Textile quotas were eliminated among WTO members at the first day of 2005 in accordance with the Agreement on Textiles and Clothing (ATC). However, resistance to quota removal spread in the US and EU. Subsequently, China reached agreements with the EU and the US in June and November 2005 respectively. The China-US agreement, effective from January 2006, governs the exports of a total of 21 groups involving 34 categories of Chinese textiles and clothing products to the US during 2006-2008. The China-EU agreement, effective from June 2005, covers 10 categories of Chinese textiles and clothing exports to the EU during 2005-2007.

On the other hand, 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). Along with other products of Hong Kong origin, the mainland agreed to give 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 rose year-on-year by 9% in the first 11 months of 2005. While Hong Kong's re-exports of clothing rose by 20%, domestic exports fell by 14%. In the first 11 months of 2005, Hong Kong's clothing exports to the US and EU rose by 11% and 18% respectively. While Hong Kong's clothing exports to Japan levelled off, those to the Chinese mainland declined by 11%.

Industry Features

The clothing industry is a major manufacturing sector of Hong Kong. Its gross output is one of the highest among all manufacturing sectors, amounting to HK$35.9 billion in 2003. It is the largest manufacturing employer in Hong Kong, with 1,673 establishments hiring 28,752 workers as of June 2005. It is also the leading earner in terms of domestic exports, taking up 40% of the total in the first 11 months of 2005.

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 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. With a total of 15,190 establishments hiring 95,889 workers, they form the largest group involved in import-export trade in Hong Kong.

Performance of Hong Kong's Exports of Clothing

Hong Kong's total exports of clothing rose year-on-year by 9% in the first 11 months of 2005. While Hong Kong's re-exports of clothing rose by 20%, domestic exports fell by 14%. The contrasting performance of Hong Kong's re-exports and domestic exports was basically ascribed to the increasing relocation of garment manufacturing to the Chinese mainland, resulting from the removal of quotas under WTO's Agreement on Textiles and Clothing (ATC). But the declining trend of domestic exports has been reversed somewhat in recent months, due to the re-imposition of quantitative restraints on mainland-made textiles and clothing by the US and EU.

Retail sales in the US held firm in the first 11 months of 2005, rising by nearly 6% from the same period in the previous year. In the first 11 months of 2005, Hong Kong's clothing exports to the US rose year-on-year by 11%.

In the first 11 months of 2005, Hong Kong's total clothing exports to the EU surged year-on-year by 18%. Clothing exports to major EU markets like France, Germany and Italy recorded growth rates in excess of 20%.

On the other hand, Hong Kong's clothing exports to Japan levelled off in the first 11 months of 2005 partly due to the trend of direct shipment. On the back of the rising income however, Japanese consumers tend to resume their spending spree on premium clothing items. Meanwhile, Hong Kong's clothing exports to the Chinese mainland dropped by 11% in the first 11 months of 2005, compared with the same period last year.

Product-wise, Hong Kong's exports of woven wear rose by 12% in the first 11 months of 2005. While woven wear for women/girls grew by 13%, those for men/boys recorded a growth of 8% from the same period in the previous year. Knitted wear grew by 2%, with women/girls and men/boys rising by 1% and 6% respectively. While clothing accessories declined by 3%, other apparel articles, for their part, increased by 13%.