Manufacturers' confidence in their export prospects for the third quarter weakened mainly due to worries about a further rise in labor costs, the Hong Kong Trade and Development Council (HKTDC) said Thursday.

Confidence in export growth dropped from 59.1 in the second quarter to 56.2 in the third quarter, according to the latest HKTDC Export Index findings. "People are still confident about export growth, but just not as confident as they were in the second quarter," HKTDC Chief Economist Edward Leung said at a media briefing. The decline in the index signals slower export growth in the coming months, he added.

According to earlier statistics released by the Hong Kong government, exports for the first seven months of 2010 increased by 21.1 percent year-on-year.

One major contributor to the decline in export confidence is rising labor costs on the mainland, where most of Hong Kong manufacturers operate their factories.

"The problem of higher labor costs is weighing on the mind of Hong Kong's manufacturers," said Leung. This problem, he suggested, reflects an irreversible trend of rising wage levels and is the direct result of a labor shortage.

The labor shortage is also expected to worsen in the years ahead with a sharp decline in China's young population, according to the latest HKTDC Trade Quarterly. "Looking ahead, Hong Kong's manufacturers will find it even more difficult to hire workers because the young population, the main source of the labor force, will shrink after peaking in 2011," said Leung.

Worse still, coastal regions including the Pearl River Delta area, where Hong Kong manufacturers concentrate, are currently witnessing a growing outflow, Leung added.

In 2009, the number of rural migrant workers in the eastern regions dropped by 8.9 percent, whereas the central and western regions saw growth of 33.2 percent and 35.8 percent, respectively. Job opportunities arising from economic growth and a lower cost of living in inland cities are tempting workers to relocate.

"Urbanization is advancing at a fast pace in inland cities and provinces like Chongqing and Hunan, whose economic growth has outpaced that of the coastal regions for the past several years," Leung said, adding that the coming years may see an ever greater number of migrant workers moving to second- or third-tier cities.

Leung also pointed out that the country's ambitious urbanization drive, while causing the labor shortage, could also conversely benefit Hong Kong manufacturers by beefing up people's spending power.

Besides rising wage levels, manufacturers are also wary of further appreciation of the yuan, which will drive their costs even higher, according to Leung.

China Daily

(HK Edition 09/17/2010 page2)