30 June 2016
Guangdong Underwrites Automation Costs to Secure Industrial Base
Hong Kong businesses with manufacturing facilities operating in the Pearl River Delta Region may be entitled to local government funding to help automate their production lines as concern continues to grow over rising labour costs.
In line with its industrial transformation and upgrading programme, Guangdong is currently looking to raise the automation level of its manufacturing and processing base. With the local government having recently introduced an initiative intended to stabilise the level of foreign trade, Hong Kong companies operating in the province would be well advised to capitalise on the government's subsidy programme and look to upgrade their own industrial facilities.
In early June, the Guangdong provincial government published Promoting the Stabilisation of Foreign Trade in Guangdong, its economic blueprint for overhauling the region's industrial base over the coming years. The plan focuses on six distinct areas – enhancing export benefits; implementing a proactive import policy; advancing the innovative development of foreign trade; strengthening fiscal, tax and financial support; raising the standard of customs clearance facilitation; and optimising the foreign trade environment.
One of the priorities of the plan is the innovative development of the processing trade. While sounding deceptively simple, this actually covers a wide range of activities and requirements. These include abolishing the examination and approval requirement related to processing activities, as well as enhancing the level of supervision required in the sector. Then there is also the issue of streamlining the management of the province's bonded processing handbook and overseeing the introduction of Internet+ processing trade and domestic sale facilities. Another priority is simplifying and properly regulating the sale and disposal of surplus materials relating to both the processing trade and processed products. Finally, there is the challenge of reclaiming the land vacated by relocating processing operations and repurposing it for use in the commercial, tourism and elderly care sectors.
With regard to other changes outlined in the blueprint, it also specifies that, in the case of industrial land legally acquired by businesses in the processing sector, land transfer fees may be paid by instalments in line with the agreed contract terms. In the case of priority industrial projects requiring extensive land-use, the reserve land transfer fee must be at least 70% of the standard fee.
Rising PRD Production Costs Drive Automation
Over recent years, production costs in the Pearl River Delta (PRD) region have continued to climb. In light of this, many businesses now believe that the region is no longer ideally suited to the needs of the processing trade. This has seen a number of such businesses either relocating to lower-cost mainland regions or moving to alternative Southeast Asian countries.
Speaking at the Dongguan-Hong Kong Joint Conference in Hong Kong in June of this year, Yang Xiaotang the Deputy Mayor of Dongguan, said rising production costs were inevitable, despite the local government's best efforts to rein them in. In order tackle the problem, his advice to the businesses attending the event was to increase their level of automation, reducing their reliance on an ever more expensive labour force.
In order to help with this process, he said Dongguan is now working closely with both the Ministry of Industry and Information Technology and the Chinese Academy of Engineering. He believes that this joint consultation will provide a boost for local automation initiatives, ultimately resulting in higher domestic production levels.
At present, there are more than 6,000 Hong Kong-backed businesses in Dongguan. The majority of these companies are engaged in labour-intensive processing activities, primarily within the more traditional industries. In view of the current uncertainties in the global economy and the gradual transformation taking place across China's manufacturing sector, such businesses are obliged to stay up-to-date in order to remain competitive.
With Dongguan proactively supporting moves towards greater automation, Hong Kong companies can benefit from the government subsidies, technical support and staff training currently on offer. This will enable them to improve their production facilities, enhance the technology content of their products, while reducing their reliance on their human workforce.
Dedicated Automation Funding
In January 2016, the Dongguan municipal government published Automation and Smart Equipment: Creating an Advanced Manufacturing Base with a Global Reach (Dong Fu No. 1 ). According to the document, over the next five years the Dongguan city finance department will allocate some Rmb200 million a year to nurturing greater automation. This will see support provided for some 2,000 automation projects. It is hoped that that this will encourage more than half of the larger businesses in the region to undertake a substantial programme of technological renovation.
Back in 2014, Dongguan announced three similar programmes – Accelerating the Development of Automation and the Smart Equipment Industry, Accelerating Automation for Dongguan Enterprises (2014-2016), and Implementing and Managing the Dongguan Automation Fund. At that time, it was resolved that, from 2014 to 2016, Dongguan would commit Rmb200 million a year to support businesses looking to upgrade their automated facilities.
More specifically, it was announced that the fund would be focussed on those businesses characterised by repetitive processes, a need for intensive labour support or that entailed considerable hazards to human operators. It was felt that businesses in the electronics, machinery, food, textiles, garment production, furniture, footwear, chemicals and logistics sector would benefit most from greater automation.
A clear success here has been the Janus (Dongguan) Precision Components Co, a business that has investing in automated processing since 2014. Previously, assembly of the company's mobile phone components was carried out manually, turning out some 500 units an hour. Once human operators were replaced by an automated production line, the company was producing more than 1,100 units per hour, with the system replacing some 24 workers across combined day and night shifts.
In 2014, Janus was among the first businesses to benefit from Dongguan's automation fund. With the company receiving a grant of Rmb4 million from the local government, it was the largest beneficiary of the initial funding round.
Surge in Demand for Experts
As Dongguan's campaign for higher levels of automation gathers speed, the need for properly qualified technical support also continues to rise. At the Dongguan-Hong Kong Conference, Willy Lin, Deputy Chairman of the Federation of Hong Kong Industries, called on the Dongguan city government to provide the necessary technical training and to subsidise companies looking to train their own staff.
At present, Dongguan has a high level of demand for suitably qualified staff. In particular, many companies in the region are looking for robotics engineers, automation design engineers, non-standard automation designers and automation project managers.
Businesses are said to be offering salaries of up to Rmb10,000 for candidates with experience in integrated automation systems and project design and development. At the higher end of the scale, properly-qualified automation testing and application engineers can expect to attract a monthly salary of up to Rmb20,000.
Edison Lian, Guangzhou Office