After some hesitation, John Ho decided to keep his small-sized toy factory in Fenggang town, Dongguan, a manufacturing powerhouse in Guangdong province, going after the weeklong February Spring Festival.
"I considered closing the factory before the festival, but I hesitated for a while. It had been there for 15 years and I took over the business from my father five years ago," Ho, a Hong Kong businessman, says.
He was struggling to maintain the business amid a tougher operational environment - yuan appreciation, price hike of raw materials, a tighter labor law, power shortages, rising labor costs and a labor shortage.
However, a number of larger factories in the surrounding areas had suddenly closed overnight and the problem of the labor shortage was solved.
"I then told myself: maybe it's a new opportunity. I should keep running the factory until it could not survive," he says. But he knew its days could be numbered because of the government's determination to gradually phase out labor-intensive industries with low added value.
Stanley Lau, chairman of Federation of Hong Kong Industries PRD (Pearl River Delta area) Council, says it's definitely wise and important for the region, which began attracting processing industries mainly from Hong Kong and Taiwan at the beginning of the 1980s, to now pursue industrial upgrading for healthy economic growth.
However, he says the government should give a considerately longer period, at least five to 10 years, for investors such as Ho to plan their futures.
"It's not easy for an investor to shift his business strategy immediately, especially when he has made the investment there for more than two decades," Lau says.
Central and local governments have said assembly and processing factories should upgrade themselves by improving their manufacturing facilities and establishing brands to explore domestic markets, or move to recommended inland areas with relatively lower operational costs.
"Although some of the recommended areas enjoy preferential policies for land or taxes and the labor costs which are still low, the expenditure on logistics will rise dramatically that would offset part of the reduced costs," Lau says.
There are also other risks from the policy, he adds.
"Usually we will make more than 10 million yuan investment in a new factory. But we are not sure whether the new place will also have an industrial upgrade in three to five years or if the government will issue new policy later to ban or restrict the export of a certain number of products," Lau says.
As a result, thousands of Hong Kong-invested factories, especially in the labor-intensive shoemaking, toy and garment industries on PRD chose to close while others are still waiting and watching, he notes.
Some of them reduce their manufacturing capacity or shift some of the non-core business to domestic manufacturing companies to save costs, according to Lau.
"We hope the central government could give us a clear policy of which industries or products will be banned or restricted in a period of eight to 10 years, so Hong Kong investors can prepare for it," he says.
The Ministry of Commerce and the General Administration of Customs jointly issued a processing trade restricted commodities catalog last July. It covers mainly plastics, raw materials and products, textile yarn, fabrics, furniture and other labor-intensive industries, totally 1,853 categories, accounting for 15 percent of the total export items.
