By Lillian Liu and Chen Hong (China Daily)
Updated: 2007-08-13 08:56

The wages drawn by workers in these units range from 500 to 2,000 yuan a month. They attracted many people from across the country because they paid more than what other companies paid.

In the past two decades, the mainland's economy has grown by leaps and bounds. And processing trade has had a role to play in that because every 1 percent growth in processing trade has raised the GDP by 0.29 percent, according to a Hong Kong Trade and Development Council (TDC) report.

But the mainland economy has developed to a stage where it does not need to rely on labor-intensive investment. "Unlike in the early 1980s, the mainland can now afford to be selective with overseas investors," says Chinese University of Hong Kong's associate professor of finance Liu Ming.

The central government is now making serious efforts to restrict the development of high energy and resource consuming and highly polluting industries. That, say some analysts, will spell doom for some factories owned by Hong Kong residents in the PRD region.

Related readings:  HK manufacturers face risk of shutdown  New processing trade policy to upgrade export structure  Processing trade policy highlights sustainable growth

A TDC study shows nearly 14,500 Hong Kong firms will be seriously hit by the central government's new policies, with about 1,500 of them being forced to cease production. This will render 375,000 mainland and 10,000 Hong Kong workers jobless. Market observers fear that Hong Kong firms in Guangdong will be the worst hit, with many of them forced to fold up in a year.

But the need to save the environment is among the primary concerns of the central government, as it is with many others in the rest of the world. Wang Qinhua, head of the Ministry of Commerce's mechanical, electronics and high-tech industries department, says: "The new policy will raise costs and hinder the cash flow of exporters, especially those engaged in labor-intensive industries. Exporters will be forced to add value to their products and upgrade their technology."

Many Hong Kong companies, however, lack funds to do that. The situation of processing units that depend on supply of materials is especially grim. Adding value to their products and upgrading their technology are beyond their means because they have to change their mode of production for that.

But there are firms that think otherwise. Billabong Enterprises Co, a Hong Kong-based manufacturer and exporter with factories and production bases on the mainland and Southeast Asia, foresaw the trend years ago and transformed itself from a traditional labor glove maker to a high-end environmental goods maker. "It is the unwritten rule of business that one should always keep an eye on long-term development," says Billabong Enterprises managing director C.B. Chiu.

Chiu founded the company in the 1950s in Hong Kong when labor-intensive factories were the backbone of the city's economy. But today, more workers need water and air filters. "Our job is to meet the need of the community. We have to shift from masks to high-end products and extend our product catalog to more environmental protection sectors," he says.

Not all business people, however, have the foresightedness and the wherewithal of Chiu, and hence face a future of uncertainty.

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