RP losing edge due to rising labor costs, says HK official

A senior Hong Kong economic and trade official warned yesterday that the Philippines is in danger of losing its status as a premier manufacturing and assembly hub for Hong Kong businesses to other Asian countries.

Clement Cheung, director of the Hong Kong Economic and Trade Office (HETO), said that while the Philippines has a few advantages like being physically closer to Hong Kong, a ‘not bad’ infrastructure, and an educated and highly skilled workforce, its major disadvantage lies in the fact that labor cost in the Philippines is increasing.

Cheung is in the country to discuss with members of media Hong Kong chief executive Tung Chee Hwa’s recent 2000 policy address, where the latter reviewed Hong Kong’s new focus on three major issues of public concern – education, poverty, and governance.

Cheung said China’s per capita wage is lower than that of the Philippines, and its workforce is fast catching up in terms of technical skills.

Trade between the Philippines and Hong Kong remains in favor of the former, especially since Hong Kong imports most of its commodities. Hong Kong exports to the Philippines mostly electronics, machineries, fabrics, which Filipinos assemble and further manufactures into telecommunications equipment, and other electronic goods, and then re-exports to Hong Kong.

But Cheung said the Philippines is starting to have serious competitors as assembler for Hong Kong. Malaysia for instance, is opening up its container ports while Thailand is looking at refining its legal system.

But mainland China poses the biggest threat to the Philippines in terms of its low labor cost and its workforce. Cheung, however, pointed out that as China grows, it will import more materials and will therefore benefit other countries, including the Philippines.

The Hong Kong official said trade between the Philippines and Hong Kong has been growing at an average of four to five percent per year from 1995 and to 1999 and he expects this trend to continue. But since the Philippines is a net exporter as far as its trade with Hong Kong is concerned, he said the depreciation of the value of the peso will be to the Philippines’ benefit.

Meanwhile, Cheung shrugged off the recent political scandal involving President Estrada and his alleged involvement in illegal gambling, saying this is not something foreign investors look at on a short-term basis.

"I don’t see the Philippines having major structural problems. The economic problem is worse in other countries, and compared to economic problems, political problems can go way. The problem, however, develops if the political problem translates into a permanent economic problem, which I don’t expect to happen in the case of the Philippines," he said.

He said that in Hong Kong for instance, there were 6,000 demonstrations that occurred during the last two years. Despite these, investors have remained.

"The investor is concerned about earning his money. He will have to look at the true impact of what is happening or what is going to happen. Investors stay or leave whether or not there is a change in the political situation or not," Cheung explained.