Tung's new interest in manufacturing confuses analysts

Hong Kong's leader said a resurgence in manufacturing could help revive the struggling economy, but analysts yesterday called it a bizarre idea for a financial hub that has long since lost its manufacturing base to China.

"To say that we need more manufacturing is a bit strange," said David O'Rear, chief economist at the Hong Kong General Chamber of Commerce. "It just isn't what we do. Manhattan doesn't worry about not having enough manufacturing."

Speaking a group of Chinese entrepreneurs at a trade fair in the southern city of Xiamen on Monday, Hong Kong Chief Executive Tung Chee-hwa touted "the development opportunities in the manufacturing sector" in the former British colony.

Tung Hong Kong can become more competitive as a manufacturing base for some high-end, brand-name merchandise, after it recently signed a free-trade agreement with China to allow 273 types of local products to enter the mainland without tariff next year.

Tung investors to set up production lines in Hong Kong, which remains one of the most expensive cities in the world. Tung did not specify what types of products he would like to see made here.

Manufacturing accounts for just 5 percent of Hong Kong's economy, following years of decline as companies shifted production to China, where land and labor costs are only a fraction of what they are here.

"I don't think manufacturing can rise again and become one of the main pillars of the Hong Kong economy," said Standard Chartered Bank economist Tai Hui.

Hong Kong still enjoys an edge in jewelry, watch-making and high-end fashion, but that's unlikely to last because China is catching up fast, Hui said.

Hong Kong's economy recently slipped back into recession amid a slowdown brought about by the SARS crisis, with people suffering record unemployment of 8.7 percent.