The Delta report was commissioned by InvestHK, a Hong Kong government department responsible for foreign direct investment, supporting overseas and mainland businesses aiming to establish or expand in Hong Kong. InvestHK's field of interest covers Hong Kong and the GPRD, which includes nine cities in Guangdong province - Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing.

In sharp contrast and a good deal less optimistic is the European Chamber of Commerce's China report. The chamber undertook a business confidence survey among 552 European-based businesses operating in China, including 72 in the PRD. The survey, by Roland Berger, a strategy consultant, reveals that the European companies believe an economic slowdown in China is one of the most serious challenges for the future.

Other challenges include rising labor costs, attracting and retaining talent, market access barriers, ambiguous rules and regulations, and discretionary enforcement of regulations.

Other stressful conditions cited by the European companies were a global economic slowdown, competition from domestic, privately-owned enterprises (POEs), lack of sufficient and qualified personnel, and competition against non-compliant competitors. (Non-compliant competitors operate outside the limitations of UK and EU competition laws. Those are the laws prohibiting the creation of cartels and similar arrangements aimed at restricting or even preventing competition and which will affect or may affect trade within the UK or the EU).

PRD respondents to the chamber's survey revealed that these non-compliant competitors were their main concern, while worries about a global economic slowdown slipped into second place. Appreciation of the renminbi (RMB), uncertainty about the application of anti-trust laws, followed by the mainland's economic slowdown led the concerns among European businesses in the PRD.

Fifty-three percent of the PRD respondents said business conditions were more challenging and difficult this year; 42 percent felt it was about the same, while 6 percent said it was easier to do business.

The EU survey revealed that 35 percent of PRD companies reported revenue increases of more than 20 percent in 2012. Last year, the revenue increase of the PRD companies dropped two percentage points to 18 percent, and this year, the revenue increase fell a further two percentage points to 16 percent.

A major revelation of the EU survey was that the number of companies optimistic about future short-term growth shrunk by 11 percentage points from the 79 percent in 2011 to 68 percent in the recent survey, a figure comparable to the level of pessimism in 2009 during the Great Recession.

European companies in the PRD face a stronger threat from mainland POEs, but the challenge from State-owned enterprises (SOEs) is also increasing.

Shen Danyang, the Ministry of Commerce's spokesman, said he has noted the report of the European Union Chamber of Commerce in China and will study carefully the issues it identifies along with possible solutions. He said the central government is committed to tackling the problems of EU enterprises investing in China, adding that most of these problems are not new.

Labor costs rising

Cross checking the two reports, members of the Federation of Hong Kong Industries (FHKI) with factories in the PRD agreed that both labor and costs are rising. Companies making toys and jewelry have experienced a marked turn down, with new competition and new challenges emerging rapidly.

FHKI chairman Stanley Lau said: "However, some industries, such as electronics, robotics, shoes and leather products, showed improved results over other industries this year versus a year ago.

"The federation's members were facing, among other things, strong competition from online sellers," he said, adding: "The federation has set up a website to assist 100 of its members to experiment with e-commerce, hoping that it will become a new and successful platform for sales in the mainland market."

"E-commerce has become an important direction and focus (for the future)," Lau said, adding that he hoped the Hong Kong government could support the federation's initiatives in attempting to master the immensely challenging task of developing a virtual market.

Lau cautioned, however, that there are many perils for companies that abandon the mainland and move to other countries.

He said there already are many horror stories of companies that moved to Africa and have lost heavily to thievery and high invisible costs.

"International investors had to reassess (all) the risks (they could face in the new destination) before they relocate their manufacturing activities," he said.

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