‘Make in India’ roars: Hong Kong shifts industrial base from China to India

Hong Kong: Even as it promotes Hong Kong as the gateway for Indian companies to the Chinese markets, the Hong Kong Trade Development Council (HKTDC) is promoting India as an alternative manufacturing base for its industries based in China, states a research report.

"In recent years, the sustained rise in production costs on the Chinese mainland has eroded the profit margins of many Hong Kong companies with labour-intensive factories located on the Chinese mainland, prompting them to seek alternative production bases elsewhere," the report states.

"In a nutshell, India offers many advantages as an alternative production base, along with the added advantage of having a domestic market of great potential," notes the report.

Most of the manufacturing units in Hong Kong migrated to China to take advantage of the low costs after the region was handed over to the latter by the British in 1997.

Some of the multi-storeyed buildings that once housed garment units are now used as offices or are lying vacant.

With manufacturing units shifting base, Hong Kong has turned into a business services hub.

According to HKTDC's report, India was the world's second biggest exporter of textile and garment products in 2014, shipping goods worth $36 billion, behind China's exports worth a whopping $399 billion.

The report also cites the lower import tariff levied on Indian goods by the US and the European Union (EU).

India has been an active player in Asia, securing free trade agreements (FTAs) inside and outside the region. India has also been in talks on an FTA with the EU.

Further, US import tariff rates for Indian yarn-related products range between zero percent and 2.7 percent. The weighted average import tariff rates of the EU and US on non-agricultural products from India are 4.5 percent and 2.5 percent, respectively.

On the demographic profile, the report states that the Indian median age of 27 is way below China's 37, ensuring a good supply of young workers for many years to come.

"As an aside, China recently announced the abandonment of its one-child policy in response to the country's ageing population, though the effect would not be appreciable over the short-to-medium term," the report added.

According to HKTDC, the Indian wage levels are comparatively lower than what is paid in China. Furthermore, labour productivity in India is going up while that in China has been declining.

The report also cites the presence of industrial estates with plug and play facilities in India for Hong Kong manufacturers to relocate their factories rather than getting bogged down in land acquisition and other issues.

The HKTDC report cites the huge domestic market available in India for Hong Kong manufacturers apart from the country being an alternative production site for overseas markets.

Meanwhile, businessmen in Hong Kong said that the region is the best route to do business with the Chinese.

"We know the people who have shifted operations out of Hong Kong to China. It is better for Indian companies to set up an office here than landing directly in China," Noordin A Ebrahim, director of Masterful Ltd, told reporters.

Referring to credit rating agency Moody's Investors Service to cut Hong Kong's long-term debt outlook due to its close link to China, Ebrahim said: "I feel it is a political judgement rather than financial."

Ebrahim is of the view that China would not do anything to shake the confidence of the Hong Kong business community and would like to see that peace continued to prevail in the former British colony.

Hong Kong has transparent and rules-based systems, very low taxes and knowledgeable work force, he added.

"Knowledge of the local market is important while branding products for China and other markets. Hong Kong-based brand consultants would provide the same for Indian companies," David Lo, chairman, Hong Kong Designers Association, told agencies.

"The Closer Economic Partnership Arrangement (CEPA) between the mainland (China) and Hong Kong would result in the liberalisation of trade in service between the two regions from June 2016," Yvonne So, director, corporate communication and marketing at HKTDC, told reporters.

"Overseas companies can take advantage of CEPA by outsourcing to, or partnering with, a CEPA-qualified manufacturer or services provider in Hong Kong," she added.

As for the human resources available, she cited Hong Kong's nine major universities having more than 75,000 full-time undergraduate students and 8,000 taught and researched full-time postgraduates. (Venkatachari Jagannathan, IANS)