Hong Kong Industry Profiles

Overview

• Following the removal of textile quotas among WTO members from 2005, China and the US agreed on the re-imposition of quotas from 1 January 2006 through 31 December 2008, covering a total of 21 groups involving 34 categories of textile and clothing products, which expired on 1 January 2009. Textile and clothing shipments to the US made on or after 1 January 2009 are therefore no longer subject to any quotas. Likewise, the EU’s regime of double checking surveillance system was expired on 31 December 2008. Accordingly, starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU.

• Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), the mainland has given all products of Hong Kong origin, including clothing items, tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met.

• Hong Kong clothing companies are reputable for ODM and OEM production. They are able to deliver quality clothing articles in short lead time, as foreign importers and retailers request clothing suppliers to tighten up supply chain management to ensure the ordered merchandise reaching the store floor at the right time. Increasingly, Hong Kong clothing companies, the established ones in particular, have shown enthusiasm for brand promotion.

• Hong Kong’s total exports and re-exports of clothing grew year-on-year by 9% in the first five months of 2011, when domestic exports were up 2%. During January-May 2011, Hong Kong's clothing exports to the US and EU, the two largest markets that accounted for more than two-thirds of the total, rose by 5% and 3%, respectively.

Industry Features*

Note: * Industry statistics cover activities in Hong Kong only.

The clothing industry is a major manufacturing sector of Hong Kong. It is the third largest manufacturing employer in Hong Kong, with 1,107 establishments hiring 13,246 workers as of March 2011.

Hong Kong's geographic boundary has never constrained the development of the forward-looking clothing industry. The majority of clothing manufacturers have set up offshore production facilities in an attempt to reduce operation costs. Relocation of production facilities offshore has, however, resulted in a largely steady decline in the number of clothing manufacturers in Hong Kong.

Hong Kong is not only a leading production centre but also a hub for clothing sourcing globally. Companies doing garment trade in Hong Kong are experienced in fabrics procurement, sales and marketing, quality control, logistic arrangements, clothing designs and international and national rules and regulations. The professionalism that they command and the combined services offered are not easily matched elsewhere. They altogether form one of the largest groups involved in import-export trade in Hong Kong.

Performance of Hong Kong’s Exports of Clothing^

Hong Kong’s total exports of clothing grew year-on-year by 9% in the first five months of 2011. In a bid to sidestep the safeguard quotas imposed by the US and the EU on mainland-origin clothing products after the expiry of the quota regime under WTO’s Agreement on Textiles and Clothing (ATC), quite a few Hong Kong manufacturers have relocated their production back to Hong Kong, and devised intricate outward processing arrangements (OPAs) with the mainland to maximise quota utilisation. However, the importance of OPAs has decreased in view of the surprisingly low utilisation of China’s quotas since the second semester of 2006, and more importantly, the expiry of the quota regime in the US and the double checking surveillance system in the EU, starting 1 January 2009.

During January-May 2011, Hong Kong’s domestic exports of clothing ended its downtrend and resumed growth of 2% after declining by 80% in 2009 and 28% in 2010, while re-exports rose by 9% after a 7% increase in 2010.

In the meantime, Hong Kong's clothing exports to the US increased by 5% in the first five months of 2011, and those to the EU rose by 3%. Clothing exports to major EU markets including Germany, France and Italy grew by 8-12%, but those to the UK and Netherlands fell by 9 and 3%, respectively. Taken together, sales to the US and the EU accounted for more than two-thirds of Hong Kong's total clothing exports.

Product‑wise, Hong Kong’s exports of woven wear grew by 9% in the first five months of 2011, with woven wear for men/boys and women/girls increasing by 23% and 3%, respectively. Meanwhile, knitted wear grew by 7%, with items for men/boys and women/girls increasing by 15% and 4%, respectively. Clothing accessories, on the other hand, saw growth of 19%, while other apparel articles saw growth of 8%.

Note:

* Insignificant

^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

Sales Channels

Hong Kong’s clothing manufacturers have comprehensive knowledge about sourcing and products. They are able to understand and cater for the preferences of the dispersed customer bases. Exporters also have good knowledge of international and national rules and regulations governing clothing exports, such as rules of origin, quota restrictions, tariff rates and documentation requirements. Cut, make and trim (CMT) arrangements are common, although many Hong Kong manufacturers have moved to higher value‑added activities such as design and brand development, quality control, logistics and material sourcing.

A few well-established local manufacturers have entered into the retailing business, either locally or in overseas markets. Many of them have retail networks with their own labels in major cities around the world including Beijing, London, New York, San Francisco, Shanghai, Singapore, Sydney, Taipei and Tokyo. Some well-known manufacturing retailers include Baleno, Bossini, Crocodile, Episode, Esprit, G-2000, Giordano, JEANSWEST, Moiselle and U-2.

As a global sourcing hub in Asia, Hong Kong attracts a number of international trading houses and major retailers. Buyers sourcing from Hong Kong include American and European department stores (e.g. Macy's, JCPenney, Federated, Karstadt Quelle, C&A), discount stores (e.g., Sears, Target and Carrefour), specialty chains (e.g., The Gap, The Limited) and mail order houses (e.g. Otto and Great Universal Stores). Many international premium designer labels – such as Calvin Klein, Donna Karen, Ralph Lauren, Tommy Hilfiger and Yves Saint Laurent – source clothes in Hong Kong through their buying offices or other intermediaries.

Hong Kong's fashion designers have been gaining worldwide reputation for their professional expertise, sensitivity to current trends and ability to blend commercialism with innovation. Medium to high-priced fashion clothing bearing Hong Kong designer labels is being sold/have been sold in renowned department stores overseas such as Bloomingdale's, C&A, Harrod's, Isetan, Macy's, Marui, Mitsukoshi, Nieman Marcus and Seibu.

Trade fairs and exhibitions remain common places for buyers and suppliers of clothing to congregate. To establish connections and explore market opportunities, Hong Kong manufacturers and traders have involved themselves actively in international shows led by the Hong Kong Trade Development Council (HKTDC), including the ones in Beijing, Budapest, Chengdu, Dalian, Dubai, Dusseldorf, Hong Kong, Moscow, Mumbai, Paris, Tokyo and Warsaw. ‘Hong Kong Fashion Week’ is organised twice a year and attracts international suppliers and buyers to participate in the exhibition. Organised by TDC, 'World Boutique, Hong Kong' is the first independent event in Hong Kong dedicated to promoting designers' collection and brands from around the world. Also organised by TDC, ‘Lifestyle Expo’ is to give overseas’ visitors and buyers a flavour of the excellence and value of Hong Kong products.

Industry Trends

Online shopping and marketing: Online shopping is increasingly popular in overseas markets, particularly in the US. According to Cotton Incorporated’s latest survey, 24% of US consumers purchased clothing online, while 66% regularly browsed online for clothing in 2010. The growing variety of online shopping sites plus the mushrooming of social media marketing and mobile retailing is expected to boost online shopping and sales further in 2011 and beyond as on-the-fly comparison shopping continues to gain popularity among consumers. Facebook, Twitter and various mobile shopping applications will prevail with the wider access to broadband internet and the further enhanced functionality of mobile devices.

Growing importance of private labels: Private or house labels, in essence, have become an increasingly effective marketing tool among garment retailers. In order to differentiate as well as upgrade the image of their products, major retailers have started to put a stronger emphasis on their own labels. Renowned retailers such as H&M, Marks & Spencer, Orsay, Palmers, Pimkie, Springfield and Kookai have owned their private labels. As consumers desire to have private labels on everyday garments like jeans, accessories and T-shirts, the doors are also open to the supply of these clothing items to private label owners.

Rising green consciousness: Consumers are becoming more practical, thoughtful and socially conscious. For instance, according to Organic Cotton Market Report 2009 released by Organic Exchange (OE), there is growing consumer demand for ‘green products’, leading the global retail sales of organic cotton apparel to reach US$4.3 billion in 2009, up 35% over the previous year. Thanks to this expanding trend, clothing manufacturers increasingly became certified to traceability standards such as OE Blended, OE 100 standard and the Global Organic Textile Standard (GOTS), while reputable clothing stores like Nike, Adidas, H&M, Wal-Mart have responded by expanding their assortment of organic cotton clothing.

Growing interest in China’s domestic market: The rapid expansion of mainland’s economy has attracted great interest of Hong Kong clothing companies to explore its clothing market. Today, China’s apparel market is the world’s second largest, behind only the US. Going hand-in-hand with the market expansion, Chinese consumers are becoming more fashionable and brand-conscious. A 2010 McKinsey survey found that about 70% of apparel sales in the Chinese mainland were branded and 45% of Chinese consumers thought well-known brands had better quality.

CEPA

On 18 October 2005, the mainland and Hong Kong agreed to further liberalise the mainland market for Hong Kong companies under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA). Along with other products of Hong Kong origin, the mainland has given all products of Hong Kong origin, including clothing items, tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin, will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met. But non-Hong Kong made clothing products will remain subject to tariff rates of 10-25% when entering the mainland.

The promulgated rules of origin for clothing items to benefit from CEPA's tariff preference are basically similar to the existing rules governing Hong Kong's exports of these products. Generally speaking, the principal manufacturing process of cut-and-sewn garment is sewing of parts into garments. If linking and/or stitching is/are required, such process/processes must also be done in Hong Kong. For piece-knitted garment, if it is manufactured from yarn, the principal process is knitting of yarn into knit-to-shape panel. If the piece-knitted garment is manufactured from knit-to-shape-panels, the principal process is linking of knit-to-shape panels into garment. If stitching is required, it must also be done in Hong Kong. Detailed information is available from the following hyperlink: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2010.pdf.

Trade Measures Affecting Exports of Clothing

According to the ATC, textile quotas were eliminated among WTO members at the first day of 2005. However, resistance to quota removal spread in the US and EU. Against this background, China reached agreements with the EU and the US in June and November 2005 respectively. The China-US agreement, effective from January 2006, governed the exports of a total of 21 groups involving 34 categories of Chinese textiles and clothing products to the US during 2006-2008, while the China-EU agreement, effective from June 2005, provided for restricted access for 10 categories of Chinese textiles and clothing exports to the EU during 2005-2007. Upon the expiry of the EU quotas by the end of 2007, a joint system with China was then established to monitor EU imports of Chinese textiles and apparel. This system, which operated for one year, covering 8 out of the 10 formerly restricted categories, also expired on 31 December 2008.

Accordingly, starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU. Meanwhile, textile and clothing shipments to the US made on or after 1 January 2009 are no longer subject to any quotas, although US textile manufacturers are continuing to wage an intense lobbying campaign in an effort to persuade the US government to extend the current anti-dumping monitoring programme on Vietnam to cover sensitive textile and apparel products from the Chinese mainland.

Product Trends

Value-for-money: Consumers gradually resume spending on fashion products, but still opt for items that offer comfort, function and value-for-money – and nothing too radical. Longevity remains an important element. Not unexpectedly, denim’s position as a staple item continues, as it is deemed to have a long life span that can be put on in different occasions. This echoes with the trend of dressing green, when consumers are paying greater attention on the use of oils, dyes and chemicals in making clothes.

Teenager market: One of the major driving forces of clothing market appears to be the teenagers in the coming years, particularly in the US. The number of teenagers in the US is expected to have increased from 31.6 million in 2001 to 34.1 million in 2010. A recent survey by Teenage Research Unlimited found that teens are saving money by value shopping. But styles and labels are important to teenagers, as they follow closely how the celebrities are dressed. Most teenagers shop at independent stores and department stores such as H&M, Old Navy’s, J.C. Penny and Sears. Despite limited budget, they still look for clothing that is different and unique.

Male market: Men are increasingly concerned about the clothes which come to their wardrobes. According to NPD Group, the men’s apparel market grew 3.3% in 2010, outpacing the 2.9% gain for the women's apparel market. This trend indicates that not only women, but men are also interested in comfort and fashion of the clothing, especially in summer. With reference to Cotton Incorporated, there is growing popularity of cotton-made clothing. Besides its softness, durability and inexpensive prices, cotton clothing is lightweight and breathable, which comes in various styles, ranging from high-end suits to casual wear. Due to the trend, some famous brands like Frankie Morello, Charles Tyrwhitt and Lands’ End increase their production for cotton-made menswear accordingly.

Silver market: Ageing population becomes a common phenomenon in many developed countries in Europe, Japan as well as the US. Elderly people constitute a major market segment called ‘silver market’. Supported by savings, social security benefits and pensions, many elderly people have rather strong spending power. A survey conducted by the Japanese government also shows that people who are 60 years old an above possess almost three times the financial assets of those in the 40-50 age group. In the US, those aged at or above 65 amounted to 181 million in 2001, and the number is expected to swell to 26 million in 2015.

Plus-size market: The plus-size market has been an area of growth for many years, and the trend is expected to continue, particularly in the US and UK. It is forecast that the market for plus-sizes in the US will exceed US$70 billion by 2014, accounting for some 28% (compared to nearly 20% in 2008) of overall US clothing sales. In Europe, a recent report from Verdict Research revealed that the share of plus-size clothing in the UK will be up from 18.7% in 2006 to 23.2% in 2011, with sales likely reaching US$9 billion over the next five years. Some renowned brands such as Liz Claiborne, Ralph Lauren and Tommy Hilfiger have already responded to the trend by offering merchandise of larger size.

Easy-care clothes: Clothes made of stain-resistant and wrinkle-free fabrics are well received in the market. It is estimated that over a quarter of apparel is now made of easy-care fabrics, and its popularity is expected to continue. While major apparel brands like Dockers and Liz Claiborne have already marketed extensively easy-care clothes, major hypermarkets, like Wal-Mart, also offer more merchandise of such quality.

Sun-blocking fashion: With skin cancer rates climbing, more consumers are seeking sun-safe products, especially Americans. Some leaders in sun protective fashion, like SunSafe and Cabana Life have started to offer apparel made of sun-protective fabrics. Such sun-safe fashion is gaining popularity, thanks to the support from celebrities such as Madonna, Gwyneth Paltrow and Lisa Kudrow.

Customising clothes: The growth of technology allows consumers to search the internet and find a way to create their own custom made shirts. This is the modern way to express their creativity on making their own fashion designs and clothes. Everyone should be different. In response, some reputable clothing stores like Nike, Adidas, Wal-Mart have started to sell personalised apparel. While companies in smaller business allow consumers to customize clothes and accessories with their own design online.