Hong Kong’s declining textile and clothing business should be revitalized

       
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Hong Kong is the popular supplier of quality dyed and printed fabrics, which is also reputed for ODM (Original Design Manufacturer) and OEM (Original Equipment Manufacturer) production. However, the textile and clothing industry in Hong Kong recently facing sloth growth, but it has a great economic contribution to the country. Some half a century ago, Hong Kong began extraordinary rapid industrialization through textile and clothing industry. The Kwun Tong Industrial Estate is the first industrial estate in Hong Kong where Hong Kong’s clothing and textile manufacturing factories build up initially. In 1952 to 1962 period, the industry took the lead of Hong Kong’s industries and by the early 1960s, Hong Kong’s textile manufacturing industry was the most successful in Asia.

Figure 1: Sky rocket insurgence in cost of doing business and mainland China's more international openness is affecting Hong Kong's textile and clothing business.
Figure 1: Sky rocket insurgence in cost of doing business and mainland China’s more international openness is affecting Hong Kong’s textile and clothing business.

For last few decades Hong Kong has been one of the major trading hubs for textile, clothing and fashion related business. Many western companies source garments and other goods through Hong Kong. And on the other hand many Chinese and other textile and clothing manufacturing companies also do their trading through Hong Kong. However the textile and clothing manufacturing industry is still very important for Hong Kong, which has multiple functions and it is also significant to mainland China, the number one exporter of textile and clothing. The manufacturing units in Hong Kong are in fact driving an important portion of the trading business of the country.

However trading to manufacturing, Hong Kong is facing negative growth in total textile business. Renowned sourcing hub for global fashion garment sourcing Hong Kong is now affected of the ease of business in developing nations around Asia. Rocket growing cost of Hong Kong is the main reason for this. Emergence of other sourcing hubs like Singapore, Dubai, Malaysia is another reason of reduction in Hong Kong’s direct significance. Mainland China’s more international focused strategy is affecting as well. All together Hong Kong requires revitalization of the sector.

The feature of the industry

The textiles industry, which comprises of spinning, weaving, knitting and finishing of fabrics, had a total of 544 manufacturing establishments as of December 2015, employing 3,386 workers or 3.4% of the local manufacturing workforce.  On the other hand, the clothing industry is a major manufacturing sector of Hong Kong. It is the third largest manufacturing employer in Hong Kong, with 796 establishments hiring 5,773 workers as of December 2015.

Table 1: Industry features (December 2015)
 

Textile Industry

No. of establishments Employment
544 (manufacturing) 3,386(manufacturing)
5,400(import-export) 27,010(import-export)
Clothing Industry 796 (manufacturing) 5,773 (manufacturing)
15,110 (import-export) 80,160 (import-export)
Source: Quarterly report of employment and vacancies statistics

*Industry statistics refer to production and activities in Hong Kong only

*Excluding knitwear from yarn (in textile industry)


The Hong Kong textile industry

The textiles industry is one of Hong Kong’s major export earners, accounting for 2.0% of the total exports in 2015. Hong Kong was the third largest textile exporters to the world in 2006, according to World Trade Organization (WTO) data and it was eight largest textile exporters to the world in 2015, according to statista.com data. Still Hong Kong’s textiles industry is a major supplier to the local and global clothing industry.

Hong Kong Trade Development Council (HKTDC) research says, Producing textiles locally, Hong Kong textile manufacturers have an advantage in accommodating orders from local garment manufacturers in short notice. Meanwhile, a significant portion of textile exports is destined for use in Hong Kong companies’ offshore production of garments, especially on the Chinese mainland.

Traditional markets for textile export are the US, the EU and Japan, but recently those countries have built direct supply chain with the textiles exporters from developing countries, which is the result of less competitiveness of Hong Kong manufacturers and its rising cost of business. Rising labor costs and stricter environmental regulations on the Chinese mainland are also hampering the sector. To survive, an increasing number of Hong Kong textiles manufacturers have relocated their production of lower-end and mass products to Southeast Asian countries like Bangladesh, Cambodia and Vietnam. According to HKTDC research, textile-manufacturing operations in Hong Kong are focused on sophisticated and high value-added items, including quality ring-spun, open-end yarn, and fine gauge knitted fabrics as well as complicated dyed and printed fabrics. To improve competitiveness in the worldwide market, some Hong Kong textiles companies have formed strategic partnership with indigenous Chinese companies.

Textile export performance

Table 2: Performance of Hong Kong’s Exports of Textiles
(HK$ billion) 2014 2015 Jan-Apr2016
Value Growth % Value Growth % Value Growth %
Domestic Export 0.851 -32 0.598 -30 0.176 -15
Re-Export 74.975 -8 69.981 -7 20.705 -13
Chinese Mainland 54.797 -7 52.102 -5 15.524 -13
Total Export 75.827 -9 70.597 -7 20.881 -13
Source: Hong Kong Trade Statistics , Census and Statistics Department

 

Table 2 shows Hong Kong’s textile exports decreased 7% in 2015.  In the first four months of 2016 it further decreased by 13%. Re-exports, accounting for more than 99% of total textiles exports, experienced a similar decline of 13%, while domestic exports slid by 15%. With 75% of the textile re-exports originating from the Chinese mainland, Hong Kong’s re-exports of textiles of China origin registered a decrease of 13% in January-April 2016.

Table 3: Hong Kong’s export market share by country.

Table 3: Hong Kong's export market share by country.

Asia is the leading market for textiles exports from Hong Kong as of the top 10 export destinations, nine of them are in Asia, where 93% of Hong Kong’s textile exports in the first four months of 2016 went. On the other hand, the Chinese mainland remains to be the city’s predominant export market, accounting for 53% of Hong Kong’s textile exports in January-April 2016. But Hong Kong’s export or re-export to Chinese mainland both is undergoing great negative growth.

Table 4: Hong Kong’s textile export trend by product category.

image 2

According to table 4, product-wise, Hong Kong’s exports of knitted or crocheted fabrics, textile yarns, woven fabrics, finishing accessories, special yarns and fabrics, textile made-up and floor coverings registered respective declines of 1%-23% in the first four months of 2016.

The Hong Kong Clothing Industry

The clothing industry is a major manufacturing sector of Hong Kong, which is the third largest manufacturing employer in the region. The region is both a leading production centre and a global hub for clothing sourcing. Hong Kong apparel industry currently emphasizes production of high quality, high-fashion apparel and continues to work towards becoming more price and quality competitive, shortening delivery times, developing and using the latest production and communication technologies. However, it is mentioned earlier that the majority of manufacturers have set up offshore production facilities to reduce operation costs and this has resulted in a strong turn down of clothing manufacturers in Hong Kong.

However, there is hope also as under the “Mainland and Hong Kong Closer Economic Partnership Arrangement” (CEPA), the textile and apparel industry is enjoying zero tariff preference in exporting “Hong Kong-made” wearing apparels to the Mainland since 2004.  The zero tariff preference not only enhances the market appeal of “Hong Kong-made” wearing apparels, but also helps the industry develop Hong Kong brands and high value-added products in order to enter into the medium to high-end market of the Mainland.  As at March 31, 2012, over HK$4.53 billion worth of T&C products have benefited from the zero tariff preference, according to the HKTDC research.

Hong Kong’s clothing export performance

Table 5 shows that Hong Kong’s total exports of clothing slid by 10% in 2015 over the previous year and in the first four months of 2016 the decline was 12%. In January-April 2016, Hong Kong’s domestic exports of clothing slumped by 41%, while re-exports declined by 11%.

Table 5: Performance of Hong Kong’s exports of clothings
(HK$ billion) 2014 2015 Jan-Apr2016
Value Growth % Value Growth % Value Growth %
Domestic Export 1.4 -16 0.9 -37 0.2 -41
Re-Export 157.5 -7 141.7 -10 35.1 -11
Chinese Mainland 144.2 -7 128.2 -11 30.8 -13
Total Export 158.9 -7 142.6 -10 35.3 -12
Source: Hong Kong Trade Statistics , Census and Statistics Department

According to table 6, Hong Kong’s clothing exports to the major export destinations deceased, in the US it decreased by 11% in the first four months of 2016, while those to the EU plunged by 19%. Clothing exports to major EU markets including the UK, Germany, the Netherlands, France and Italy fell by 9-28%.  Exports to Japan dropped by 6%, whereas the Chinese mainland market showed a 3% decrease in January-April 2016.

Table 6: Hong Kong’s clothing export trend- country wise market share.

image 3

According to table 7, Product wise, Hong Kong’s exports of woven wear fell by 8% in 2015, which further declined 12% year-on-year in the first four months of 2016. Exports of knitted wear subsided by 13%, whereas clothing accessories and other apparel articles declined by 15% and 10%, respectively.

Table 7: Hong Kong’s product category wise clothing export.

image 4

FTA’s and investment promotion plans may help revitalizing:

Hong Kong has been endeavoring to sign Investment Promotion and Protection Agreements (“IPPAs” or “Investment Agreements” in short) with foreign economies in order to enhance two-way investment flows and boost its economy. An IPPA is an agreement between governments for the promotion and protection of investments made by investors of one contracting party in the area of the other contracting party. Hong Kong’s IPPAs give additional assurance to overseas investors that their investments in Hong Kong are protected, and enable Hong Kong investors to enjoy similar protection in respect of their investments overseas.

To secure favorable conditions for exports of goods (including textile and clothing products) and services from Hong Kong to the Mainland and international markets, it endeavor to enter into more FTAs with their trading partners. Hong Kong prepared to explore the possibility of entering into FTAs with other economies, so long as they are in Hong Kong’s interests and are consistent with WTO rules.

Conclusion

Under the principle of ‘one country, two systems’, Hong Kong maintains a separate political and economic system from China except in military defense and foreign affairs. Textile and clothing industry of the region has established a strong platform in various aspects such as experience, technologies, talents, international insights and fashion sense as several decades it observes a strong growth and achievement. But Hong Kong its self is facing huge competitiveness deficiency against mainland China and so loosing many manufacturing and trading business to China.

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