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 of clothing dropped year-on-year by 11% in the first two months of 2009. While Hong Kong's re-exports of clothing decreased by 2%, domestic exports plummeted by 73%. During January-February 2009, Hong Kong's clothing exports to the EU and US, the two largest markets that accounted for over 70% of the total, shrank by 12% and 13% 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 1,379 establishments hiring 19,824 workers as of December 2008.

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 shrank year-on-year by 11% in the first two months of 2009. 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), many 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-February 2009, Hong Kong's domestic exports of clothing remained stale, and registered a 73% decrease, after showing a decline of 43% in 2008. Re-exports, on the other hand, fell by 2% during the first two months of 2009, after growing by 5% in 2008.

While Hong Kong's clothing exports to the EU decreased by 12% in the first two months of 2009, those to the US dropped by 13%. Clothing exports to major EU markets like the UK, Germany, Netherlands and France fell by 9-20%, while Italy maintained a humble growth rate of 1%. Taken together, sales to the EU and the US accounted for more than 70% of Hong Kong's total clothing exports.

Product wise, Hong Kong's exports of woven wear fell by 14% in the first two months of 2009, with woven wear for women/girls and men/boys falling by 17% and 9%, respectively. Meanwhile, knitted wear fell by 12%, with items for women/girls and men/boys falling by 16% and 2%, respectively. While clothing accessories declined by 17%, other apparel articles, for their part, decreased by 5%.

* Insignificant

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.
*Insignificant


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 and Tokyo. '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, 'style Hong Kong' is to give overseas' visitors and buyers a flavour of the excellence and value of Hong Kong products.

Industry Trends

Trading down: Consumers have become far more budget conscious during economic hard times. Shops selling basic items are expected to outperform those targeting impulse shoppers as customers are still buying necessities. Discounters and wholesale clubs are benefiting from the trade-down shift, while sales at specialty apparel retailers and department stores will suffer.

Rising trend of online shopping: Online shopping is increasingly popular in overseas markets. A case in point is the US. According to Cotton Incorporated, American women are spending more time browsing the Internet for apparel. Some 55% of American women claimed that they have shopped online for apparel in 2007. On average, a female spent 98 minutes a month browsing online for clothing in the fourth quarter of 2006. Moreover, Internet shopping has also become more popular among American men. In the fourth quarter of 2006, a male spent 80 minutes on click-and-mortar shopping, compared to 58 minutes on real shopping trips.

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 third largest, behind only the US and Japan. Going hand-in-hand with the market expansion, Chinese consumers are becoming more fashionable and brand-conscious. This is especially true among the urban young adults (from 18 to 25 years). Many of them favour international brands. Half agree that "foreign brands are higher quality than local brands," compared with an average of 15 percent across all other age cohorts, according to a McKinsey report on apparel in China.

Growing importance of private labels: Private 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.

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_2009.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

Back to basics: Consumers are returning to basics, opting for commodity-type items that offer comfort, function and value-for-money - and nothing too radical. Examples include T-shirts, socks, night dresses and underwear. Longevity is another important element. Not unexpectedly, denim's position as a staple item is on the rise in the current recession, as it is deemed to have a long life span that can be put on in different occasions.

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 increase 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.

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, with retail sales rocketing to US$76 billion in 2006, has been an area of growth for many years, and the trend is expected to continue, particularly in the US. Some renowned brands have already responded to the trend by offering merchandise of larger size; these companies include Liz Claiborne, Ralph Lauren and Tommy Hilfiger.

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.

Eco-friendly clothes: Consumers are more concerned about global issues on the environment, such as the use of oils and chemicals to make synthetic fibers, and clothing treated with dyes and chemicals. According to Cotton Incorporated, 16% of consumers believe that environmentally-friendly is important when purchasing an apparel product. Meanwhile, major retailers like Wal-Mart and Belk department stores have launched different eco-friendly initiatives, from products to packaging, to answer consumers' call for eco-friendly apparel.