Industry association warns that wage legislation and fuel costs may force many to close

20,000 Hong Kong factories to close?

"At the end of this year, maybe only 50,000 Hong Kong- owned businesses will remain," of about 70,000 in the province. That’s according to Danny Lau, chairman of Hong Kong Small and Medium Enterprises Association.

Much like the UK, China has suffered double digit percentage leaps in fuel costs, with 17 per cent increases reported last week. This adds to the mounting pressure on many businesses in China which, inline with labor contract law, have had to increase wages drastically.

The increases have even lead to many southern companies re-located business to cheaper northern territories. This, coupled with the yuan gained four per cent against the dollar in the first quarter, is decreasing demand for Chinese goods overseas.

Bloomberg spoke to Sun Mingchun, an economist with Lehman Brothers Holdings Inc. in Hong Kong, who said: "China’s export competitiveness is definitely declining fast."

With costs seeing no sign of slowing, many manufacturers may now seek alternative European factories.

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