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Hong Kong Companies Operating in Heyuan: An Update

Researchers from the Hong Kong Trade Development Council’s Guangzhou Office recently spoke to a number of local government officials, as well as several Hong Kong manufacturers, operating in Heyuan, a city to the northeast of Guangdong. The interviews largely focused on the current state of operations, the difficulties involved and the strategies that have been developed to tackle various challenges. The findings of the study are summarised below.

Photo: Pinery Industrial: focus on high-end fashion.
Pinery Industrial: focus on high-end fashion.
Photo: Pinery Industrial: focus on high-end fashion.
Pinery Industrial: focus on high-end fashion.


According to statistics from Heyuan’s Bureau of Foreign Trade and Economic Cooperation, there are some 461 Hong Kong-invested enterprises operating in the city, accounting for 87.5% of the total number of foreign-funded enterprises. With a total investment of US$3.43 billion (91% of the city’s total), these Hong Kong-invested enterprises are mostly engaged in labour-intensive industries, including the manufacture of electronic products, equipment and components, mobile communications equipment, terminals and parts, machinery, hardware and moulds, textiles and garments and plastics. There is also a significant number active in the real estate sector. Based on these findings, it is clear that Heyuan is relying heavily on Hong Kong companies as a source of foreign investment.

In 2013, Heyuan approved the establishment of 85 foreign-invested enterprises (FIEs). Of these, 83 were Hong Kong-funded companies. Together, they accounted for a total investment of US$296 million – some 97.6% of the city’s total foreign investment.

In the same period, exports to Hong Kong rose 24.42% year-on-year, reaching US$875 million, while imports from Hong Kong dropped 21.74% to US$5.83 million compared to a year earlier. Around 75,000 people in Heyuan now work for Hong Kong-invested companies. The combined operating income of Hong Kong-invested companies tops Rmb20 billion a year, representing 80% of the total earnings of all foreign-invested enterprises in the city. In terms of total asset value, Hong Kong-invested companies account for more than 90% (or Rmb29.3 billion) of all foreign-funded companies in the city.

The larger Hong Kong companies in Heyuan include:

(1) The Heyuan Lung Kee Metal Products Co Ltd

With a total investment of HK$765 million, Heyuan Lung Kee is engaged in the production of precision mould bases and mould components. The Lung Kee Group (LKM) is one of the world’s leading producers of mould bases and has been the market leader in Asia for many years.
(2) CK Telecom (He Yuan) Co Ltd

With a total investment of US$99 million, CK Telecom is mainly engaged in the R&D, manufacturing, marketing and sales of home brand mobile phones, wireless communications products, communications terminals and components, digital electronic devices, portable mini-computers and new electronic components. The company is currently planning a listing in Hong Kong.

(3) Varitronix (Heyuan) Display Technology Ltd

With a total investment of HK$1,008 million, Varitronix is engaged in the production and sale of flat panel displays, display modules, touch panel and components.

(4) Nixan Lighting (Heyuan) Co Ltd

With a total investment of HK$550 million, Nixan Lighting is engaged in the production and sale of string lights, Christmas tree illuminations, flowers and decorations, wire, plastic products, transformers and power switches.

Challenging environment

According to a number of the Hong Kong manufacturers concerned, Heyuan’s investment environment has improved significantly over recent years, with this being largely due to the introduction of a number of favorable policies and measures by the local government. A number of difficulties, however, remain. These include:

(1) Labour shortages and rising labour costs

Growing numbers of migrant workers from neighbouring provinces now prefer to seek employment closer to their homes. This is due to a narrowing of the wage gap, a development driven by the mainland’s phenomenal economic growth over recent years.

According to representatives from Pinery Industrial (Heyuan) Co Ltd (a high-end fashion manufacturer with 400 staff) and Tianhong (a handbag manufacturer and a subsidiary of Hong Kong’s Rainbow Handbag Factory Limited, currently employing 300 workers) migrant workers used to account for 70-80% of their workforce in Heyuan. In recent years, however, they told HKTDC, local staff has come to constitute 60-70% of their total workforce, largely as a result of the falling supply of migrant workers.

A number of the Hong Kong manufacturers also indicated that local workers are generally less inclined to work overtime than migrant staff. As a result, production efficiency in Heyuan is now far lower than in comparable industries in Shenzhen and Dongguan. Overall, a newly recruited worker earns about Rmb3,000 a month, compared with the Rmb5,000-6,000 taken home by an experienced piece-rate worker. Typically, piece-rate workers tend to earn slightly more.

A number of manufacturing enterprises have been badly affected by labour shortages and increasing labour costs, leading to a partial suspension of production. One of the largest knitting mills in Heyuan, for example, has now diversified into real estate investment after years of operational difficulties.

(2) Lack of support services in the industrial park

The lack of support services in the industry park also poses a challenge in terms of staff recruitment. Several enterprises have built their own dormitories in order to accommodate workers. Tianhong, the handbag maker, for example, has established a residential area near its plant, complete with kindergartens and other essential facilities. The company offers these apartments to its workers and senior management staff at preferential prices in order to try and retain personnel.

In other moves, a number of companies have also been obliged to switch to renewable energy sources, such as natural gas, while also upgrading on-site environmental facilities in the industrial park. These developments are largely in response to increased pressure to operate in an environmentally-friendly fashion. This upgrading is said to represent a significant cost, partly because of poor initial planning in the development of the industrial park.

The Heyuan municipal government is now accelerating a facilities improvement programme for the industry park and surrounding areas in order to create a better environment.

(3) Fluctuating exchange rates amid fierce international competition

As with many other labour-intensive export-oriented enterprises, many companies in Heyuan are facing increasingly intense competition in the international market. Those enterprises that have relocated their factories to Southeast Asian countries, such as Vietnam, are reportedly enjoying a cost saving on labour of 50% or more. As a result, many mainland exporters have lost their competitive edge. Exchange rate fluctuations have also negatively impacted on several manufacturers.

Quality control and small orders

Photo: Pinery Industrial: turning to small orders.
Pinery Industrial: turning to small orders.
Photo: Pinery Industrial: turning to small orders.
Pinery Industrial: turning to small orders.

Large numbers of enterprises engaged in foreign trade activities have been particularly hard hit as export growth remains sluggish. Despite the economic downturn, Pinery Industrial, the high fashion manufacturer, has managed to maintain steady growth by adjusting its business operations and continuing to improve its product quality. This Hong Kong-invested apparel manufacturer is now considered a role model for other SMEs.

Established by the Hong Kong-based Ranka Group, Pinery Industrial was formerly 100% focussed on exports, with Japan as its major target market. The company relocated its plant from Huizhou to the Heyuan Hi-Tech Development Zone in 2005.
Over the past 20 years or so, Pinery’s senior management has adhered to the principle of steady development. As a direct result of the financial crisis of 2012, Pinery experienced operational difficulties following a substantial drop in its orders. This was the result of shrinking overseas demand for high-end products, coupled with rising production and labour costs at home.

In response to this market turbulence, the company’s senior management decided to restructure its operating strategy. To this end, it incorporated a new subsidiary in Hong Kong in order to explore the overseas high-fashion market and to pursue small orders.

With Pinery maintaining its traditional haute couture export channels – thanks to its parent company’s reputation – its production plant also set about streamlining its work processes, replacing manual labour with automated looms in order to enhance production efficiency as well as quality control. Thanks to its outstanding product quality, Pinery soon received a number of small orders (in the 300-500 pieces range) and managed to resume normal plant operations. Exports for the first five months of 2014 registered a 30% growth compared with the same period last year. According to the company’s order book, total exports for the whole year are expected to maintain this momentum.

With an eye on the broader mainland market, Pinery has hired new designers in Hong Kong with a brief to produce high-fashion items for women aged 25-35. The company has also registered its own brand - umisky - in Shanghai and rolled out a marketing campaign in a number of major shopping malls.

High-fashion items come in a variety of styles and require meticulous workmanship, as well as complex skills, in order to complete a single item. Recognising the importance of appropriately-skilled staff, the company has looked to constantly improve the benefits package of its employees, while providing enhanced training opportunities for young workers. This policy is aimed at boosting both its quality control and its levels of employee retention.

Penny Pan, Guangzhou Office

Content provided by Picture: HKTDC Research
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