Hongkongers with manufacturing units on the mainland have appealed to the central government to defer the revision of the tax rebate system because it would raise their production cost.

On September 14, five mainland departments issued a joint circular to change the export rebate rate, promote energy efficiency, preserve scarce natural resources and encourage traditional industries to upgrade and make higher added-value products. The departments were the Ministry of Finance, the National Development and Reform Committee, the Ministry of Commerce, the State Administration of Customs and the State Administration of Taxation.

According to the new policy, only 11 per cent, instead of the existing 13 per cent, products would be eligible for a tax rebate. Items such as hardware, leather goods and metal and petroleum products would no longer enjoy the rebate.

The circular that covers certain commodities and expansion of the prohibited commodity catalogue for job processing trading has become a source of worry for Hong Kong exporters with factories in Guangdong Province.

The new policy will cost job processing traders millions, if not billions, of Hong Kong dollars more each year and cut their revenues drastically, import and export constituency legislator Wong Ting-kwong said yesterday.

"Seemingly, 2 per cent doesn't look much, but in reality, it would lead to a much higher cost that manufacturers wouldn't be able to afford. The new policy will hit as many as 4,000 factories in South China. I appeal to Beijing to reconsider the matter and postpone the implementation by a year," Wong told reporters at a press briefing yesterday.

Eight of the worst would-be hit manufacturers attended the press briefing, held by the Democratic Alliance for Betterment and Progress of Hong Kong (DAB).

To solve the problem permanently, however, some economists asked Hong Kong manufacturers to move their units to other areas or upgrade their industrial level to catch up with the economic trend on the mainland.

A representative of Guangdong's manufacturers' association, Leung Wai-ho, said many factories, especially the small-scale ones, simply wouldn't be able to afford the increase in cost. He feared that many manufacturers would be forced to close down their business or go bankrupt.

"The owner of a factory making timepieces and employing 700 people told me that he would lose 7 million yuan (US$875,000) a year... And a hardware manufacturer with 400 workers will have to pay an extra 8 million yuan (US$1 million) in tax," Leung said.

A manufacturer, surnamed Yu, who makes metal products said his cost will go up by an extra 15 per cent.

A screw producer and big-time supplier to factories in the Pearl River Delta region said he was not only worried about the increased cost, but also a possible drop in orders that it would entail. For higher cost means higher prices for his products.

The new policy, Wong feared, will have a snowballing effect because thousands of trading companies would be forced to cut jobs in their Hong Kong offices.

"Manufacturing used to be our pillar industry. But the (manufacturing-related) trading companies have now shrunken dramatically," he said.