More proactive fiscal and taxation policies needed

The Hong Kong and the central governments should formulate more favorable fiscal and taxation policies to ease the current business difficulties faced by enterprises stationed in the Pearl River Delta (PRD) region amid the rising business operation costs and the volatile US and European export markets, according to a survey by the Chinese Manufacturers' Association of Hong Kong (CMA).

Employees work in a clothing factory in Dongguan, Guangdong province. To get through the current tough period, CMA, a major industry association, urges the HK and central governments to offer more favorable policies to those enterprises stationed in the Pearl River Delta region. [Photo/Agencies]

According to the survey, 65.6 percent of the respondents were engaged in manufacturing businesses in the PRD carrying out "original equipment manufacturing" (OEM) which still remains the predominant companies' mode of operations, although more Hong Kong enterprises were adopting a two-pronged operation mode to step up development of their own brands.

"There is a distinctive increase in the number of the responding companies which have developed their own brands compared with that of last two years," CMA said in a statement.

With a global economic slowdown, 35 percent of the responding companies anticipated their export orders received in 2012 would be less than that of 2011, while nearly 90 percent of them expressed that the current production cost was higher than that of 2011 due to a confluence of unfavorable factors such as labor shortage, compliance cost and risks caused by labor ordinance and the fluctuation of the yuan exchange rate, the survey showed.

In view of the rising business costs and the volatile export market, the survey revealed that more companies in the PRD region are shifting their market focus to domestic sales and brand development. In the survey, 53.3 percent of the responding companies said they already have designed their own brands, while another 27.3 percent said they are transforming their business into "original brand model" (OBM).

This was the fifth consecutive survey conducted by the CMA since 2008 to study the business environment in the PRD region. The survey was conducted between March and May through interviewing 276 companies operating in the PRD area.

Despite the business model transformations, the future road is still bumpy ahead, CMA said.

"The Hong Kong government should re-examine the section 39E of the Inland Revenue Ordinance and other related regulations to provide tax allowance for the investment on equipment and intellectual property of the enterprises, or provide more cash subsidies for research and development expenses," CMA President Irons Sze said on Monday at a press conference outlining the survey findings.

"For the central government, it may consider increasing the tax reduction rate of specific export products; waive local tax and administration fees and pay part of social insurance fund of labor to ease the enterprises' financial burdens," Sze added.

Besides the fiscal and taxation policy review, Sze envisioned that the Hong Kong government and the Trade Development Council (TDC) should deepen their supporting networks on the mainland as more enterprises are expanding their markets in the second and third-tiered mainland cities that require more support from the government.