Loss of rebates hits investors: report More than 11,000 Hong Kong-invested companies in the processing trade in the Pearl River Delta may close or scale down their operations if more tax concessions are removed and policy changes go ahead, a study has revealed. The study, conducted by the Hong Kong Trade Development Council, was launched after mainland authorities over the past year removed part of the export tax rebate and expanded the trade's prohibited category. The expansion of the category means businesses no longer enjoy as many tax concessions. The study said there were 57,000 Hong Kong-invested companies in the region, more than 80 per cent of which were processing companies. It said 14,500 of those enterprises would be badly affected because of heavier cash flows and because of the rising costs of importing raw and auxiliary materials falling into the prohibited category. The study outlined a 'worst scenario' in which 1,500 of the 45,000 processing companies in the Pearl River Delta would cease production, causing 375,000 mainland workers and 10,000 Hong Kong employees to lose their jobs. Another 10,000 companies may close or scale back their manufacturing, threatening the jobs of more than 2.5 million workers, the study said. Of the 4,000 manufacturers and traders questioned in the study, 30.9 per cent said their business would be seriously affected if further measures were introduced. Frederick Lam Tin-fuk, the council's executive director, said the 'worst scenario' would turn into reality only if mainland authorities kept expanding the list of products in the prohibited category or removed all preferential tax treatments. He said it had been a trend for Beijing to promote upgrading of the processing trade and to restrict the development of 'heavily polluting and high energy- and resource-consumption industries'. 'There's no doubt that China will launch more adjustments to increase the costs of enterprises involved in the processing trade,' Mr Lam said . 'This will add to the immense cost pressures that these companies have been facing in recent years, along with the rising wages and yuan appreciation.' According to the study, 37.3 per cent of respondents had plans to relocate all or part of their production activities to other parts of Guangdong province or to other pan-Pearl River Delta provinces in order to cut costs. The study also urged the central government to provide clearer guidelines to affected enterprises and to take measures to alleviate the companies' cash-flow burden. Victor Fung, chairman of the Greater Pearl River Delta Business Council, said: 'Hongkongers are famous for being practical, with a strong capacity to adapt. 'We believe most Pearl River Delta enterprises will be able to survive the challenges and keep booming at the end of the day.'