Made In Hong Kong

Region Profile

By Carmen Pang,Executive Editor

Made In Hong KongOptimism abounds as Hong Kong’s textile industry continues its
transformation.When textile industrialists fled from Shanghai to Hong Kong to avoid the Chinese
Communist Party in the 1950s, they probably never thought they would ultimately have a hand in
transforming the tiny British colony into a world-class manufacturing city. With their capital and
expertise in textiles, the refugees built an industry from scratch, which, more than half a century
and an epic changeover of government later, is still going strong.Today, the textile and apparel
sector remains a mainstay of Hong Kong’s economy and it plays an important role in the global
marketplace as well.According to Alex Wong, deputy director-general of the Hong Kong Economic and
Trade Office in Washington, the textile and clothing industry is the largest manufacturing industry
and the largest source of export revenue in Hong Kong. Textile and clothing accounted for 54.5
percent of Hong Kong’s total exports in 2004; in the first 10 months of the year, exports of
textile and clothing products were valued at $7.2 billion. If re-exports (goods that originated
somewhere else but processed, such as packaged or inspected, in Hong Kong) were added to the
equation, the value would jump to $32.7 billion, representing 24 percent of Hong Kong’s gross
domestic product.“We can see textile industry is still very important to Hong Kong, even though one
doesn’t always think of Hong Kong that way because Hong Kong’s economy has largely moved to one
that is service-oriented,”said Wong, whose office represents the Hong Kong government in trade
dealings with the U.S. federal government.

Alex Wong, deputy director-general, Hong Kong Economic and Trade OfficeTextile
ManufacturingFrom the beginning, spinning and knitting have been the strengths of the Hong Kong
textile industry. According to the Hong Kong Trade Development Council (tdC), a quasi-governmental
body that promotes Hong Kong’s smalland medium-sized businesses, the industry today is known for
its capability in cotton spinning, denim weaving, knit-to-shape panel knitting and finegauge cotton
knit manufacturing. As of June 2004, the sector has 1,019 companies employing 11,357
people.According to tdC numbers, Hong Kong’s gross textile output was about $1.4 billion (11.2
billion Hong Kong dollars) in 2002. The city’s major textile exports experienced growth in the
first three quarters of 2004, they include yarns, which grew by 16 percent; woven fabrics, which
grew by 10 percent; knitted/crocheted fabrics, which grew by 13 percent; finishing accessories,
which grew by 12 percent; textile made-ups, which grew by 5 percent; and floor coverings, which
grew by 14 percent. However, Hong Kong also saw its special yarns and fabrics exports fall by 2
percent in 2004.

Snapshot Of The Hong Kong Clothing Sector(January Through September, 2004)• total exports
(domestic exports plus re-exports) increased by 6 percent• re-exports increased by 12 percent•
domestic exports decreased by 3 percent• exports to the United States increased by 4 percent•
exports to the European Union increased by 11 percent (increase cited as a result of the strong
euro)• exports to Japan increased by 3 percent• exports to China decreased by 1 percent (decrease
cited as a result of the relocation of manufacturing to China)Source: Hong Kong Trade Development

Apparel ManufacturingWhile Hong Kong started out as a textile producer, today, it is its
capability in apparel manufacturing that has taken over the spot light. In 2002, Hong Kong’s
clothing output was about $4.4 billion (34.5 billion Hong Kong dollars).As of June 2004, there are
1,653 clothing manufacturers in Hong Kong providing employment to 30,788 workers.From January to
September, 2004, the clothing sector saw exports of woven wear increase by 4 percent, knitted wear
by 4 percent, clothing accessories by 12 percent and other apparel articles by 8 percent.The Hong
Kong EdgeWith the elimination of all textile quotas this year, many textile manufacturing countries
in Asia are concerned that the global market will be monopolized by China, but Wong is optimistic
that the Hong Kong textile industry will continue to thrive because of the unique position it
occupies and the competitive advantages it has, including a first-class infrastructure, a
transparent trading system, the rule of law, a close liaison between the government and the
industry, entrepreneurs who are flexible, high operation efficiency, a sharp market touch,
information technology capability, and the availability of reliable commercial information.“We have
had all these all along, and they add up to become the Hong Kong advantage,” said Wong. In fact,
the recently released World Competitiveness Yearbook 2005, published by Switzerland-based
International Institute for Management Development, seems to confirm this — citing Hong Kong as the
second most competitive economy in the world, second only to the United States.On the other
hand,Wong said Hong Kong essentially is not competing against China or any other low-cost mass
producer.“We cannot look at the industry the same way as we look at China, which is still in the
mass-production phase. The development of the Hong Kong industry over the years has moved to a
different direction,”he said.“Hong Kong is no longer a place with cheap labor — if we had relied on
laborintensive manufacturing industries over the years, the textile industry would have disappeared
a long time ago. Instead we have developed our supply chain expertise, including procurement,
design and marketing, to offer a onestop service in the textile trade.”In addition, Wong said, in
recent years, Hong Kong has migrated from original equipment manufacturing to original design
manufacturing.“We design many of the products we sell,”he said.“We are even moving toward original
branding manufacturing, where we have our own brands. This is where the future is headed and we are
very confident that Hong Kong can evolve in this direction and maintain our competitiveness. This
is something that was not even imaginable 30 or 40 years ago.”

Snapshot Of The Hong Kong Textile Sector(January Through September, 2004)• total exports
(domestic exports plus re-exports) increased by 11 percent• re-exports, which made up 95 percent of
total exports, increased by 13 percent• two-thirds of re-exports originated from China• domestic
exports decreased by 11 percent• 87 percent of total exports went to Asia (eight of the top-10
export markets were in Asia)• 67 percent of total exports went to China, the No. 1 market• 2.7
percent of total exports went to the United States, the No. 2 market• other major export markets
include Vietnam, Bangladesh, Cambodia, Sri Lanka, the Philippines,Thailand, Indonesia and
JordanSource: Hong Kong Trade Development Council

China Safeguards, OPA And CEPADespite the optimism,Wong is concerned about the effects of the
safeguard measures the United States has imposed on China.“Looking forward, the outlook for Hong
Kong is overshadowed by the safeguard measures because of the close geographical proximity and
economic integration between Hong Kong and China,” he said, explaining that Hong Kong, as with all
other World Trade Organization (WTO) member countries, was not subject to U.S. quotas even before
2005. “But because China is still subject to safeguards, a likely scenario is some Chinese goods
that are subject to safeguards will pass through Hong Kong and be exported in the name of Hong Kong
products to circumvent the safeguards. We have to make sure such circumvention does not happen. As
a WTO member and because of the importance we have always put on the integrity of our export
system, we have implemented some control systems to allow Hong Kong’s exports be distinguished from
China’s exports.”In a way, the existing Outward Process Arrangement (OPA) between Hong Kong and
China has already laid the groundwork for the type of control system Wong talked about. Hong Kong’s
textile and clothing industry has, for many years, moved some manufacturing processes to China to
take advantage of lower labor costs. In response, the Hong Kong government developed the OPA to
recapture some of the China-processed products back to Hong Kong. It works by allowing Hong Kong
factories to send some products to China for further processing, after which these halffinished
products will return to Hong Kong for final assembly.According to Wong, the OPA is monitored
tightly by the Hong Kong Customs Department.“Because of this close relationship, naturally there
are shipments that go back and forth several times for processing. If we do not have documentation
to keep track of all the processes, there is no way of knowing what’s going on,” he said. “Each
shipment requires proper documentation and is subject to inspection. We also keep track of how much
is sent to China for what process and what returns to Hong Kong. This is a big issue for us — we
have to maintain the confidence the world has in Hong Kong’s integrity.”And because such monitoring
systems are already in place, Wong is confident that China’s products will not be able to
circumvent the safeguard measures and be exported through Hong Kong. Despite concerns about illegal
shipments, the proximity to China does provide Hong Kong an opportunity that other countries do not
have — access to the vast Chinese market. In 2004, China and Hong Kong signed the Closer Economic
Partnership Arrangement (CEPA), under which more than 300 Hong Kong-made textile and clothing
products are allowed to enter China tariff-free.“Now, we are better positioned than other countries
to export into China,”said Wong.

July/August 2005