By Jiang Wei, Zhan Lisheng, Lillian Liu  (China Daily)
Updated: 2007-08-02 08:46

Having weathered numerous storms in the global market, Hong Kong manufacturers are facing another challenge to prove their business agility.

The hurdle is in the form of the central government decision to expand its export limit catalog to 15 percent of the country's trade categories as of August 23, in a bid to trim its ever-increasing trade surplus.

Exporters of goods listed in the catalog, released on July 23, are required to deposit half the amount of their payable levies in Bank of China before they can continue their business.

Tens of thousands of Hong Kong enterprises will have to give up their labor-intensive production or move out of familiar coastal bases, or upgrade their technology and product quality quickly.

Simon Lam, boss of a Hong Kong-funded toy firm, yesterday told China Daily that he will consider moving his firm from Dongguan, a processing industry center in South China, to either Thailand or Vietnam to avoid the costs incurred by the policy change in Beijing.

He said his factory used to import processing materials at a price of about 80 million yuan per manufacturing unit, and according to the new regulation, he would have to pay an additional deposit of as much as 23 million yuan.

At a maximum, TDC estimates, processing companies will have to shed some 370,000 jobs on the mainland and another 10,000 in Hong Kong.

Fearing the pinch from the policy change, a delegation of Hong Kong industry and trade bodies, visited the Guangdong provincial government last week seeking a grace period in the enforcement of the policy.

Related readings:  Reliance on cheap exports to be cut  New processing trade policy to upgrade export structure  Monthly trade surplus soars to record $26.9b  High-tech products nearly 30% of China's foreign trade

But Beijing is unlikely to soften its current position due to the mounting pressure for it to reduce the trade surplus, according to a source close to the Ministry of Commerce who did not want to be named.

Instead, the central government may consider allowing Hong Kong companies currently engaged only in processing trade to expand their business scope, according to Wang Qinhua, a senior official with the Ministry of Commerce.

TDC economist Yau Lai-ping admitted that local manufacturers need to upgrade operation and production.

Wang suggested that they also consider relocating their operations to provinces in central and western China, where the export limit catalog does not apply.