The rise in China's minimum wages from last Friday will accelerate the exodus of factories, many of them owned by Hong Kong entrepreneurs, from Guangdong province to remote provinces where salaries are lower and labour is more abundant. However, the changes will have little impact on many other factories, which are staying put in Guangdong simply because they will just ignore wage laws. Minimum wages rose an average 18 per cent across various cities in Guangdong. Guangzhou saw a 17 per cent rise in monthly minimum wage to 780 yuan. In Dongguan, a major manufacturing city for many Hong Kong-owned factories, the monthly minimum wage rose from 574 yuan to 690 yuan. Other parts of China, including Shanghai, Hangzhou and Ningbo, also saw minimum wage increases. For many factories in Guangdong, the higher minimum wage will have no impact because they pay below the minimum wage, says Stephen Frost, a director of CSR Asia, an organisation that provides information on corporate social responsibility. Even among the factories that paid the minimum wage or above, many did not pay workers for overtime work as required by law, he said, adding that overtime work is common among export-oriented factories. Guangdong's government had acknowledged that flouting of minimum wage laws was a serious problem in the province, which was why it had named and shamed factories that violated labour laws, Mr Frost says. In September last year, the Guangdong Provincial Labour and Social Security Bureau published a list of employers found guilty of violating labour laws, including companies that paid below the minimum wage. They included 14 factories in Guangzhou, Shenzhen, Dongguan, Zhongshan and Huizhou, the major manufacturing cities in the Pearl River Delta. 'Many factories in China are not paying the minimum wage, but pay by the piece, in industries such as garments, toys and electronics. So the minimum wage rise won't impact them. For factories that don't pay minimum wage, life goes on as usual,' said a Hong Kong garment company executive. 'Many workers are willing to work overtime to make enough money, rather than demand minimum wage.' A social responsibility auditor said: 'I'm pretty sure there are factories in China that are cheating on wages, not just in minimum wages. They have been cheating for many years. 'In our factory audits, we found much evidence of paying below the minimum wage.' The evidence included double payrolls (one recording the actual pay and another for auditors), false records and employees who contradicted managers' claims of compliance with labour standards. China Labour Watch, a Hong Kong non-governmental organisation, investigated 11 toy factories in Dongguan last year and found 10 flouted labour regulations. It discovered instances where workers were paid as little as 59 per cent of the minimum wage, among other abuses. The reason so many factories in China got away with violating labour laws was the lack of officials to audit and enforce labour regulations, the auditor said. While some factories remained in Guangdong flouting wage laws, many others that complied with the minimum wage laws were moving out, the auditor said. 'Nowadays, when manufacturers consider new factories, they don't look at the Pearl River Delta, they look further inland.' Willy Lin Sun-mo, vice-chairman of the Hong Kong Textile Council, said: 'Now, setting up a factory 500km from Hong Kong is okay, but several years ago, most Hong Kong factories were in a 100km radius from Hong Kong. The only way is to move further away. There is nothing much we can do. Rules are rules, so Hong Kong manufacturers have to pay.' Hong Kong garment factories had difficulty paying ever increasing wages, as labour accounted for 40 per cent of the cost of a garment, he said. 'If all garment factories have to raise salaries by double digits overnight, how can they compete?' The Hong Kong Textile Council had been raising this issue with the Guangdong government and central government for months, but all it got was tea and sympathy, he said. 'Officials were sympathetic to us, but they had to stick to the national policy of bridging the rich-poor divide to ensure social harmony,' Mr Lin said. Luen Thai Holdings chief executive Henry Tan said: 'Every factory will be affected. It's a matter of how well you can absorb the shock.' Luen Thai, Hong Kong's largest-listed garment maker with about US$500 million annual revenue, was cushioning the impact of higher minimum wages on its factories by cutting other costs, Mr Tan said. 'We are trying to eliminate some of the benefits for workers, like housing and food subsidies.' A Hong Kong toy executive said he knew of a handful of toy factories that moved from Dongguan to more remote cities in Guangdong this year, namely Heyuan, Shaoguan and Qingyuan. Toys are among Hong Kong's biggest export industries and most toy factories are in Guangdong. The impact of the minimum wage increase had not been too severe on Hong Kong's toy industry, said the executive. Labour accounted for 20 per cent of the cost of making a toy, he estimated. The toy industry was informed of the wage rise months ago, so they factored it into the cost of their products, said the executive. 'We will raise the prices of our toys by about 5 per cent. Customers have to accept the higher prices because all toy factories in China are affected.' As for factories that paid below minimum wage, it would be increasingly difficult to do so in the long run, said the auditor. 'Chinese workers are becoming aware of their rights, so it will be more difficult to cheat on minimum wages. Some government and non-government organisations are helping workers get their rights, but it will be a long road ahead.'