More Hong Kong-invested enterprises, which are mainly engaged in processing trade businesses in the Pearl River Delta area, may close operations in October and November, said a leading economic and trade official from the Hong Kong Special Administrative Region (SAR) government.

"It is always a golden period in October and November for these companies to clinch deals with overseas buyers as Christmas is around the corner. As a result, if they cannot reach as many overseas clients as usual, they may stop operations," said Peter Leung, director of the Hong Kong Economic and Trade Office in Guangdong province.

Leung's office was set up in 2002 when an increasing number of Hong Kong enterprises had moved to the Pearl River Delta area. "They have helped make the region become one of the most important manufacturing bases in the world," he said.

Guangdong currently has more than 90,000 Hong Kong-invested enterprises, of which 50,000 are mainly engaged in processing supplied goods.

However, they have experienced tough times since early last year due to stern export tax rebates, the rising yuan and increased production and labor costs, Leung said.

For example, the costs of labor and raw materials have been increased by nearly 30 percent and 50 percent, respectively, in the Pearl River Delta region since last year, according to Leung.

"In this kind of situation, most enterprises could hardly make money. And you cannot image that an estimated number of 3,000 Hong Kong-invested enterprises, most of which are small and medium-sized, have been forced to close businesses since last year," Leung said.

However, Leung said that a number of big enterprises, which had already started upgrading businesses by introducing more state-of-the-art facilities, could still find overseas buyers.

"But most small-sized companies can hardly clinch deals with overseas clients as their products barely meet quality requirements for export," Leung said.

As a result, it would be very urgent for Hong Kong-backed enterprises to upgrade their businesses, Leung said.

"In this regard, we are happy to see that Hong Kong and Guangdong have jointly started seriously addressing the problem," Leung said.

Preferential policies

Guangdong signed an agreement with Hong Kong in August and has pledged to issue a series of preferential policies and measures to help Hong Kong-backed processing trade companies in industrial upgrading.

For example, 11 government authorities in Guangdong have jointly issued a regulation to allow Hong Kong-backed processing trade enterprises to reform their business ownership structure, to help them upgrade their businesses in the Pearl River Delta area.

After being re-registered as Sino-foreign joint ventures, or cooperative ventures and exclusively foreign-funded enterprises, traditional processing trade manufacturers in the area will have more opportunities to tap the mainland market.

Currently, traditional manufacturers, involved in the processing of supplied goods, can only sell products to overseas markets.

Meanwhile, the province has so far approved a total of 24 new industrial parks in the eastern, western and northern areas, which lag behind in terms of economic strength, to better host thousands of transferred Hong Kong businesses from the Pearl River Delta region.