By James Pomfret
HONG KONG, Feb 11 (Reuters) - With China's exports falling sharply for a third straight month, factories in China's southern manufacturing hub are bracing for more pain as tight credit and falling orders bite, though the cost burden could ease a little.
China on Wednesday announced that exports in January fell 17.5 percent from a year earlier, after a more gentle 2.8 percent dip in December, while imports plunged 43.1 percent -- twice as much as the month before.
For factories on the ground in Guangdong's Pearl River Delta -- which makes a third of China's exports, the slump shows little sign of abating, as western orders thin and millions of migrant workers return to fewer jobs after the Lunar New Year break.
Hong Kong's Small and Medium Enterprise Association said five percent of an estimated 60,000 Hong Kong-owned factories in the delta were now "sitting on the danger line" and could fold.
"We expect a significant drop in orders," said Danny Lau, the Association's chairman. "It's going to be very difficult, even those that have been running ok so far will struggling and ... profit margins could thin from around 10 percent to 5-8 percent."
Even among factories able to nail down orders, some were finding their cash flow choked by risk-averse banks on the ground.
"With banks having cut credit lines ... the situation is becoming much more dangerous, even with orders, they still need the credit or cash to buy the (raw) materials," Lau told Reuters.
Traditionally, the period before the Lunar New Year holiday is one of the year's busiest as exporters crank out goods. The early closure of many factories this year, however, may have contributed to January's especially sharp drop, factory owners said.
Some larger, better capitalised manufacturers, however, are more upbeat -- seeing steady, albeit delayed western orders.
"Orders haven't significantly declined, but people are being much more conservative this year, with fewer new products," said Leona Lam, the CEO of Leconcepts, which manufactures mid-to-low end toys for major global brands in five factories.
"The timing for orders has grown much shorter, the (western) clients watch their markets very closely and only decide at the last minute to do things," she added.
But Lam said her total production costs could dip 5-10 percent this year, given falling oil prices, as well as falling wages given the glut of migrant workers hunting for scarcer jobs.
Even before the crisis, rising production and wage costs from a new labour law, and the appreciating yuan currency, had already forced scores of factory closures in the Pearl River Delta.
Meanwhile, firms were continuing to scale back operations, with a recent labour bureau survey finding that 20 percent of Guangdong's firms plan to axe workers in the coming months.
Some 2.6 million migrant workers are now estimated to be without work in the province.
"We are very angry," said Zhang Shenying, a migrant worker from distant Sichuan province, who was among a batch of 40 middle-level staff suddenly laid off from a New Balance shoe factory in Shenzhen's Longgang district on February 5.
"The factory never contacted us before, and only told us when we got back to Guangdong," he told Reuters by phone.
(Additional reporting by Alison Leung)