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One of the first investors across the border overcame a series of challenges to succeed
Jeffrey Lam Kin-fung,  managing director of toy manufacturer Forward Winsome Industries,  was one of the first Hong Kong investors to set up factories in the Pearl River Delta. Like many other manufacturers, his Hong Kong office  in Wan Chai is the company's headquarters, accommodating designers and administrative, engineering and marketing staff.
The factories are in Dongguan   and Nanhai .  Following an expansion in 1997, there are new factories in Lianzhou ,  in the northern part of Guangdong province.
Sitting in a conference room filled with the toys his firm has made and quality certificates received over the years, Mr Lam  told his investment story.
It is the story of a family business that expanded from a toy manufacturing company into a fully integrated enterprise covering product design, research and development, production and sales.
It is a similar tale to that of many Hong Kong manufacturers and can be seen as a microcosm of the delta region's development since China embraced economic reform 30 years ago.
'The story began in 1979 and, despite all the challenges, it is still going on,' Mr Lam said.
'The business was started by my father. In the late 1970s, we were in a development bottleneck. There were orders from the overseas market but the lack of factory space and workers made us unable to take all the business. So we had to figure out how to move forward.'
The answer was turning a former town hall in Dongguan into a factory  for 25 workers  to make doll's clothes.
In mid-1978,  Deng Xiaoping  launched a nationwide movement calling on people   to emancipate their minds.
He did this to loosen the mental shackles imposed on the people for decades and to prepare them for a  reversal in the Communist Party's direction from class struggle, which had been  the focus of Mao Zedong , to economic development.
'The beginning was tough,' Mr Lam said. 'We didn't call it a factory, it was just a workshop and all of the workers were former farmers. They didn't know how to use a sewing machine to sew a straight line, so all the early products had to be thrown away.
'Apart from the town hall and the peasants, Dongguan had nothing, so everything, including tables and chairs, had to be sent from Hong Kong,' he said.
Against all odds, production rose after years of development and training. A production chain appeared and gradually it could guarantee that any demand was satisfied in an hour.
'I'm not kidding. Whatever we needed, such as a screw, we could get from our supply and in about an hour we would complete the order,' Mr Lam said.
In 1982, the toy manufacturer expanded its investment in the delta region, choosing Nanhai  as a base. It now has four factories in the area, which specialise in different kinds of toys. In 1997, it moved into the northern part of Guangdong, which is less developed than the eastern part of the province.
'These were golden times. In the late 1980s and 1990s, production costs were significantly lower because of an abundant supply of cheap land and skilful but inexpensive labour. Competition was not intense.'
The Pearl River Delta covers nine cities of Guangdong province - Guangzhou, Zhuhai , Shenzhen,  Dongguan, Zhongshan ,  Foshan , Huizhou , Jiangmen   and Zhaoqing ,  with a population of about  60 million people.
Nicknamed the world's workshop,  the region is a major manufacturing base for products such as watches and clocks, toys, garments and textiles, plastic  items, shoes and a range of other goods. Many of these  products are  made for foreign companies and are geared for the export market.
Politically, Hong Kong and Macau are not part of the delta region, though economically and culturally they are considered part of it.
The two former colonies played a major role in the rise of the delta region, especially for Shenzhen and Dongguan, on the eastern side.
Around 100,000 Hong Kong businesses have set up factories in Guangdong over the years, investing more than US$12 billion.   Hong Kong investment accounts for 60 per cent of total foreign direct investment the southern province receives.
With high-rise residential blocks, clusters of modern factories and five-star hotels, the delta region has become a barometer  for the mainland economy. While occupying an important position in the economy, the  area has also been a pioneer in reform and openness.
Two of the special economic zones, Shenzhen and Zhuhai, allowed  the region to lead the way from a planned economy to a market economy. As the  value-added industries prosper, they bring environmental problems and also  increase the price of land and labour.
At the turn of the millennium, there were complaints of environmental degradation from environmentalists, and labour and power shortages from the business community. But, for Mr Lam, none of the challenges match the threat posed by the deteriorating business environment and compounded by the current financial crisis.
Under pressure to narrow its widening trade gap, Beijing started unleashing heavy-handed measures, such as reducing tax rebates, to tame export growth. The introduction of the Labour Law early this year, enforcing employers' responsibility for workers' welfare, fuelled labour disputes and raised costs.
There were suggestions that the manufacturers  might consider moving their factories to interior provinces, such as Hunan ,  Guizhou   and Jiangxi .
'The measures they introduced over the past two years have squeezed the profit margin of many manufacturers, weakening their defences when the financial crisis hit,' Mr Lam said.
Guangdong officials say around 50,000 factories closed in the first nine months of the year, with the majority from the labour-intensive processing trade in the delta region.
In the most high-profile incident, toymaker Smart Union Group   closed two factories in Dongguan, leading to protests by thousands of angry workers.
Rises in raw material prices and labour costs and the appreciation of the yuan have put huge pressure on the toy industry.
The director of the Hong Kong Economic and Trade Office in Guangdong, Peter Leung Pak-yan,  says there will be more problems to come. He expects as many as 3,000 factories to close in the first half of next year, as the impact of the financial meltdown sinks in.
Mr Lam has no plans to give up. 'We are committed to manufacturing,' he said.
The provincial government and the central government are also determined the help the region continue to shine.
The National Development and Reform Commission is working on a blueprint to guide the region's development over the next 20 to 30 years.
The Pearl River Delta Development Plan, to be released by  year's end, will be the first time the central government has taken  the lead  in mapping out the region's future.
It wants to transform exportoriented industries to focus on domestic consumption. It also seeks further economic integration between Hong Kong and the  delta so the  region will  be in a better position to develop its service industries.
Toying with an idea
Jeffrey Lam has seen the Pearl River Delta come a long way under the reforms, from the rudimentary workshops of the early days to a manufacturing powerhouse
Then and now
Number of private enterprises on the maindland:
1978: 0
2007: 5.5m
State-owned enterprises' share of national industrial production
1978: 77.6%
2007: 29.5%
SOURCE: HK CENSUS AND STATISTICS DEPARTMENT



How a toy factory played and won