Hong Kong factory owners in Guangdong are protesting about a proposed rise in the minimum wage, which they say is poorly timed and threatens the survival of the manufacturing industry. Guangdong announced last week it intended to raise the minimum wage by up to 20 per cent on January 1, the second increase in 10 months. SCMP, November 9 I have to confess to some sympathy with the Guangdong authorities on this one. They have waited a long time for the standard theory of industrial emergence to prove itself, and they have finally decided to give it a prod. The theory is simple. It says that when you want to climb the ladder of industrialisation, you start on the bottom rung. You take whatever is on offer, the most labour-intensive process of the simplest product available, and you learn how to manufacture that product to the market's required standards at the lowest cost you can achieve. As your skills then grow, you start to move upmarket. You train your own engineers, your manufacturing processes become more efficient, your dependence on ultra-cheap labour diminishes and, before you know it, you have an aerospace industry. You're at the top rung now: move aside California. That's how they thought it would work in Guangdong 30 years ago. They thought they knew just how to get things rolling, too. They would invite in their cousins from Hong Kong, who would set up factories making cheap things like key chains and fridge magnets, and by, say, 2011, these factories would evolve into cutting-edge electronics marvels. Well, here we are in 2011 and what are these factories manufacturing? Yes, you're right - key chains and fridge magnets. What happened? Nothing happened, obviously, and the reason is that Guangdong made things too soft for these Hong Kong cousins, who were actually more traders than manufacturers anyway. Among them were no true product enthusiasts of the stamp, for instance, of an Akio Morita, who founded Sony Corporation. These people came across the border, found limitless very cheap labour, almost limitless cheap land, and every convenience they could be given to encourage them to set up shop. They thus brought in the same factories they had in Hong Kong, multiplied their profit margins and enjoyed easy lives, thank you Guangdong. In some cases they did not even bother going across the border. They just sold their garment- manufacturing quota rights to Guangdong producers, made sure the authorities winked at breaches of the international treaties by which these rights were granted, and then stayed in Hong Kong to take up political careers. Those who did go made sure they contributed as little as they could to Guangdong. Few of them pay more than paltry profits taxes in the mainland. They book their profits on shipment through Hong Kong, where they are not taxed at all. And now, at last, the times have caught up with these people. The provincial authorities have decided to use mandatory wage increases to force them either upmarket or out of Guangdong. I'm not crying for them. You will note from the first chart that the employees of Hong Kong, Macau and Taiwan (HMT) enterprises in the mainland have seen their wages slip well behind even those of the employees of state-owned firms. They were supposed to be the high end. They have proved to be the low end. The second chart tells you that Guangdong also depends ever less on HMT enterprises. Their share of industrial production has declined steadily, even after the huge Taiwan-funded push of iPhone and iPad production in Guangdong, a classic low-tech side of a hi-tech business. We are likely to feel some impact in Hong Kong if the rate of their closures suddenly rises much higher but, while they may blame this on the mandated wage rises, slower economic conditions have already been pushing them rapidly out of business. They represent the old Hong Kong. They don't fit here, they don't fit there and perhaps they don't fit anywhere. But try Sri Lanka, fellas.