The US-China trade war is worrying some Hong Kong-owned manufacturers, CEO says

Hong Kong-owned companies that manufacture in mainland China are increasingly worried about the escalating Washington-Beijing trade war, according to one industry executive.

Hong Kong’s dynamic skyline and bustling harbor illustrate its role as a global financial hub, but decades ago it teemed with factories, making it one of the four “Asian Tigers” of the day along with Singapore, South Korea and Taiwan. But enticed by the nearby mainland’s economic opening that began 40 years ago this year, many took advantage of China’s then low costs for labor, land and production to shift operations there.

Raymond Young, CEO of the Chinese Manufacturers’ Association of Hong Kong, said more than 95 percent of its some 3,000 members, have factory operations in the mainland. At first, members were not initially very concerned about the trade war, he told CNBC, “but by and by more of them are expressing some worries, especially about the uncertainty facing them.”

Young, a former director-general for trade and industry in the Hong Kong government, estimated that about 25 percent are uneasy about the geopolitical spat between the world’s two largest economies.

“I think some of them are concerned that buyers in the U.S. are already trying to suppress the buying price of the products and so that really undercuts their profit margins,” Young said.

Hong Kong manufacturers produce a wide range of goods in China, including toys, furniture, clothing and watches but also high-tech items including molding and dye-casting machines and circuit boards subject to tariffs, according to Young.

He said that while the vast majority of the Hong manufacturers in China do not export to the United States, they can still be hit in other ways

“Because of the retaliatory action on the part of China, some of our Hong Kong manufacturers who import parts and components from the U.S. to make their final products are also affected,” he said.

As China’s economy has grown, costs for labor and land as well as compliance with the country’s increasingly stringent regulations have increased.

That has resulted in companies seeking cheaper pastures in China’s inner regions or in other regions like Southeast Asia, a phenomenon Young said has been going on for about a decade. On top of that trend, he said he’s heard from some factory owners that the trade war could push their hand further.

“They are really thinking of moving some of their production to Southeast Asia,” Young said.

“Some of them may be moving some of the processes to another country,” he added. “But I don’t think factories are relocating en masse because of the trade war — not yet.”

Returning to Hong Kong has also been discussed in recent years as an option for companies frustrated with challenges on the mainland. The Federation of Hong Kong Industries mentioned that possibility in a 2015 report on manufacturing in southern China’s Pearl River Delta region, where it said there were about 32,000 Hong Kong manufacturers as of 2013.

Young also said that his association has raised the issue with the government: “This trade war might be an opportunity for some Hong Kong manufacturers to move some of their production back into Hong Kong,” he said.

Still, he acknowledged that local costs and labor supply remain challenges, so gains would likely be confined to “less labor intensive” processes.

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