals more than 900,000 sq ft and is already 90 per cent committed, with prices of $1,200 per sq ft being achieved and rentals of $10 per sq ft.

The building has attracted big names, such as Yaohan, Dickson Concepts, Toshiba and Epson.

The great exodus across the Chinese border by companies seeking to establish their manufacturing base has been occurring for more than 10 years.

The attraction of cheaper land and labour costs has meant the most accessible areas of southern China - Shenzhen and the Pearl River delta - have become popular with Hongkong and multinational companies seeking to reduce costs and establish a base to capitalise on the potentially huge China market.

The centres which have become the most established are around the major cities in Guangdong Province such as Shenzhen, Guangzhou, Donguan and Zhuhai.

These have been the first because of their proximity to Hongkong but also because they have enjoyed better communications than other Chinese cities.

Infrastructure and provision of services remain the key to the success of any industrial location in southern China. These are often promised by local authorities but do not materialise, or are delayed for a number of years.

This has led to operational difficulties and increased costs through lost production for many of the companies which have established themselves there.

The extension of the expressway between Shenzhen and Guangzhou, and the increasing importance of the port of Shekou, is increasing the popularity of the industrial locations in this area, such as Nanhai.

The increasing provision of infrastructure and services, together with the increased ease of transportation, will open up areas further inland as the inflated land and factory costs around Shenzhen, and the more established industrial locations, force manufacturers to look further afield. Paul Anderson is manager of the industrial department at Richard Ellis