eToro – Forex Trading Forum

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While only 26.4% of the surveyed companies indicate that they have been affected by the gradual tightening of regulations and enforcement on the mainland with regard to clean production and environmental protection, half of the respondents are worried that these measures may affect their factories on the mainland in the future. Only 23.7% of the respondents express that they have not been affected at all.

Among all the respondents, 14.2% indicate that following the implementation of the environmental protection measures by the mainland, they have to pay higher fees for the sewage discharged by their processing factories in the PRD. Another 11.6% of the respondents point out that, in order to meet environmental requirements, they have to increase investment in the production facilities in their mainland factories. On average, each company has to increase their investment by HK$2.33 million additionally.

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Considerations of Relocating Production Activities from PRD
Although the policy change in processing trade and the strengthening of regulations with regard to clean production and environmental protection on the mainland have affected the PRD production activities of the majority of the respondents, a high percentage (78.3%) of the respondents indicate that they would not consider relocating their production activities from the PRD. The reasons given are: the costs of relocation are too high (40.9%), their business in the PRD is still profitable (19.3%), they are worried that by relocating to other places their competitiveness would be weakened (16.6%). However, there are also respondents who would not consider relocating because they have no idea what other options are available (17.5%).

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Only 21.7% of the respondents would consider relocating to other regions. Among these companies, half (accounting for 10.4% of all respondents) are considering relocating to other mainland provinces, such as Jiangxi, Guangxi, Hubei, Hunan and Zhejiang; 23.3% are considering relocating to other less developed regions in Guangdong (such as northern Guangdong) outside the PRD; 17.8% are considering relocating to eco parks in the PRD; and 24.7% indicate that they would consider relocating to places outside the Chinese mainland (accounting for 5.3% of all respondents).

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When asked whether they would consider relocating their production activities back to Hong Kong, 93.8% of the respondents answer in the negative. Among them, 44.8% point out that moving their production activities back to Hong Kong is commercially not viable. Another 49% indicate they do not have any plans of moving back to Hong Kong. Only 6.2% of the respondents express that they would consider relocating part of their production activities back to Hong Kong.

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However, if Guangdong builds new industrial parks, provides comprehensive sewage treatment facilities/central sewage treatment system, and offers processing trade bonding arrangements, 29.8% of the surveyed companies express that they would consider relocating to these industrial parks, 37.5% indicate that they have not made any decision, while 27.1% say they would not consider relocating.

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4. Hong Kong Companies' Views of Processing Trade Development

The adjustment of the processing trade policy on the mainland has affected the processing trade production activities carried out by Hong Kong companies in the PRD region. Nevertheless, in the near term, Hong Kong companies remain optimistic about the prospects of their processing trade business. According to this survey, 39% of the respondents reckon their processing trade business on the mainland would grow moderately or rapidly in the next one to two years, while 25.6% reckon their business would remain unchanged. In other words, about 65% of the respondents are optimistic about the future.

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In the medium term, the percentage of respondents who reckon their processing trade business on the mainland would grow moderately or rapidly in the next three to five years rises slightly to 40.6%, but the percentage of those who reckon their business would remain unchanged drops to 12.8%. Overall, the percentage of respondents holding an optimistic view drops to 53.4%. This somewhat reflects the worry of Hong Kong companies about the prospects of their processing trade business on the mainland.

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In the face of the challenges, most Hong Kong companies adopt proactive measures to cope with the changing processing trade environment on the mainland. Over 40% of the respondents indicate that they would develop or increase domestic sale (42.4%). Another 42.1% express that they would develop or increase the sourcing of raw materials and parts on the mainland. 34.7% plan to convert their existing processing enterprises into foreign-invested companies (wholly foreign-owned enterprises). There are also respondents who indicate that they would increase capital investment in production (22.8%) and increase investment in green production (16.3%) in a bid to enhance the quality of production.

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