China's Guangdong denies foreign investment flight

The governor of China's southern Guangdong province on Saturday rejected suggestions that the big exporting province next to Hong Kong has seen a flight of businesses escaping rising costs.

Surging costs could force thousands of factories in Guangdong to close and encourage companies to relocate to Vietnam and other lower-cost sites, some Hong Kong-based companies and industry officials have said recently.

Cheap labour has made China, and especially coastal provinces such as Guangdong, the world's manufacturing base. But rising wages and a strengthening yuan currency, on top of cuts in export tax rebates and stricter pollution controls are raising the cost of manufacturing there.

But Guangdong's governor Huang Huahua said there were no signs of foreign business flight from the Pearl River Delta region, the engine room of much of China's manufacturing.

"There's been no big out-movement of foreign-funded businesses in the Pearl River Delta, that's not the case," Huang told reporters in Beijing, where he is attending the annual session of the national parliament.

"Many new businesses moved in last year. Among the businesses that close down, for some it's just normal market forces".

Some 60,000 to 70,000 factories in the Pearl River Delta region are owned by companies from neighbouring Hong Kong, and the Chinese Manufacturers' Association of Hong Kong recently said 10,000 of them could close or merge in the next few months.

Guangdong was encouraging some manufacturers to move from the Delta region to less costly parts of the province, especially hill country and less developed eastern and western flanks, Huang said.

The province would consider policies to encourage such moves, he added, without offering details.