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Hong Kong economy

Want to make Hong Kong manufacturing great again? Give us space

  • Scarcity of land for new plants makes expansion a challenge for firms
  • Leader Carrie Lam is pushing for revitalisation of ageing industries to give city a lift up technology ladder
PUBLISHED : Friday, 21 December, 2018, 8:02am
UPDATED : Friday, 21 December, 2018, 11:16am

Behind the navy blue facade of a revitalised industrial building in Tsing Yi, one of Hong Kong’s industrialised areas, 600 researchers are hard at work on the next generation of smartphones.

This is the nerve centre of ASM Pacific Technology, which designs, develops and manufactures machinery to produce components for smartphones, cars and opto-electronic devices.

The 300,000 sq ft centre figures prominently in Hong Kong’s re-industrialisation ambitions, but the space squeeze almost got in the way of the company’s plans to scale the technology ladder and create “designed in Hong Kong” products.

“From searching for a space to moving into the new office took us three years and cost us HK$300 million [US$38.5 million],” ASM chief executive Lee Wai-kwong said. “It is very hard to find space in Hong Kong.”

ASM has its headquarters in Singapore and is listed in Hong Kong with a market capitalisation of HK$30.3 billion. It runs research and development (R&D) centres in Singapore, Germany and Boston and factories in Shenzhen and Huizhou, in Guangdong province.

Its difficulty in finding premises reflects a common complaint of factory owners hoping to expand or go into new areas of production.

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Its expansion comes at a time when Hong Kong’s leader Carrie Lam Cheng Yuet-ngor is pushing for the revitalisation of ageing industries and wants the city’s re-industrialisation to be driven by technology, robotic manufacturing and innovation.

Her broader ambition is to lift Hong Kong up the technology ladder as the city is lagging behind regional rivals such as Singapore, Japan and South Korea.

A global financial hub with a sophisticated service industry, Hong Kong has only 1.1 per cent of its gross domestic product from industrial activities, way below about 20 per cent in Singapore and Japan, and about 30 per cent in South Korea.

In her policy address in October, Lam announced that HK$4 billion would be set aside for re-industrialisation, with about half going toward helping manufacturers to set up smart production facilities, and the rest for the Hong Kong Science and Technology Parks Corporation to find suitable land in industrial estates for building manufacturing facilities.

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Access to funding helps, but setting up a factory in Hong Kong is a challenging proposition given the scarcity of land for new plants.

Like ASM, companies have the option of moving into an old industrial building.

Hong Kong has about 1,100 industrial buildings which are more than 30 years old, according to property consultant CBRE. Many were built by private owners during the industrial boom of the 1970s and are scattered around Kwun Tong, Kwai Tsing, Tsuen Wan, Tuen Mun, Yuen Long and Sha Tin.

In their heyday, they produced everything from plastic flowers to clothes, shoes and toys. Now, the buildings are used as warehouses, mini-storage areas, offices, data centres, cold storage and the like.

Repurposing an existing industrial building means meeting technical requirements to check the safety weight limit of the building, ensuring stronger, stable electricity supply, the availability of technology and innovation, markets and getting the right people in the right jobs.

ASM was in Kwai Chung for four decades before it moved to Tsing Yi.

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“We happened to come across this building that was being revitalised, so we got some specifications tailor-made by the landlord,” Lee said.

Among other things, the premises needed a heavy-duty floor, a lift that could hold 10 tonnes – more than three times as much as a normal industrial one – and a higher ceiling for the machinery prototype workshop. “The machines are very heavy,” he said.

ASM’s Hong Kong research team accounts for a third of its total R&D workforce worldwide, and Lee wants it to focus on developing new technology and products. Prototypes from Tsing Yi will be mass-produced in its mainland Chinese factories.

Its sales stood at HK$17.52 billion last year, with a net profit of HK$2.8 billion.

Samuel Lai, a senior director at CBRE Hong Kong who brokered ASM’s move to Tsing Yi, said the land shortage posed a challenge to Hong Kong’s re-industrialisation plans.

CBRE’s research shows that just 2.8 per cent of privately owned industrial buildings are available for lease. Fresh land supply will not be available until 2023 when the Science Park’s advanced manufacturing centre at Tseung Kwan O industrial estate and its IT park at Lok Ma Chau Loop at the border are completed.

Is re-industrialisation the answer for Hong Kong?

A Hong Kong government scheme in 2010 to encourage redevelopment or conversion of industrial buildings was stopped in 2016, after it led to old industrial space being turned into more lucrative residential and office space.

Novetex Textiles, Hong Kong’s first textile recycling mill, moved into the Science Park’s revitalised precision manufacturing centre at Tai Po industrial estate in the summer paying market rents.

Founded by industrialist and philanthropist Chao Kuang-piu, the company might have started its new upcycling plant sooner, but it took two years to find the space it needed.

When we decided to return to the city, our biggest challenge was finding space
Max Ng, Novetex production control director

“We were the first factory to move from Hong Kong across the border even before China’s reform and opening up 40 years ago. We are now also among the first wave of factories moving back to Hong Kong,” production control director Max Ng Ho-kei said. “When we decided to return to the city, our biggest challenge was finding space in Hong Kong.”

It started looking two years ago for premises for its HK$30 million venture. Although it received technology support from the government-funded Hong Kong Research Institute of Textiles and Apparel, it could not find a site.

Then, through the government’s Innovation and Technology Fund, it was connected with the Science Park’s revitalised precision manufacturing centre at Tai Po and took a floor earlier this year.

Its 20,000 sq ft factory works with unwanted clothes which are sanitised, sorted by colour, shredded and spun into yarn which can be used again to make fabric for new uses. During the process, no water and chemicals are used at all.

Novetex expects to produce three tonnes of yarn daily from February next year. Its raw material will include unwanted garments from fashion brands such as H&M and after upcycling, the yarn will be returned to clients to use again.

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Rent is its biggest cost item, accounting for 30 per cent of the total, followed by wages for its three full-time and 15 part-time staff at 20 per cent, Ng said.

“The business is still viable because sustainability is the future,” he said. “For example, if a wool garment costs HK$1,000 to produce from growing wool on a lamb to the factory gate, we can produce it at HK$800.”

Hong Kong produces almost 200 tonnes of garment waste a day, comprising used clothes, bedlinen, uniforms and unsold goods, and almost all of it ends up in landfills.

Even after Novetex triples its output to nine tonnes, it will make use of only a fraction of the available raw material, so it is optimistic about its prospects.

CBRE’s Lai feels it is better for companies to use Hong Kong for their R&D then produce prototypes in industrialised towns in the Greater Bay Area. Beijing’s plan is to link Hong Kong, Macau and nine cities in Guangdong into an IT corridor to rival California’s Silicon Valley.

Toni Drescher, director of the Fraunhofer Institute for Production Technology, a top German R&D institute that has opened a centre in the city, also thinks Hong Kong should focus on branding, innovation and product design and use the Greater Bay Area for mass production.

He believes that despite its relatively late start, Hong Kong has what it takes to become a leading global innovation hub.

“We have to educate, we have to bring some change and transformation to Hong Kong,” he said. “This mindset is that we want to invest in something even if we don’t see the profit right away. We have to invest and see how it grows into something which is new, disruptive and we have never been there before.”

When it comes to looking for new premises, it is not only large, established companies that face difficulties.

William Shum Wai-lam, who started making delicate, high-precision tourbillon watches seven years ago in a 1,000 sq ft unit in an industrial building in Chai Wan, has been looking for more space, but in vain.

“I wish I had more space so that I can buy bigger machines and produce more advanced watches,” said the chief executive of Memorigin, who dreams of creating a Hong Kong brand of luxury watches.