HONG KONG: The rate at which Hong Kong-owned factories in the Pearl River Delta (PRD) region closed down is on a decline in the first quarter this year compared to the more serious spate of shutdowns last year, the Chinese Manufacturers' Association of Hong Kong (CMA) said, citing the results of a recent survey of members.

Despite this phenomenon, most CMA members remain pessimistic on business outlook the rest of this year in the face of global recession, CMA said.

It said only 10.6 percent of 242 member enterprises surveyed reported plans to either close down factories or change their business focus and move into the manufacture of new products, a sharp drop from 20.1 percent last year.

The survey, conducted between February and April this year, also had 11.4 percent of respondents reporting temporary shutdowns of their production facilities.

Some analysts said the temporary closures imply that business conditions over the next few months would be crucial in the decision of factory owners whether to resume operations or make the closures permanent.

Heavily dependent on exports to the US, European Union and other developed markets, CMA manufacturer members are generally pessimistic on the outlook for their businesses in the coming months, though most survey respondents said they expect to see a turnaround in the global economy in the next two years.

The CMA survey also showed that an increasing number of members had switched their focus to the mainland's domestic market amid an export slump. It said about half of total export sales of most members traditionally went to the US and Europe while Hong Kong and the mainland only took up 20 percent and 15 percent, respectively.

But the magnitude of sales on the mainland has been on a steady rise as exports to the US and Europe remain difficult.

"To counter the effect of contracted export demand, manufacturers should diversify their markets and dilute their risks in the process," CMA chairman Paul Yin said. "Southeast Asia and South America could be considered as alternative export markets, but North America and Europe are still the strongest consumption markets despite the current global slump," he added.

To cope with the economic downturn, more than 90 percent of the survey respondents said they have resorted to all sorts of cost-cutting measures. Almost 90 percent said they would strengthen marketing, including improvements in client relationship and formulation of strategies for an effective penetration of the mainland and emerging markets.

Most respondents said factory orders plummeted 40 percent in the first quarter this year, and they predict that the decline would narrow to an average of 35 percent fort he whole year.

"Some sectors, such as production of toys and watches, have shown signs of a pick-up in the first quarter, but prospects for the machinery and IT industries remain gloomy," CMA vice chairman Eddy Li said. "We expect to see some improvements in the third quarter and we hope the situation would stabilize in the second half of the year."

The survey also found that rising labour cost, falling contracted demand, volatile exchange rate, under-pricing and tightening credit are the major difficulties facing most manufacturers.

(HK Edition 05/21/2009 page16)