Made In Hong Kong

Optimism abounds as Hong Kong's textile industry continues its transformation.By Carmen Pang, Executive Editor

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 Council
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