Trade row will not harm HK industry
(China Daily)
Updated: 2005-06-07 09:28

HONG KONG: The textile trade dispute between China and the EU will have a very limited impact on Hong Kong's textile industry and the economy as a whole, said a Hong Kong government official and industry insiders.

Evaluating the impact of the escalating textile trade dispute between the Chinese mainland and the EU on Hong Kong's economy, Hong Kong government economist Kwok Kwok-chuen said: "The impact is mixed or could be beneficial to Hong Kong to some extent.

"The mainland's textile re-exports through Hong Kong only accounted for 4 per cent of the SAR's total exports last year."

"Besides, the uncertainty on the development of the trade dispute could prompt some manufacturers to relocate their units back to Hong Kong, boosting Hong Kong's textile manufacturing industry.

"The overall impact on the Hong Kong economy is as yet unknown as these factors set off a chain reaction with each other."

The Textile Council of Hong Kong Chairman Andrew Leung agrees with Kwok's view, but he stressed the possibility of a looming trade dispute escalation would eventually undermine Hong Kong's textile industry.

"Some manufacturers will possibly return to Hong Kong in the short run," said Leung. "In the long run, Hong Kong's relatively high production costs would push the manufacturers to shift to the third world or Southeast Asia, thereby creating a negative effect on Hong Kong."

Neither does the local textile industry reckon the dispute will put too much pressure on companies' bottom lines.

Fountain Set, a Hong Kong-listed leading textile export company, said there is no substantial impact on the current business of the company from the textile anti-surge safeguard measurement and Chinese export tax.

Explaining this, Executive Director of Fountain Set Gordon Yen said: "Our company is primarily an export-oriented fabric manufacturer, while most of the export tax and trade protection mechanism currently enforced is targeted at garments made in and exported from China.

"The EU and US are not our major market and most of our fabrics are exported to around 40 different countries to be made into garments."

Luen Thai Holdings, another prominent Hong Kong-listed garment maker, said: "Our products are at the high end of the market but the trade dispute is basically at the low end of textile products, so the overall impact on us is limited."

Commenting on the trade dispute, Luen Thai Chief Executive Officer Henry Tan said it could be a positive sign as the imposition of tax would imply no quota, implying that the dispute remains at a relatively low scale.

Tan said the company will still relocate part of its production lines back to Hong Kong and make the most of the mainland's outward processing arrangement (OPA) with Hong Kong and Macao to reduce costs.

Effective from June 10, Chinese mainland-made textile exports to Hong Kong and Macao under the OPA agreement can be exempt from export tax.

"But there is a difficulty to employ skilled textile workers in Hong Kong," Tan stressed, adding that the company is now recruiting 70-80 staff for Hong Kong OPA compared with 300 workers in Macao.

Tan also said he is considering raising the proportion of overseas production in countries such as the Philippines and Cambodia to avoid future trade disputes.

The company currently has 60 per cent of its production lines in the mainland and 40 per cent overseas.

Weiqiao Textile, a Hong Kong listed H-share company, joined Luen Thai and Fountain Set's view, suggesting that the dispute has also not had much impact on the company.

"Domestic demand accounts for about 70 per cent of textile industry growth," said Wang Donghua, assistant to the chairman of the mainland's largest cotton textile maker. "As our economy is becoming more consumer driven instead of investment driven, our domestic market will be large enough to digest most of our exports."

Wang suggested that imposing tariffs could be seen as an opportunity for the industry as a whole to sharpen its competitiveness.

"To maintain good margins, exporters will be forced to shift their products to the higher end market as the extra cost of export tax and quotas will be compensated by the extra marginal revenue by focusing on the higher end product," Wang stressed.