Attached File

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

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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 %

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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)

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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

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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

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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%

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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

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Development of Southern China

& Hong Kong’s Advantages

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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

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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

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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


Products Major Manufacturing Bases

Handset, Computer Dongguan, Huizhou, Shenzhen

Electronics components, Home audio/visual equipment

Shenzhen

Software Guangdong, Shenzhen, Zhuhai

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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

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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

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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


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

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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


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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

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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

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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

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• 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

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• 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

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Electronic WasteSource: Wen Wei Po

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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

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• Electronics Radar

• Broadcast & Television

• Household Electronic

• Special Electronic Apparatus

• Electronic Applications Equipment

• Electronic Telecommunications

• Computer

• Electronic Measuring

• Electronic Components

• Electronic Material


China-RoHS covers following categories:

42


• 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

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• 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


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

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• 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

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