Gloomy outlook for China exporters as factory closure wave looms

Wednesday, 9 November 2011 00:03 - - {{hitsCtrl.values.hits}}

HONG KONG (Reuters): Up to a third of Hong Kong’s 50,000 or so factories in China could downsize or shut by the end of the year as exporters get hit by cost rises and darkening global demand for Chinese goods, a major Hong Kong industrial body said on Tuesday.

The Federation of Hong Kong Industries, which represents around 3,000 industrialists running factories in China, said it expected orders in the second half of this year and the first half of 2012 to fall between 5-30 percent.

The European debt crisis and a fragile U.S. economy have depressed this year’s Christmas orders, Stanley Lau, deputy chairman of Hong Kong’s leading industrial promotion body, told a news briefing.

He said a consolidation was on the cards, with around a third of Hong Kong’s 50,000 or so factories in China likely to scale down operations or close by year-end.

“We feel that this is not an overestimate,” said Lau, who is also the owner of a Hong Kong watch factory in China, citing higher raw material costs and rising factory worker wages, which had already risen up to 20 percent this year.

“Many (factory owners) can’t see when the market will have a rebound so they are trying to cut their losses by closing, before all their money is gone,” Lau said.

Lau added, however, that this wasn’t a definitive estimate and that a brightening of market conditions could allow many industrialists to recover swiftly and scale up capacity.

He didn’t give specifics on how many factories might close.

One additional risk on the near horizon, however, was the spectre of yet another round of expected minimum wage hikes from between 18-20 percent on Jan. 1 in a number of key factory regions in southern China, Lau warned.

He said his federation and a number of Hong Kong industrialists were now lobbying local Chinese governments to freeze plans for this wage hike.

“If we continue to see labour costs keep increasing, in the future the Hong Kong industries operational pressures will become more and more severe,” he told reporters.

A Reuters on-the-ground survey at Asia and China’s largest trade event, the Canton Fair in southern China, found that many factory owners were now bracing for another severe round of factory closures given a sharp drop in orders from Western customers, primarily in the major market of Europe.

During the 2008-09 financial crisis, thousands of factories in the Pearl River Delta closed and millions of migrant workers were laid off.