Half of the Hong Kong factory owners on the mainland that responded to a recent survey did not rule out the possibility of moving amid rising operating costs driven by the new labor contract law.

Over the past two months, the Hong Kong WTO Research Institute surveyed 37 Hong Kong manufacturers who owned factories on the mainland to find out the impact of the labor contract law, which came into effect on Jan 1 this year. The findings were released yesterday.

Under the new law, enterprises need to compensate workers if they do not offer them written contracts within a year of employment, while enterprises have to also provide welfare and retirement benefits to all permanent staff.

Of the surveyed enterprises, 62 percent said the new law pushed up their operating costs and 11 percent said they could no longer survive financially.

Only 22 percent said they fully understood the new law; 46 percent had a reasonable understanding of it and 32 percent said they could hardly understand it.

Although 41 percent said it was a reasonable law, they asked for a longer transition period. Meanwhile, 46 percent thought the law was intended to protect workers.

When asked if they would leave the mainland, 46 percent said no but 49 percent said they would wait and see.

In the opinion of Priscilla Leung, associate professor of the City University's School of Law who was in charge of the survey, the labor contract law is well-intentioned, and aims to provide clearer stipulations for enterprises and workers amid rapid economic development on the mainland.

Very similar to western practices, the legislation has largely increased labor protections, she said. However, some of the concerns of Hong Kong and Taiwan investors in the Pearl River Delta were not addressed.

Many legal disputes have arisen as some Hong Kong enterprises asked their employees to terminate the old contracts before Jan 1 and sign new ones or transferred their employees to 'new' companies in order to evade the new responsibilities.

To help rectify the situation, she suggested the National People's Congress promulgate an implementation regulation to clarify several key areas and make it clear that it would not carry any retroactive effects.

Stanley Lau, vice-chairman of Federation of Hong Kong Industries, said long-standing enterprises with many staff members are among the worst hit.

"It is nothing but a time bomb for enterprises who employ a lot of staff," said Lau, who owns a timepiece accessory factory in Dongguan.

Paul Yin, president of Chinese Manufacturers' Association of Hong Kong, said the new law came at a time of rising costs of materials and appreciation of the yuan, and the biggest problem is concerns over retroactive effects.

"The law is unclear as to whether leaving workers who have broken the law or company rules should be compensated," he commented.

Yin, who also runs a metal factory in Shenzhen, predicted that the new law would pose a great deal of difficulties to Hong Kong enterprises and those who could not transform or move away will have to end their businesses.

(HK Edition 02/20/2008 page1)