The Changing Face of PRD

1
The Changing Face of PRD

• Dennis Yau
• Director-General
• Federation of Hong Kong Industries
• 23 September 2008

2
Outline

• Overview of PRD manufacturing base
• Changing business environment
• Resulting trends and tendencies
• Adaptation strategies for manufacturers
• Opportunities
• Conclusion

3
Overview of Manufacturing Base in PRD

• 350 billion USD of accumulative Hong Kong
  investment in PRD
• About one in every two enterprises in the PRD is
  related to Hong Kong
• 55,200 Hong Kong funded manufacturing enterprises
  in PRD, employing 9.6 million employees
• Nearly 90 of manufacturing enterprises with Hong
  Kong investment import and export their products
  via ports in Hong Kong

Data source FHKI PRD survey 2007
4
Changing Business Environment (Domestic)

• The 11th Five Year Plan and the Industrial
  Upgrade Scheme of Guangdong set out new
  directions for Chinas economic development
• Encourage industrial upgrade
• Encourage industrial relocation
• Push for green manufacturing
• Create a harmonies society

5
Changing Business Environment (Domestic)

• Policy Implications
• Restrictions in processing trade export
• The relocation drive from coastal regions to
  Midwest regions
• Tightened environmental standards and supervision
• Increase wages of workers (up 20 since 2007))

6
Changing Business Environment (International)

• Continuing RMB appreciation (up 15 against USD
  since 2006)
• Soaring prices for raw materials and oil in
  global market
• Depressed international demand following global
  economic slowdown
• Higher safety standards and certification
  requirement (Toys safety issue, EUs RoHS etc)

7
Resulting Trends

• Production costs in PRD soar by over 20
• Export growth rate declines (export rate dropped
  by 6 from January to April 2008, trade surplus
  decreased by USD 5 billion)
• Increasing number of SMEs choose to close down
  their manufacturing factories in PRD
• Relocation of manufacturing enterprises to other
  parts of China or outside China
• Efforts in green manufacturing intensify

8
Adaptation Strategies

• Relocation
• - To eastern and western parts of Guangdong
  Province
• - To Western China and Pan-PRD
• Outsourcing
• - Further division of labour between large
  manufacturers and SMEs

9
Adaptation Strategies (cont)

• Upgrading
• - Development of high value products via
  design innovation and branding
• - Employing green manufacturing process
• Opening up the domestic market
• - establishing an effective domestic
  distribution network

10
Opportunities

• Chinese domestic market is still booming, with
  increasing demand for higher end products
• Manufacturing industry as a whole will move up
  along the value chain, following the upgrading of
  industrial restructure
• Manufacturing bases can be expanded to Pan-PRD
  areas, where production costs remain low

11
Opportunities (cont)

• Hong Kongs role as regional distribution and
  logistic center stays unchanged
• Environmental industries and technologies emerge
  as a fast growing sector enterprises in PRD
  need importing of green equipment and technologies

12
Conclusion

• An era of transformation and restructuring is
  unfolding for the manufacturing industry in PRD
• Manufacturers and out-sourcing buyers should
  focus on the Chinese market beyond the PRD
• Green manufacturing and higher value-added
  production will be the fashion in coming years

13
Thank you!