Amidst the economic sluggishness in Europe and the US, Hong Kong companies with factories in the Pearl River Delta region are experiencing sharp drops in exports and difficulties in operation. To lend a helping hand to Hong Kong companies, the Guangdong provincial government announced that it would suspend the upward adjustment of minimum wage scheduled for implementation on 1 January 2012. This move can help ease the difficulties faced by Hong Kong companies.
Hong Kong companies welcome this measure of Guangdong. People in the trade estimate that suspension of the minimum wage rise can help Hong Kong companies save up to 7% on cost.
Earlier, a delegation of over 30 high-level officials from different departments led by Zhao Yufang, deputy governor of Guangdong, attended a panel discussion in Hong Kong. During this meeting, the delegates briefed Hong Kong companies on preferential polices and easing measures aimed at supporting small and medium-sized enterprises. The highlight of the meeting was the announcement made by Ge Guoxing, deputy director of Guangdong Provincial Human Resources and Social Security Office, at the Q&A session about the decision of the provincial government on deferring the minimum wage rise.
Plea by industry associations
Ge Guopxing pointed out that in July 2011 the provincial government already started to conduct a study on minimum wage rise and a preliminary proposal was submitted to industry associations in Hong Kong for consideration. After collecting the opinions of Hong Kong companies, it was decided that the proposal for adjusting minimum wage upwards on 1 January 2012 would be “postponed appropriately”.
According to Stanley Lau, representative of the Federation of Hong Kong Industries, at the time the Guangdong provincial government put forward two proposals. One was to raise minimum wage by 16%-18%, the other was to raise it by 17%-20%. If these rises were to be implemented, the average total costs of Hong Kong companies would increase by 5%-7%. In this connection, industry associations in Hong Kong including the Federation of Hong Kong Industries, Chinese General Chamber of Commerce, and Hong Kong Electronic Industry Association, sent a letter to the Guangdong provincial government asking the authority to suspend the minimum wage rise for half a year or a year in order to alleviate the pressure on Hong Kong companies amidst the current business environment of declining orders and rising costs.
Manufacturers can’t keep pace with wage rises
During the financial tsunami in 2009, mainland authorities had suspended minimum wage rise for one year. However, this move resulted in a faster pace of subsequent minimum wage rises, with the last two introduced in less than a year, making it difficult for Hong Kong companies to keep pace. Basil Wai, representative of the Hong Kong Electronic Industry Association, pointed out that as the debt crisis in Europe deteriorates, there is a sharp drop in orders and some Hong Kong companies are faced with payment defaults and payment delays, creating great pressure on their cash flow. This, coupled with the big jump in raw materials prices and difficulty in obtaining bank loans, has made things even worse for Hong Kong companies. Hence, if the minimum wage in Guangdong was to be raised in 2012, Hong Kong companies were afraid that they might not be able to cope. Therefore, they are happy that the provincial government has responded positively to their plight. Although at the moment it is not known whether the suspension would last half a year or a year as requested by the industry associations, at least Hong Kong companies are given some breathing space.
A Hong Kong businessman named Cheng who is operating in Shenzhen indicated earlier that he hoped Shenzhen city can consider following the decision of Guangdong province. As a special economic zone, Shenzhen can make its own decision where minimum wage adjustment is concerned. According to the city human resources and social security bureau, Shenzhen planned to raise minimum wage by 15% in January 2012 and the proposal has already been submitted to the city government for approval. But since approval has not been granted, it is still possible that the proposal will be suspended.
