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1
Professor K.B. Chan
Chairman and Managing Director, Surface Mount Technology Ltd.
Chairman, Hong Kong Green Manufacturing Alliance
7 March 2006
Future Industrial Prospect and Opportunities in China, and Green
Manufacturing Challenge
2
Content
• Major Economic Zones in China
• Electronics Industry & Automotive Industry – Major Industrial Driving Forces
• Southern China & Hong Kong’s Advantages
• Green Challenge
• Hong Kong Green Manufacturing Alliance
3
Major Economic Zones & Surrounding Areas
Bohai Economic Zone
Yangtze River Delta (YRD)
Pan-Pearl River Delta (PPRD)
CHINA
China’s 2005 GDP = US$2.3 trillion (9.9% Growth)World GDP Ranking1. USA2. Japan3. Germany4. China5. Britain
Source: Gov’t news, Commercial news
4
Major Economic Zones
Zone Covered Area
Pan-Pearl River Delta ( PPRD )
9+2
9 Provinces: Fujian ( 福建 ), Guangdong ( 廣東 ), Guizhou ( 貴州 ), Hainan ( 海南 ), Hunan ( 湖南 ), Jiangxi ( 江西 ), Sichuan ( 四川 ), Yunnan ( 雲南 ), Guangxi ( 廣西 )
2 Cities: Hong Kong ( 香港 ), Macau ( 澳門 )
Yangtse River Dela ( YRD ) 6+1
6 Provinces: Zhejiang ( 浙江 ), Jiangsu ( 江蘇 ), Anhui ( 安徽 ), Henan ( 河南 ), Hubei ( 湖北 ) Shaanxi ( 陝西 )
1 City: Shanghai ( 上海 )
BohaiEconomic Zone7+2
7 Provinces: Hebei ( 河北 ), Shanxi ( 山西 ), Inner Mongolia ( 內蒙古 ), Liaoning ( 遼寧 ), Shandong ( 山東 ), Jilin ( 吉林 ), Heilongjiang (黑龍江 )
2 Cities: Beijing ( 北京 ), Tianjin ( 天津 )
5
Strength of Economic Zones
Source: China Statistics Bureau, Hong Kong Census & Statistics Dept, Macau Statistics and Census Service
1 Includes eastern China, *Includes China, Hong Kong and Macao
Total 2,054 95% 1,207 93%
Economic Zone2004 GDP
(US$Billion)
% of the Greater China*
Annual GDP
growth
Populat-ion -
million
% of the Greater China*
Pan-Pearl River Delta (PPRD)
735 34% 13% 463 36%
Yangtze River Delta (YRD)
687 32% 16% 394 30%
Bohai Economic Zone
632 29% 16% 350 27%
1
Preliminary Figures Only (may not be 100% accurate)
6
Characteristics of Pan-Pearl River Delta
Export-oriented:
• external trade of Guangdong accounts for over 30% of China’s total
• large numbers of foreign-invested manufacturers especially in Guangdong, with high concentration of Hong Kong-invested companies > 60,000
Major industries:
• consumer goods, light Industries, heavy industries, petrochemical
• > 40% are electronic related
7
Industry and investment-oriented:
• Shanghai as the regional leader – finance and banking, automotive manufacturing, tourism
• becoming more internationalized
Major industries:
• automotive & auto parts manufacturing, electronics equipment and parts, textile, chemical fiber
Characteristics of Yangtze River Delta
8
Diversified economy:
• cultural, political, R&D center - Beijing
• electronics manufacturing base - Tianjin
• local consumption recently attracted lots of investors from Japan, Korea
Major industries:
• machinery, steel, transport equipment, electronics equipment
Characteristics of Bohai EconomicZone
9
Electronics Industry & Automotive Industry
- Major Industrial Driving Forces
10Source: isuppli, 03/2004
Electronics Production in China
• China is Factory of the World
• Advantage – Low cost & huge domestic market
• By 2007, electronics production:
Nearly US$300 Billion (> 20% of world output)
Growth rate 12%, double of world’s
• Largest market: handset, DVD, TV
• Top 5: PC, home appliance
US$Billion 2003 2004 2005 2006 2007 CAGR
China 167.2 185.8 207.5 238.8 270.1 12.7%
World 1,001.5 1,081.4 1,146.8 1,205.8 1,280 6.3%
China’s % 16.7% 17.2% 18.1% 19.8% 21.1% --
11Source: Technology Forecasters, supplied by Market Manufacturing Insider 10/2005
Electronics Manufacturing Services(EMS) Industry
World Total Available Market (TAM) &Electronics Manufacturing Services (EMS) Revenue
109.6 120.5 132.2 148 166.2 187.6
1005.7 1076.5 1146.51229
1319.21417.510.9% 11.2% 11.5% 12.0% 12.6% 13.2%
0
200
400
600
800
1000
1200
1400
1600
2004 2005 2006 2007 2008 2009
US
D B
illi
on
0%
2%
4%
6%
8%
10%
12%
14%
Total Available Market EMS Penetration %
12
EMS in China to Increase
Source: iSuppli, June 2003
Electronics Manufacturing Services (EMS) Production
US
Mexico
(E) Europe
China
0
10
20
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007
Bill
ion
of
US
Do
llar
13
Automotive Sales in China
2.42
3.25
4.395.07
5.76
0
1
2
3
4
5
6
2001 2002 2003 2004 2005
Sales in Million Unit
Source: VDA, Wards.com, International Herald Tribune, China’s Association of Automobile Manufacturers
CAGR = 24.2%
2006 Forecast: 6.4 Million Units (12% growth)
14
Top 10 Sedan Manufacturing Bases in China
China’s Sedan Output = 2.26 Million Units (Year 2004)
* PPRD figure includes Chongqing, YRD figures includes eastern China Source: Rounded Figures, National Bureau of Statistics of China
Jilin 336,800 (15%)
Henan 53,500 (2%)
Shanghai 549,900 (24%)Hubei 99,900 (4%)
Chongqing 157,300 (7%)
Jiangsu 89,900 (4%)
Guangdong 266,500 (12%)
Tianjin 219,800 (10%)
Anhui 87,000 (4%)
Beijing 182,200 (8%)
Bohai = 738,800, YRD = 880,200, PPRD = 423,800
15
China’s Automotive Components Industry
Exports
• 2005 Jan – Nov’s : US$ 7.7 B*, 53.4% growth
• 2004 : US$5.6 B (5 fold over 5 years ago)
Sales
• 2004 : US$53 B (46.5% growth)
* Including Components, Accessories & BodySource: Gov’t, KPMG
16
Automotive Electronics in China
Source: FOURIN China Auto Weekly
2000 2003 2005 2010
2.0
6.6
12.0
30.1
0
5
10
15
20
25
30
35
US
D B
illi
on
China's Automotive Electronics Market
2000 - 2010 CAGR >30%
17
Trend in China’s Automotive Components Industry
• Automotive Output – could exceed 10 Million vehicles by 2010
• Automotive Components – over 30% growth
• Automotive Electronics – share of automotive component value increase from 10% to 30%
• Foreign/ Joint venture auto makers to procure local low-cost and high quality parts and components
• Domestic brands increase from 25% to over 50%Source: China’s Association of Automobile Manufacturers, KPMG
18
Development of Southern China
& Hong Kong’s Advantages
19
Pan-Pearl River Delta
9 Provinces:
• Fujian 福建 Guangdong 廣東• Guizhou 貴州 Hainan 海南• Hunan 湖南 Jiangxi 江西• Sichuan 四川 Yunnan 雲南• Guangxi 廣西2 SARs:
• Hong Kong 香港 Macau 澳門
2004 GDP
(US$B)GDP growth Population (M)
Guangdong 193.2 14.2% 83.0
Hong Kong 165.5 8.2% 6.9
Other 8 provinces + Macau 376.0 16.9% 372.9
Pan-Pearl River Delta 734.7 12.6% 462.8
(Growth in real terms) Preliminary figures only, may not be 100% accurate
Source: China Statistics Bureau, Hong Kong Census & Statistics Dept, Macau Statistics and Census Service
20
2003 Output(US$
B)
Share 2010 Output(US$
B)
Share CAGR
3 New Rising Industries
Electronic Information 71.5 23.5% 271.1 33.8% 21%
Electric Machinery 36.5 13.0% 109.6 13.7% 17%
Petrochem 24.6 10.5% 88.0 11.0% 20%
3 Major Traditional Industries
Textile 19.2 6.8% 33.7 4.2% 8%
Food & Beverage 14.0 6.5% 31.3 3.9% 12%
Construction Materials 10.3 4.0% 18.1 2.3% 8%
3 Major Potential Industries
Paper 6.5 2.4% 16.9 2.1% 15%
Pharmaceutical 3.0 1.5% 9.6 1.2% 18%
Automotive 9.0 3.7% 43.4 5.4% 25%
Top 9 Industries in GuangdongSource: Guangdong Industry Yearbook 2004 & Internal Source
21
Next Wave for Guangdong – New & Hi-Tech Industries and Heavy Industries
• In 2004 added industrial output value of top 9 industries: > US$60 billion, contribute to 75.8% of provincial industrial growth
• Fastest growing industries
Electronics
Petrochemical
Automotive
Source: Hong Kong Trade Development Council
22
Electronics and Information Industry in Guangdong
• In 2004, total output of Guangdong’s electronics & information industry: US$90 billion
Source: Hong Kong Trade Development Council
Products Major Manufacturing Bases
Handset, Computer Dongguan, Huizhou, Shenzhen
Electronics components, Home audio/visual equipment
Shenzhen
Software Guangdong, Shenzhen, Zhuhai
23
Automotive Industry in Guangdong
• Production capacity in 2004: 540,000 vehicles
• Estimated capacity in 2005: 650,000 vehicles
• 2010’s capacity: 1.6 million (1.4 million sedans)
Source: Hong Kong Trade Development Council, Commercial News
3 Major Car Makers in Guangzhou, Guangdong
Unit Sales in 2005
Nissan 157,500
Honda 230,000
Toyota Start production by mid-2006, initial 100,000-unit capacity
24
Petrochemical Industry in Guangdong
• 2005-2010: planned investment US$21.7 billion
• Output in 2010: US$88 billion (11% of Guangdong’s industrial output), 20% annual growth
• In 2020, oil refinery capacity: 100 million tons
• Foreign investors: Shell, BP, ExxonMobil
Source: Hong Kong Trade Development Council, Commercial News
25
Challenges in Guangdong
• Shortage of energy, land, labors and skill workers
• Labor intensive enterprises: high costs while low profits
• Competition from Yangtze River Delta (eastern China) and Bohai Economic Zone (northern China)
• Environmental issue
Need to foster high value-added industries & upgrade industrial structure & environmental manufacturing
Source: Hong Kong Trade Development Council
26
“Front Office - Back Factory” Model
Hong Kong Trading and financial center
Southern China
Manufacturing base
Co-operation
LogisticsMarketing
Product DesignAdministration & Management
Land & utilitiesLaborNatural resources
Supporting industries
R&DTechnologies
27
Position of Hong Kong
• Major economic engine of the Pan-Pearl River Delta, financial and service center
• Over 40% of China’s Foreign Direct Investment - FDI is from Hong Kong
• HK companies operate more than 60,000 factories in Southern China, employing > 10 million workers
• 40% of HK Manufacturing GDP is electronics
Source: Hong Kong Trade Development Council
28
Advantages of Hong Kong
• Excellent infra-structure, transportation, telecom
• Sound legal and tax system
• Mature equity market
• Efficient government with no corruption
• Center for arbitration
• Close political, economic and social relationship with China,
e.g. Closer Economic Partnership Arrangement (CEPA) - easier access to China markets for Hong Kong-made
products, and Hong Kong-based service companies
29
Advantages of Hong Kong
• Cosmopolitan city – large number of foreign companies, promotion & exhibition
• Easy communication, English, Chinese
• Risk Management
• IP Rights protection
• Currency management - RMB
30
Hong Kong Companies As Business Partners
• Understand both international and Chinese cultures, acting as bridge
• Connections with multinational companies, and foreign countries
• Substantial business experience in China, know “what not to do”
• Fast response
• Strong business integrity
31
• Finance: IPO, capital raising
• Skilled Workers: education and training
• Professional Services: legal, accounting, banking
• R&D: co-operation with educational institutions
• Logistics: supply chain management
Hong Kong as Service Platform forGuangdong’s Industrial Development
32
HK – Boosting Technological Developments
• Administer under ITC – Innovation & Technology Commission – Funding ~ 4 Billion HK$
• 8 Universities
• Establish 5 R&D centers from 2006:
Auto parts, logistics, textile, nano tech, IT & telecom
• ASTRI – Apply Science and Technology Institute
• HK Science & Technology Park – IC design, photonics
• Cyber Port – Digital entertainment
• HK Productivity Council
33
• Joint funding efforts between the 2 Government to support R&D projects
• 2004 > US$ 40 million in 6 areas:
RFID , Auto-parts, electronics & IT, energy
tech, new materials, precision equipments
• 2005 > US$ 67 million in 6 areas:
communication, medical & bio tech, new
materials green manufacturing, agriculture
Guangdong/HK Technology Co-operation Funding Scheme
34
Green Challenge
35
Electronic WasteSource: Wen Wei Po
36
USA 8.3 Mtons,39.5%
ROW 1.6 Mtons , 7.8%
Europe6 M tons ,
28.2%
Japan3 M tons,
14.4%
Asia-Pacific 2.1
M tons,10.2%
Electronics Industry
• One of the world’s largest manufacturing industry with over US$1 trillion output
• Produced 21 million tons of electronics globally:
Source: National Electronics Manufacturing Initiative, Inc.
37
Revolution: Product Life-Cycle“Cradle to Cradle”
Remanufacture& Reuse
Obsolescence/Return
Customer Use
Manufacturing
Packaging/Distribution
Eco-ProductDesign
Parts, Materials
38
Energy-using Product (EuP) Directive:
• Aims at product design to be energy optimized
Waste Electrical and Electronic Equipment (WEEE)Directive:
• Responsibility for collection, recovery and recycling of waste electrical and electronic equipment now rests with producers
Restrictions of Hazardous Substances (RoHS)Directive:
• Upper limit on 6 hazardous materials in electronics products
European Legislation on Green Electronics Products
39
The Total Picture of EU Regulations
ProductDesign
Procurement
Manufacturing
Field Application
End of life
EuP RoHS
Collect, Reduce,
Reuse, Recycle
WEEE
(2007/8/11) (2006/7/1) (2005/8/13)
40
China’s Legislations
• “RoHS-equivalent” law, “Administration on the Control of Pollution Caused by Electronic Information Products” 《電子信息產品污染控制管理辦法》 :
– Announced on 1 March 2006
– Effective 1 March 2007
– Manufacturers, importers, and retailers must comply
– Apply to products manufactured in, sold in or imported into China
41
• Electronics Radar
• Broadcast & Television
• Household Electronic
• Special Electronic Apparatus
• Electronic Applications Equipment
• Electronic Telecommunications
• Computer
• Electronic Measuring
• Electronic Components
• Electronic Material
China’s Legislations
China-RoHS covers following categories:
42
China’s Legislations
• Major requirements of China-RoHS:
– Producers should choose materials, technique and craftwork suitable for reuse and recovery
– Other materials in addition to 6 stated in EU’s RoHS
– Labeling: name & content of hazardous substances, “safe-use period”, packing materials
• Can be reviewed every year (vs. 3 years for EU’s law)
• Punishable
43
• Waste control measures and systems
• Monitoring on materials and components suppliers
• Testing of components
• New production process technologies and equipments, e.g. lead-free soldering
• Quality and reliability enhancement
• Management practice
• IT system upgrade, e.g. ERP
Issues of cost sharing, pressure from customers
Legislations Increase Costs of Manufacturers
44
• Recall of all goods sold in the markets since the enforcement date for the law
• Fine on such goods, e.g. First WEEE prosecution - Boots Retail (Ireland), fined €1,200, and costs of €6,865 awarded to Environmental Protection Agency (Jan 06)
• Impounding of goods
• Banned from entering Europe
Possible Penalties for Violating EU Regulations
45
• Policy Framework for the Management of Municipal Solid Waste (MSW)
– Producer responsibility schemes to be introduced:
Hong Kong’s Initiatives
Products Target Date
Electrical & Electronic Equipment, Vehicle Tyres, Plastic Shopping Bags
2007
Packaging Materials, Beverage Containers
2008
Rechargeable Batteries 2009
46
• Policy Framework for the Management of Municipal Solid Waste (MSW) – Targets:
– Reduce MSW by 1% per annum up to the year 2014
– Increase recovery rate to 45% by 2009 and 50% by 2014
– Reduce total MSW dumped in landfills to < 25% by 2014
Hong Kong’s Initiatives
47
Hong Kong Green Manufacturing Alliance
48
Why We are Highly Concerned
• Southern China - hub for electrical & electronic manufacturing: > 40% of Guangdong’s industrial output
• Hong Kong companies operate > 60,000 factories in Southern China (> 10 million workers)
• > 40% of HK manufacturing companies are related to:
electronics, electrical appliance, watch, toy
• Electronics products shared 45% of HK’s exports (2004) and 14% exported to EU (USD 16.3Billion)
• Not many factories are ready for the directives
49
Hong Kong’s Electronics Exports
Source: Hong Kong Trade Development Council
Major Markets Share Growth
Chinese Mainland 48% 28%
EU 14% 28%
US 12% 11%
ASEAN 7% 20%
Singapore 3% 22%
Japan 5% 23%
2004 Total Electronics Exports = US$116 B
50
• A non profit making organization supported by manufacturing and trade associations
• Alliance officially formed on February 1, 2005
• Chairman: Prof. KB Chan
• Secretariat: Federation of Hong Kong Industries
• Steering committee – holds regular meeting
• Government support
Establishment of Hong Kong Green Manufacturing Alliance (HKGMA)
51
Background
Members
• Federation of Hong Kong Industries
• Hong Kong Electronic Industries Association
• Hong Kong Electrical Appliances Manufacturers Association
• Hong Kong Toys Council
• Hong Kong Watch and Clock Council
• Toy Manufacturers’ Association of Hong Kong
• Hong Kong Watch Manufacturers Associations
• Federation of Hong Kong Machinery and Metal Industries
52
Background
Advisors:
• Hong Kong Productivity Council
• Hong Kong Trade Development Council
• 6 universities in Hong Kong such as City University of Hong Kong and Hong Kong Polytechnic University
Observer:
• Innovation and Technology Commission, Government of Hong Kong Special Administrative Region
53
Activities of HKGMA
Mission
• To facilitate transformation of HK manufacturing industry into “Green” & enhance its competitiveness
Activities• Raise awareness
Seminar, promotions, Green campaigns
• Provide guidelines for compliance Workshops, factory visits
• Technology advancement Coordinates R&D, data base, global watch
54
Activities of HKGMA
• Green Standard
Set standards
Recognition of consultants, labs, factories
• Industry representation
As spokesman
Liase and advice Government
• Platform for Networking
Domestic & international
55
HKGMA Delegation to Brussels (5 – 9 March 2006)
• Purpose
Start a dialogue channel with relevant European institutions
Gain understanding of and 1st hand information on related regulations
Liaise with other countries (member states)
• Meeting with European Parliament European Commission Trade and Commerce Associations
56
Past GMA Events (over 3,000 participants)
Month Examples of Event Attendance
Jul 05Asia Electronics Forum & CEF China
> 300
Sep 05 World Electronics Forum (UK) > 150
Oct 05Seminar in Protec Japan, Study Mission to Japan
> 100,20
Feb 06Seminar on Restricted Substances Directive in China
> 600
Organized/Coordinated > 20 events in 2005, e.g. seminars, workshops, conferences, study missions:
57
Coming Events
Date Major Event Venue Agenda Organizer
3/2006 Seminar: Latest Development of WEEE & RoHS
Hong Kong
Introduction to and Discussion on WEEE & RoHS
HKGMA
4/2006 GMA Workshop
Hong Kong
Lecture on Green Manufacturing Compliance
HKGMA
9/2006 World Electronics Forum (WEF)
Hong Kong
Seminar on Electronics Industry and Environmental Development
HKEIA
58
Summary
• The 3 major economics zones will be China’s industrial growth engine > 90%
• Successful co-operative model of HK/ Guangdong helps boost the economy of Pan-Pearl River Delta
• Electronics, automotive, petrochemical industries are major economic driving forces
• HK’s technological development play an important role
• Up & coming issue – to comply with green manufacturing