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Greater Pearl River Delta Business Council publishes study report

    The Greater Pearl River Delta Business Council has today (July 11) published a study report on "The Impact of Mainland Processing Trade Policy on Hong Kong".

     Chairman of the council, Dr Victor Fung, said that starting from the latter half of 2006, the Central Government had introduced changes to the processing trade policy, which aimed at restricting the production and export of high pollution, high energy consumption and resource consumption products while encouraging the upgrading and restructuring of processing trade at a faster pace.

     As many Hong Kong enterprises in the Mainland (especially in the Guangdong Province) were engaged in processing trade, a task group, comprising council members, representatives of major chambers of commerce, relevant industries and academia in Hong Kong, was formed in February.  The task group aimed to undertake studies and researches to assess the impact of processing trade policy changes on Hong Kong, and to make recommendations to the Central Government, the HKSAR Government and the industrial and business sectors accordingly.

     Dr Fung hoped that the Central Government, the Guangdong Provincial Government, the HKSAR Government, relevant organisations, the business and the industrial sectors would all take the report recommendations into consideration to help enterprises in their restructuring and upgrading.

     Introducing the study report, the convenor of the task group, Mr Fred Lam, said that since 2006, the Central Government had started to remove or reduce the export tax rebate for certain products, to expand and to make adjustment to the list of prohibited category under the processing trade. The Ministry of Commerce issued a circular this April to require commerce departments at all levels to take environmental protection, energy consumption, employment conditions, equipment level and other factors into consideration in evaluating the business operation and production capacity of enterprises applying for approval to engage in processing trade activities, thereby establishing the threshold for participating in processing trade.

     In response to these policy changes, the Hong Kong Trade Development Council conducted a questionnaire survey on enterprises engaged in manufacturing activities in the Pearl River Delta, the results of which revealed that 31% of the enterprises interviewed were affected by the changes on processing trade policy and the reduction in export tax rebate.

     The survey also found that even though most of the Hong Kong-invested enterprises agreed that restructuring and upgrading was their long-term development direction, they might have to face many pressures, including:

- restructuring and upgrading required enormous amount of capital for long term investment but some Hong Kong operators, particularly the SMEs, might lack the necessary financial resources;

- as processing trade policies on the Mainland are still being fine-tuned, Hong Kong factory operators would need to exercise caution in making decisions on long-term investments;

- as some Hong Kong enterprises lacked the knowledge and experience in brand management, and in the research and development of products and technologies, they might have some reservations in undertaking restructuring and upgrading of their business.

    With a view to assisting enterprises to deal with these challenges, and to take this opportunity to upgrade and increase the value-added of their businesses, the report has made the following recommendations to the Central Government, the Guangdong Provincial Government, the HKSAR Government and the industrial and business sectors:

- the Central Government to carry out advance consultation before introducing policy adjustments and allow for reasonable transition periods;

- the Central Government to offer facilitating arrangements and assistance to help enterprises convert to "foreign-invested enterprises" (FIEs); to consider accepting "Hong Kong bank guarantee" or "insurance policy" from processing trade enterprises as customs duty deposit and to encourage enterprises to direct their investments more towards pursuits of innovation in the process of restructuring;

- the Guangdong Provincial Government to provide "one-stop" consulting services and expedite the processing of applications by enterprises for conversion from the operation mode of "processing with supplied materials" into FIEs; and to speed up the construction of eco parks equipped with centralised sewage treatment facilities to give enterprises more options for relocation;

- the HKSAR Government and relevant organisations to strengthen the ties with the Central Government and the Hong Kong business community to step up communications and consultation work on matters related to policy adjustments on processing trade; and

- the HKSAR Government and relevant organisations to step up efforts to provide market information for enterprises, to assist more enterprises in developing their own brand-name products, and to help enterprises in restructuring.

     The council was set up in March, 2004, with the aim of advising the Chief Executive of the HKSAR on matters related to Hong Kong and Guangdong co-operation and providing avenues for the private sectors of both places to exchange ideas and views.

     The report is available on

Ends/Wednesday, July 11, 2007