Rapid economic growth in the Pearl River Delta (PRD) has come at an environmental cost. While sulphur dioxide (SO2) pollution affects the air in most PRD cities, water in many stretches of the Pearl River has become so polluted that the river is unsuitable for irrigation, aquaculture or recreation. In order to improve the situation, the Guangdong government has determined to reduce SO2 emissions by 21% and chemical oxygen demand (COD) discharge by 24% from the 2006 levels by 2020.

Government Initiatives in Environmental Protection

Manufacturing production is the major source of pollution in the PRD. The authorities have become more stringent in enforcing the relevant environmental regulatory requirements and standards. Existing production facilities that fail to meet the requirements and standards are forced to close or move. Factories that continue to stay in the PRD must invest in more environmentally friendly manufacturing systems. Meanwhile, new investment projects must pass an environmental impact assessment, and have pollution-control facilities installed when starting operation. New policies aimed at encouraging clean production and energy efficiency such as Green Credit and Green Insurance are also being examined.

While the Guangdong government will increase its overall investment in environmental protection to 3% of GDP by 2010, in six major sectors, namely ecological protection and construction, wastewater treatment, desulphurisation of electricity plants, solid waste disposal and treatment, radioactive waste disposal and emergency system, it has earmarked RMB 133.9 billion for the related investment projects. In addition, the Guangdong government has decided to invest RMB 40 billion between 2008 and 2015 to build pollution control facilities in the industrial parks.

Manufacturers' Drives for Green Production

Along with the increasingly stringent regulatory requirements, the rising resource and energy costs are also significant drivers for energy efficiency and clean manufacturing. In addition, increased pressures from consumers and customers are pressing manufacturers in the PRD to meet international standards in environmental protection. For example, overseas buyers are demanding their PRD suppliers meet various eco-labelling standards, and some multinational buyers like 3M Corporation, Wal-Mart and Philips have developed their own supply chain environmental management (SCEM). Under the SCEM, buyers will work with their suppliers and contractors to improve the environmental performance of the products and manufacturing processes.

In the circumstances, 40% of Hong Kong manufacturers in the PRD surveyed by HKTDC indicated that they had increased investment in upgrading their technology to comply with the green requirements, particularly in compliance with requirements of no toxic substances, eco-labelling, the EU's WEEE/RoHS directives, reduce gas emissions/sewage discharge and increase recycling of wastewater or waste materials. In another HKTDC survey, 12% of Hong Kong manufacturers in the PRD indicated that they would increase investment in their production facilities to meet the environmental requirements of the PRD.

Demand for Green Technology and Services

Currently there are about 57,500 factories in the PRD that are owned by Hong Kong companies, most of them are engaged in six industry sectors: electronics, IT and communication products; textiles, garments and footwear; plastic injection moulding; metal plating and processing; printing and packaging, and chemicals. These six sectors indeed represent a major part of the green manufacturing market in the PRD, as they together accounted for more than 60% of the total industrial output of the PRD in 2006.

The estimated market size for environmental technology, goods and services for these six sectors combined in the PRD was approximately HK$40 billion in 2006. If growth continues at the rates as achieved over 2003-2006, and taking into consideration the implementation of the environmental protection projects budgeted by the Guangdong government, the market is forecast to reach the size of about HK$90 billion by 2018. For these six sectors, the market is likely to be more focused on tackling air emissions, wastewater treatment and solid waste disposal.

Using Hong Kong as a Platform to Tap the PRD Market

The sizable clusters of Hong Kong manufacturers who maintain Hong Kong as their control office are indeed a readily available clientele for environmental protection companies. Besides, there are a number of other PRD manufacturers who use Hong Kong as a platform to obtain services support, including green technology and services.

Hong Kong's environmental protection industry has been growing steadily in the last decade. Most of them are experienced in water conservation and pollution control; air and odour pollution control; waste handling, disposal and management systems; noise control and mitigation equipment; energy conservation equipment and systems.

Though many environmental protection players in Hong Kong are small and medium enterprises, they are ideal partners for foreign players to enter the PRD market as industry contacts are valuable assets in establishing business in China. While only certain companies have their own R&D, most Hong Kong companies' competitive edge lies in technology application, adapting foreign technology and equipment to local markets in Hong Kong and the PRD. Coupled with Hong Kong's advantages in financial support and protection of intellectual property rights, Hong Kong companies are increasingly partnering with foreign companies to tap the opportunities in environmental goods and services in the PRD.

The Chinese Mainland and Hong Kong's Closer Economic Partnership Arrangement (CEPA) is another advantage for foreign environmental industry players to partner with Hong Kong companies to tap the PRD market. Beginning from January 2008, Hong Kong service suppliers can set up wholly-owned enterprises on the mainland to provide sewage services, refuse disposal services, cleaning services of exhaust gases, noise abatement services, nature and landscape protection services, and other environmental protection services. Besides, starting from January 2009, Hong Kong service suppliers can bid for pollution control projects in Guangdong more easily as Guangdong Province can approve the qualification of Hong Kong service suppliers.

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