China maintains manufacturing edge despite higher costs: TDC

Despite recent wage increases, China, especially the Pearl River Delta, will remain the world's factory for the foreseeable future, according to the Hong Kong Trade Development Council. But in the short term, increasing costs will hurt profit margins and production of Hong Kong manufacturers.

'In the long run, they will continue to buy from China,' said TDC deputy chief economist Pansy Yau. 'China remains competitive.'

The Pearl River Delta remains the favourite investment destination for Hong Kong manufacturers, with 46.2 per cent saying they will set up factories there, according to a TDC survey of 4,500 respondents, including 2,400 Hong Kong manufacturing companies.

Another 12.7 per cent will opt for the Yangtze River Delta, while 6.2 per cent prefer Vietnam, 3.8 per cent Cambodia, 3.1 per cent Indonesia and 2.3 per cent Bangladesh.

However, 70 per cent of the respondents experienced increased labour costs, with wages rising an average 17 per cent in the past six months. This led to a 4 to 6 per cent rise in production costs. Most Hong Kong manufacturers' factories are in the Pearl River Delta.

A 5 per cent appreciation of the yuan will result in a 2.5 per cent rise in production costs, TDC senior economist Billy Wong said.