Companies brace for tough year when any profits will be prized - Manufacturing

After a year-long roller-coaster ride, Hong Kong manufacturers with factories on the mainland are hoping for stability in the year ahead but are not likely to get it.

'Problems buffeting Hong Kong factory owners in the past year are unlikely to abate in 2010,' says Danny Lau Tat-pong, the chairman of Hong Kong Small and Medium Enterprises Association. 'I don't think the export sector will return to the pre-global financial crisis level until 2011.'

Lau, an owner of a paint and coating factory in Dongguan, fears that the ghost of yuan appreciation will return this year to haunt manufacturers who are still recuperating from a year of weak orders, eroded profit margins and punishing competition.

The threat of a higher yuan is compounded by other challenges such as cautious buyers in the United States and Europe, a slow recovery in consumer demand, rising commodities prices and labour costs and intensifying competition from mainland players.

The fortunes of the manufacturers appeared to have rebounded in the final quarter of 2009 as many small last-minute orders flowed in from overseas buyers demanding immediate shipment at all costs.

Many large toy orders were delivered by air to the United States shortly before Christmas.