Authorities in the southern Chinese province of Guangdong will spend 40 million yuan (US$ 5 billion) to assist Small and Medium Enterprises (SMEs) in Hong Kong in relocating to the mainland province.

Wang Yang, secretary of the Chinese Communist Party in Guangdong, said more than 30,000 Hong Kong SMEs have cancelled their registrations in the province, up more than 35 percent year-on-year compared to 2007.

The provincial government is encouraging firms to relocate to eastern, western and northern regions of Guangdong in return for power, water and transport subsidies.

¡°Small and medium enterprises from Hong Kong have a brilliant future in Guangdong,¡± said Wang, underscoring the significance of cooperation between Hong Kong and the Chinese province.

The same official noted that Shenzhen, the Chinese city next to Hong Kong, and not Guangzhou, capital for Guangdong province, could replace Hong Kong as an international finance hub.

¡°Strengthening cooperation with Hong Kong continues to be an important task for Guangdong at the same time we are developing an economy of innovation.¡±

Guangdong borders the Special Administrative Regions of Hong Kong and Macau and is a region that has seen its development fuelled by overseas investment. GDP in the province increased from US$8 billion in 1980 to US$221.2 billion in 2005.

In recent years, the provincial government has attempted to replace polluting and labor-intensive industries with sectors like IT and telecoms.

Premier Wen Jiabao urged the Guangdong authorities and local firms this week to revamp the province¡¯s archaic industrial base to make the region a center of modern services with added value.