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TRANSCRIPT
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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
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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
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Major Economic Zones & Surrounding Areas
Bohai Economic Zone
Yangtze River Delta (YRD)
Pan-Pearl River Delta (PPRD)
CHINA
China’s 2005 GDP = US$2.3 trillion (9.9% Growth)World GDP Ranking1. USA2. Japan3. Germany4. China5. Britain
Source: Gov’t news, Commercial news
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Major Economic Zones
Zone Covered Area
Pan-Pearl River Delta ( PPRD )
9+2
9 Provinces: Fujian ( 福建 ), Guangdong ( 廣東 ), Guizhou ( 貴州 ), Hainan ( 海南 ), Hunan ( 湖南 ), Jiangxi ( 江西 ), Sichuan ( 四川 ), Yunnan ( 雲南 ), Guangxi ( 廣西 )
2 Cities: Hong Kong ( 香港 ), Macau ( 澳門 )
Yangtse River Dela ( YRD ) 6+1
6 Provinces: Zhejiang ( 浙江 ), Jiangsu ( 江蘇 ), Anhui ( 安徽 ), Henan ( 河南 ), Hubei ( 湖北 ) Shaanxi ( 陝西 )
1 City: Shanghai ( 上海 )
BohaiEconomic Zone7+2
7 Provinces: Hebei ( 河北 ), Shanxi ( 山西 ), Inner Mongolia ( 內蒙古 ), Liaoning ( 遼寧 ), Shandong ( 山東 ), Jilin ( 吉林 ), Heilongjiang (黑龍江 )
2 Cities: Beijing ( 北京 ), Tianjin ( 天津 )
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Strength of Economic Zones
Source: China Statistics Bureau, Hong Kong Census & Statistics Dept, Macau Statistics and Census Service
1 Includes eastern China, *Includes China, Hong Kong and Macao
Total 2,054 95% 1,207 93%
Economic Zone2004 GDP
(US$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)
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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
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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
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Electronics Industry & Automotive Industry
- Major Industrial Driving Forces
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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% --
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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
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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
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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
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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
Source: Hong Kong Trade Development Council
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“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
Source: Hong Kong Trade Development Council
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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
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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
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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.
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Revolution: Product Life-Cycle“Cradle to Cradle”
Remanufacture& Reuse
Obsolescence/Return
Customer Use
Manufacturing
Packaging/Distribution
Eco-ProductDesign
Parts, Materials
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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
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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)
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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’s Legislations
China-RoHS covers following categories:
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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
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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
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• 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
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• 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
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• 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
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Hong Kong Green Manufacturing Alliance
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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
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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
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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)
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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
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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
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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
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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
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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
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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:
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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
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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