Hong Kong's textile and clothing industries will be in a much stronger position than they are today after China's accession into the WTO, industry experts told the audience at the Chamber's WTO workshop on November 26.

The speakers, Chan Wing Kee, managing director, Yangtzekiang Garment Manufacturing Co, Ltd, Legislative Councillor Sophie Leung, Alan Li, executive director, Clothing Industry Training Authority, and panel moderator HKGCC Chairman Christopher Cheng, were bullish about the industry that has often been called in Hong Kong a sunset industry.

Mr Chan predicted that China would benefit from being a WTO member, because its quota system will be eliminated in 2005. This is expected to attract more foreign garment manufacturers to invest in the Mainland, either directly or through Hong Kong.

Mrs Leung said she believes that Hong Kong's role as the "Window to China" would be further enhanced with China's accession to the WTO. The territory will be in an ideal position to present itself as a regional headquarters and springboard into the Mainland, she said.

Hong Kong has the added attraction of having a solid infrastructure capable of developing into a leading fashion design centre, especially for casual wear. It could also leverage on China as a manufacturing base to enhance its role in fashion merchandising and designing.

Foreign investors are currently prohibited from establishing wholly-owned wholesale or retail companies in China. The Sino-U.S. agreement on China's WTO accession calls for granting of trading and distribution rights to foreign enterprises within three years of accession. So manufacturers who have already established a base in the Mainland will be ideally poised to expand into the garment retail and distribution business once these commitments start to kick in. In the case of Hong Kong, more manufacturers will be able to establish their own distribution networks.

Retail sales of garments in China have greatly increased in recent years as the standard of living of the Mainland Chinese rises. But it is not just cheap clothes that are in demand, medium- to high-end garments are increasingly being favoured by Mainland consumers.

According to a survey conducted in 2000, the 10 top brands of underwear, jeans and shirts in China accounted for 63.3 per cent, 61.6 per cent and 52.2 per cent, respectively, of total department store sales.

Imported garments and those produced by foreign invested enterprises enjoy an edge in pricing in the upper end of the market, while state owned and township enterprises dominated production of low-end garments.

This is good news for Hong Kong garment makers who have been eyeing retail sales in the China market for years. Many Hong Kong manufacturers or retailers, such as Jeans West, Apple Jeans, Goldlion, FUN, Giordano and Crocodile, that have successfully established footholds in China, have begun formulating strategies to increase their share of domestic sales.

The textile and clothing industries remain Hong Kong's largest domestic manufacturing industries, despite having suffered a significant decline since the early '90s. In the 1980s, about 300,000 people worked in the industry, compared to about 60,000 today. Spiralling wages and production costs have forced SAR garment manufacturers to seek more cost-effective production environments elsewhere, notably the Mainland.

But their relocation there has also improved the level of expertise of Mainland's garment manufacturers. Today, Mainland makers are Hong Kong firms' largest competitors, and are increasingly capable of producing high quality garments comparable to Hong Kong manufacturers. Consequently, Hong Kong makers will face increasingly fierce competition and may have difficulty in simply competing on price alone.

Despite China's lower production costs, manufacturers have to reckon with longer production lead times, more complicated logistic arrangements, additional administrative procedures and higher transportation costs. Such difficulties are particularly inhibiting for small and medium sized factories, and make the Mainland less attractive for the Hong Kong manufacturer.