"We make most of our stuff in China, but our Hong Kong plant is invaluable for emergency orders," said Michael Luk, general manager at Nelson Jewellery Arts Co Ltd, which mass produces gold and diamond jewellery for chains in Europe and the United States.

 

A buzzing shop floor is a rare sight in the former British colony's beleaguered manufacturing industry these days, but a new free trade deal with China and a fledgling economic rebound could offer the territory's ailing manufacturers a stay of execution.

 

Once a cornerstone of the territory's economy, the factories that churned out plastic flowers, toys and electronics have migrated over the border in the last two decades in pursuit of China's deep and cheap pool of labour.

 

Nelson Jewellery employs around 100 people at its factory in the city's once-thriving Hunghom gem district, where high-rise housing estates and shopping malls now encroach on decrepit factory buildings.

 

The number pales compared with the 1700 factory workers the firm employs in China, but Luk said the firm plans to take on 20 extra workers in Hong Kong this year.

 

Manufacturing has come a long
way from plastic flowers and toys

The production line at the Hong Kong plant saves three days, a boon for Luk's customers who are keen to get the latest fashions on their shelves while fads are still hot.

 

The smaller plant is more flexible in meeting spot orders and less than an hour away from Hong Kong's ultra-modern airport, the world's biggest international air cargo hub.

 

Lately the factory has been busy making diamond crosses as retailers anticipate hot demand as Mel Gibson's film "The Passion of Christ" hits cinemas worldwide.

 

Expensive production space

 

Manufacturing makes up 5% of Hong Kong's economy compared with 21% in 1982 during the industry's heyday.

 

Most factories now concentrate on making higher-quality, higher-margin goods such as watches, jewellery and lenses that require less production space in high-rent Hong Kong. 

 

The free trade deal with China, known as the Closer Economic Partnership Agreement (CEPA), that took effect in January, offers zero tariffs for many Hong Kong-made goods.

 

High value items require less
expensive manufacturing space

The city's Jewellery Manufacturers' Association said that, once fully implemented, it could lead to double-digit growth fuelled by China's vast, fast-growing retail market.

 

"Three Chinese department stores have approached us, but we don't have any concrete orders yet," said Luk.

 

A recent poll by recruitment firm Manpower Inc showed 20% of Hong Kong manufacturers planned to take on more

staff between April and June, double the number in the first

quarter.

 

By contrast, only 5% of employers in the same sector in regional rival Singapore, whose manufacturing industry has seen a similar decline, said they would employ more staff.

 

"It is also hoped that some foreign manufacturers that plan to set up production lines in the region will be attracted to Hong Kong," said Kevin Lau of Hanville Co Ltd, which makes watches under the Michel Renee brand.

 

Mainland distribution

 

Textile manufacturers and makers of Chinese medicines also could benefit, economists say. Last year, a Chinese autoglass maker set up a factory employing 80 people in Hong Kong to avoid US anti-dumping measures.

 

"For us the main benefit will be in distribution of our products in the mainland," said Cathy Tse, China marketing manager at Nin Jiom Medicine Manufacturing HK Ltd, which makes Chinese medicine.

   

Though they typically earn US$1,283 a month -- seven times more than their co-workers across the border -- many Hong Kong workers look down on repetitive factory jobs.


But some manufacturers remain cautious.

 

They say mainland trade policy is still mired in red tape and the much-hyped trade deal has yet to yield any tangible gains.

 

And economists say the big picture is still one of decline.

 

Manufacturing employment fell 8% in December from the same month last year.

 

What's more, Luk says he has problems finding staff.

 

Though they typically earn US$1,283 a month -- seven times more than their co-workers across the border -- many Hong Kong workers look down on repetitive factory jobs.

 

"CEPA could slow the decline, but manufacturing is never going to be Hong Kong's bread and butter again," said CK Lee, an economist at investment firm Core Pacific-Yamaichi International.