China's WTO entry stirs fear in HK's small firms

China's WTO entry stirs fear in HK's small firms

While officials wax lyrical over boundless opportunities afforded by China's membership in the WTO for Hong Kong, the bulk of those employed by its small businesses fear unemployment and an increasingly bleak future.

That comes as a sobering thought, given the fact that small and medium enterprises (SMEs) make up more than 98 percent of the former British colony's work establishments and employ around 60 percent of its workforce.

"I think China (entry into) WTO will be very bad for Hong Kong. It may be good at the start but after two years this place will no longer be needed as an entrepot," president of the Hong Kong Small and Medium Business Association, Simon Shi, said.

"There will be no benefit for most Hong Kong workers. Bosses will lay off staff and employ more people on the mainland. If we want to join in the game we'll have to invest more time and money in China," he told Reuters over the weekend from his office overlooking the city's bustling harbour.

China aims to join the World Trade Organisation (WTO) by the end of this year, but some thorny issues that need to be ironed out before its entry into the body that governs global trade are still outstanding.


Shi, who runs a small electrical parts company and presides over the affairs of 2,100 SMEs, said the SMEs who represent the backbone of Hong Kong's economy stood to lose once mainland China began trading directly with the United States and Europe.

In recent years, Hong Kong has amassed its fortunes through its role as a trading entrepot for goods made on the mainland, but Shi said competition had stiffened even as its business links with China became more established.

Hong Kong used to be able to manufacture goods in mainland factories and then add value through superior product design.

"Now it's hardly worth it for SMEs to develop products. Manufacturers here spend a lot of time and money designing new products which get copied in one day across the water," he said.

China's workforce now had passports, access to travel, the Internet, good telephone links and a growing command of English he said. "There's little they can't do which we can."


Despite Hong Kong's strong economic growth since the nadir of Asia's financial crisis, the positive effects have yet to trickle through to the majority of the population.

"Our economy is a little bit better than its was last year but it's far from what it was three years ago," he said, adding it would take years at the very least to restore confidence.

Shi believed sentiment would get worse amidst the grassroots business community unless the government offered a convincing strategy to lift the territory out of its current gloom.

Unemployment levels, now at 4.8 percent, were unlikely to head for pre-crisis levels of around two percent for years and property prices, a key barometer of confidence in Hong Kong, were likely to spiral lower rather than higher.

"Business prospects aren't good and plenty of companies and people are still paying huge mortgages for properties bought before the property market crash," he said, referring to the speculative real estate bubble which burst in late 1997.

"In this environment, most people are looking to sell rather than buy and few people are thinking in terms of upgrading."


Government plans to create a Credit Reference Agency to rate the credit worthiness of SMEs so banks could rely less on their collateral such as property when making credit decisions was a step in the right direction, but not enough, he said.

The majority of SMEs wanted the government to encourage banks to extend deadlines for mortgaged properties and to offer longer-dated lines of credit to allow them to buy high-end machinery which could set them apart from mainland counterparts.

The government also needed to offer better protection of intellectual property rights to thwart copyright issues on the mainland as well as to ensure a more level playing field for local business, Shi added.

A handful of powerful conglomerates held the power strings in Hong Kong, often dictating relatively high prices for port handling charges and exhibition costs, he said.

"The government has made some steps for SMEs but it is not enough compared to other Asian nations. If more isn't done more SMEs will close down because of bankruptcies," he said, adding that the number of SMEs had dwindled to 290,000 from 450,000 around eight years ago.

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