Bosses fear 2.5m working for HK firms to lose jobs by Lunar New Year Up to 21/2 million people in the Pearl River Delta could lose their jobs in the next three months as the global financial crisis bites deep into the region's real economy, a Hong Kong business group has warned. 'The flow-on effects in Hong Kong will be drastic. It will hit the banks, the service industries, everyone,' said Clement Chen Cheng-jen, chairman of the Federation of Hong Kong Industries. 'We are very, very worried about our businesses,' Mr Chen said. 'Our feeling for the medium term is grave and we believe the recession is going to last for some time.' He fears a quarter of Hong Kong-owned small and medium-sized enterprises (SMEs) will be bankrupt by Lunar New Year. As he spoke, the 1,500 Shenzhen employees of Hong Kong-listed electrical appliance maker BEP International learned its factory would close down tomorrow. The move came a day after Hong Kong's third-biggest appliance store chain, Tai Lin Radio Services, shut with the loss of 260 jobs and barely a week after garment maker and retailer U-Right International Holdings went into liquidation, throwing hundreds out of work. Last week also saw 6,500 staff of Hong Kong-listed toymaker Smart Union thrown out of work in Guangdong when it went into liquidation. With the prospects for thousands of firms looking grim, the Hong Kong government yesterday announced more financial support for small and medium-sized firms after criticism of Chief Executive Donald Tsang Yam-kuen's failure to announce any help in his policy address. Commerce secretary Rita Lau Ng Wai-lan announced the government would ease restrictions on the use of the loan guarantees it offers SMEs to cover equipment and operating expenses. Until now the guarantees have been for one or other purpose and were one-off. Under its new proposal, which requires Legislative Council approval, the government would guarantee half of loans up to HK$12 million and all the money could be used for operating expenses, up from HK$2 million previously. The guarantee period would be extended from two years to five and guarantees could be renewed once loans were paid off. Mr Chen said banks were cracking down on credit and many companies were having difficulties paying suppliers and staff as exports fell. 'We are appealing to the banks not to take the same line with everyone and to examine each business on an individual basis,' Mr Chen said. Philip Sin, managing director of Antonhill, which makes uniforms on the mainland, said surging raw material costs and the mainland's new labour law had already put pressure on businesses, and the credit squeeze was pushing operators to the wall. 'To offset rising costs, we have begun to hire staff from the mainland instead of Hong Kong. That's one of the very few things we can do,' said Mr Sin, who welcomed the government's change of heart. 'It is a critical moment for many small and medium-sized enterprises like us. I think it is time for the government to do something.' Already, insolvency specialists are reporting a rapid increase in their workload. 'Our restructuring business has been very busy over the last year,' said Thomas Brown, managing partner of law firm Allen and Overy's Asia business. 'We're actually starting to see quite a big volume of new insolvency work now. What's causing a lot of that is that the banks have locked up credit.' On a radio show, Chief Secretary Henry Tang Ying-yen warned the economy was a long way from bottoming out, saying: 'I am not so optimistic about unemployment.'