Hong Kong manufacturers face shutdown with new regulations

The central government has announced its decision to expand its export limit catalog to 15% of the country's trade categories, starting Aug. 23 in a bid to reduce its ever-increasing trade surplus.

Exporters of goods listed in the catalog, released on Jul. 23, are required to deposit half the amount of their payable levies in Bank of China<3988><601988> before they can continue their business, China Daily reported.

This means that tens of thousands of Hong Kong manufacturers will have to relinquish their labor-intensive production, relocate from their coastal bases, or upgrade their technology and product quality soon. For companies like Simon Lam's Hong-Kong-funded toy firm, this means an additional deposit of about RMB 23 million required by the new regulation.

This new regulation will have devastating employment repercussions as TDC estimates a loss of about 370,000 jobs on the mainland and another 10,000 in Hong Kong as a result of processing companies relocating to other cheaper locations like Thailand and Vietnam where regulations are more relaxed.

A delegation of Hong Kong industry and trade representatives visited the Guangdong provincial government to negotiate a grace period for the enforcement of the new policy, but sources from the Ministry of Commerce say that Beijing is unlikely to be swayed due to mounting pressure to reduced its trade surplus.

Wang Qinhua, a senior official with the Ministry of Commerce also said local manufacturers should consider moving operations to central and western provinces which are exempted from the export limit catalog.