Hong Kong Industry Profiles

Overview

• The mainland and Hong Kong agreed in October 2005 to further liberalise the mainland market for Hong Kong companies under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III). Under CEPA III, the mainland agreed to give all products of Hong Kong origin, including textiles, tariff-free treatment starting from 1 January 2006.

• Hong Kong's textiles industry serves not only the local clothing manufacturers, but also those on the Chinese mainland and other offshore production bases. Capitalising on the long experience in the manufacture of textiles, many Hong Kong companies are also engaged in textiles trading. Hong Kong’s textiles industry is reputed as a supplier of quality dyed and printed fabrics. It is also strong in cotton spinning, denim weaving, knit-to-shape panel knitting and fine-gauge cotton knit manufacturing.

• Hong Kong’s textile exports increased by 12% in the first five months of 2011, after an increase of 14% in 2010. Re-exports, accounting for more than 98% of total exports, grew at the same pace of 12% over the same period, while domestic exports fell by 16%. Among those re-exported, more than 70% were originated from the Chinese mainland.

• Asia is the leading market for textiles exported from Hong Kong, accounting for more than 93% of the total textile exports. Of the top 10 destinations for textiles exported from Hong Kong, nine of them are in Asia, with the Chinese mainland being the predominant export market.

Industry Features*

* Industry statistics refer to production in Hong Kong only.

** Excluding knitwear from yarn

The textiles industry – comprising spinning, weaving, knitting and finishing of fabrics – had a total of 783 manufacturing establishments as of March 2011, employing 5,770 workers, or 5% of the local manufacturing workforce. The textiles industry is one of Hong Kong's major export earners, accounting for 3% of the total exports for the first five months of 2011.

In recent years, with rising production costs and stringent environmental regulations, an increasing number of manufacturers have shifted their production of lower-end products to the Chinese mainland and Southeast Asian countries. Their manufacturing operations in Hong Kong are focused on sophisticated and high value-added items, including quality ring-spun, open-end yarn, fine gauge knitted fabrics as well as complicated dyed and printed fabrics.

To enhance competitiveness in the global market, some Hong Kong textiles companies have formed strategic partnership with indigenous Chinese companies. For instance, some of them join force with mainland cotton suppliers in producing cotton textiles.

Hong Kong's textiles industry is a major supplier to the local clothing industry. 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.

Performance of Hong Kong’s Exports of Textiles^

Note:

^ 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.

After climbing 14% in 2010, Hong Kong’s textile exports experienced further growth of 12% in the first five months of 2011. Re-exports, accounting for higher than 98% of total textiles exports, grew by 12%. Some 70% of these re-exports were originated from the Chinese mainland, and they gained another 14% during January-May 2011. Meanwhile, domestic exports continued its downtrend with a 16% decline.

Asia is the leading market for textiles exported from Hong Kong, accounting for more than 93% of Hong Kong’s textile exports. Of the top 10 export destinations, nine of them are in Asia. The Chinese mainland is the predominant export market, accounting for 69% of Hong Kong's textile exports during January-May 2011.

Other major export markets of Hong Kong textiles include Vietnam, Indonesia, Bangladesh, Cambodia, Sri Lanka, the US, Thailand, the Philippines and India. In particular, because of Vietnam’s cheap labour and WTO membership, many foreign investors have set up garment factories there. This gives rise to sustained demand for textile imports, making Vietnam the second largest market for Hong Kong’s textile exports, after the Chinese mainland.

Product-wise, Hong Kong's exports of textile yarns (up 11%), woven fabrics (up 13%), knitted or crocheted fabrics (up 11%) and cotton (up 10%) all soared in first five months of 2011.

Sales Channels

Hong Kong is both a leading production centre and a hub for clothing sourcing globally. As such, Hong Kong's textiles industry is well positioned to serve both local and overseas clothing manufacturers and merchandisers. While many Hong Kong textile manufacturers and traders supply their products to the clothing manufacturers in Asia, particularly on the mainland, international textile companies are also using Hong Kong as a gateway to promote their products to other Asian economies.

The industry is capable of producing either a wide range of quality products in bulk or specialised items within a short lead-time. Its competitive edge lies in the superb quality and swift response to fashion trends and market demand. The industry has also earned a worldwide reputation for unique quality, expertise, workmanship and flexibility.

Hong Kong is an ideal one-stop shopping centre for buyers looking for new and trendy fabric materials. The Interstoff Asia International Fabric Show, held twice a year in spring and autumn, is a significant marketing and sourcing platform in the region for both fabric manufacturers and buyers alike.

Industry Trends

In recent years, with rising production costs inflated in part by stringent environmental regulations, Hong Kong's textiles manufacturers have established offshore production facilities in low-cost countries, particularly on the Chinese mainland and in Southeast Asian countries. A few companies have also set up offshore production in Latin America, including Mexico, to take advantage of preferential treatments allowed by trade agreements between these countries and their trading partners, typically the US.

In the face of fierce competition in the global market, Hong Kong's textiles industry is moving up-market to supply sophisticated textile products with original designs. Today, the operation of the textiles industry in Hong Kong is focused on higher value-added activities such as sales and marketing, quality control, designs and development, while offshore plants are specialised in lower value-added operations.

The textiles industry has invested heavily in capital-intensive and advanced machinery to keep up with the latest technology know-how. Advanced production technologies are sourced mostly from vendors from Germany, Switzerland and Japan. Modern machinery like open-end spinning machines and shuttleless looms has been widely adopted by local manufacturers. As such, Hong Kong textiles manufacturers are able to offer a wide range of fibres, yarns and fabrics to clients.

Accused of being a big polluter, more textile corporations have adopted the bluesign® standard – one of the industry’s major voluntary standards for environmental sustainability. To be qualified, a corporation must reveal its chemical processes, dye compositions and relevant green workplace initiatives for scrutiny. Examples of bluesign-certified apparel companies include Patagonia, The North Face, REI, W.L. Gore, Scholler, Duraflex Unitex International Button Accessories (Hong Kong) and Chun Wo Ho (Hong Kong). Apart from the bluesign standard, the Oeko-Tex® Standard 100 or Oeko-Tex® Standard 1000 are other popular product labels that textile manufacturers use to show their greenness. Examples of Hong Kong textile companies using Oeko-Tex® Standards include Lu Thai, Star Knitting and Paris Eillion.

CEPA Provisions

On 18 October 2005, the mainland and Hong Kong agreed to further liberalise the mainland market for Hong Kong companies under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III). Under CEPA III, the mainland agreed to give all products of Hong Kong origin, including textiles, 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 textiles products will remain subject to tariff rates of 10-25% when entering the mainland.

Details of CEPA tariff preference, including origin criteria, are available from the following hyperlink:

http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2010.pdf.

Trade Measures Affecting Exports of Textiles

According to the WTO’s Agreement on Textiles and Clothing (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, and China subsequently reached agreements with the US and the EU. On 8 November 2005, China and the US formally signed a comprehensive bilateral agreement on textile and clothing trade. 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 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.

On the other hand, upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China had been established to monitor EU imports of Chinese textiles and apparel, which was scheduled to operate for one year, covering 8 out of the 10 previously restricted categories. On 11 December 2008, the European Commission announced that the regime of double checking surveillance system was to expire 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.

On 11 May 2011, the European Parliament gave its approval to a compromise agreement regarding a proposed Regulation in which the use of animal-derived materials will soon have to be shown on labels of garments sold in the EU. The obligation, which will affect Hong Kong’s sellers of textile goods, is aimed at ensuring that consumers can distinguish between real and fake fur and leather products. The proposed Regulation on textile labelling is now expected to be approved by the European Council at a forthcoming meeting, and will come into force 20 days after its publication in the EU’s Official Journal. This may take place during the second half of this year.

Additionally, the European Parliament has requested that the European Commission prepare a study by 2013 regarding the health effects of potentially hazardous chemicals in textiles, which could lead to proposals for a new EU-wide labelling scheme.

Product Trends

In line with a modest economic recovery, consumers are easing grip on their wallets, somewhat bolstering the demand for mid-priced and high-end textile products. Among various kinds of fibres, cotton remains the most preferred material for consumers, while some man-made fibre fabrics, such as polyester and polyester blends, are gaining popularity. The growth in demand for polyester is partly due to the technical improvements achieved in recent years, particularly with respect to moisture absorption.

Consumers, particularly Europeans, are enthusiastic about the environmentally friendly properties of biodegradable natural fibres like organic cotton, soy fibre and ahimsa silk. Their support to the use of organic cotton and other sustainable fibres gave rise to a 35% increase in global organic cotton sales in the recession year 2009. To keep up with this trend, manufacturers have expanded their production of green textiles by utilising more bio-degradable materials and environmentally-safer manufacturing processes.

Moreover, innovative new fibres and fabrics have buoyed demand in many different areas. To answer the needs, more and more breathable, flexible, anti-bacterial, anti-ultraviolet, wrinkle-free, water-resistant and environmental friendly materials are invented and marketed. To this end, Hong Kong manufacturers are seeking for cooperation with research institutions. For instance, Spark Thread (HK) Ltd has cooperated with the Sichuan Institute of Textile Industry, and successfully introduced the pupa protein viscose filament yarn dyeing technology.

Microfibres have been getting more and more attention. The major benefits of textile products made of microfibres are its light in weight and superior performance in keeping warm. In the field of furnishings, microfibres are more often used in the area of decorative fabrics and drapery. In this context, a newfangled stain-resistant polyester fabric that can offer both water absorption and oil repellence is reportedly becoming a trend in the textile industry. Invented by the Japanese-based Teijin Fiber Limited as a comfortable, soft and stain-resistant fabric for all seasons with unprecedented coating formed on each individual fibre (rather than the fabric as a unit), this new material can be used in uniforms, sportswear and fashionable clothing like slacks that require both oil repellence and water (sweat) absorption.

According to Texworld, technology and innovation remain the key words in the coming seasons. Fancy weaves and prints will release textiles from the constraints of classic manufacturing processes, while digital prints and the fractalisation of motifs as well as artisanal decoration will make textiles more malleable. Meanwhile, hand-crafted excellence, original visuals and exceptional handles will continue to be sought after, given consumers’ ever-growing appetite for uniqueness and distinctiveness.