Hong Kong: Outlook for Changing Production in Asia

Almost all production is done in the Asian region; however, a complicated procurement of materials, exchange fluctuations and even trade friction even demand changes in the production system.

Takashi Arita, Divisional Operating Officer, Asia Lifestyle Business Division, Asia Business Unit, Mitsui

Guangdong province is an advanced area in China and the movement there will later ripple gently through the eastern part of China.

Trading firms' OEM apparel business is based on production primarily in China. Starting from Guangdong province with its infrastructure, the production in China moved to Shanghai and then expanded to Qingdao and Dalian. With the completion of factory building on the coastal areas, factory locations began to move into China's interior.

China's conveniently located coastal area does not much care for the textile business any longer. The trend of the rising value of renminbi will continue in the future as well. The production in China's urban area of apparel products that demand cost performance in selling at mass merchandisers is approaching a point that it is inconceivable.

"China-Plus-One" envisages possible partner countries: Vietnam, Thailand, Indonesia, India and Bangladesh, etc.

Among others, Japanese firms entertain great expectations of Vietnam. With the achievement of Vietnam's entry into the World Trade Organization (WTO) in 2006, the frequency of the media pickup of Vietnam has increased. On November 7, the General Council of Ambassadors to the WTO was held and approved Vietnam's accession to the WTO. Vietnam will formally join the WTO after ratification by the Vietnamese National Assembly. After continuing tough negotiations for the WTO membership since 1995, Vietnam becomes the 150th member country/region. Currently, apparel manufacturing in Vietnam is almost exclusively for shipment to Europe and the U.S. and shipments to Japan are negligible.

Vietnam is a place for manufacturing apparel which Japanese firms find to their liking because operations requiring elaborate skill are available there. By comparison, the annual textile export value of many Asian countries such as Vietnam hovers around the US$ billion-mark against China's US$100 billion-mark. Obviously, the replacement is impossible because of that difference in scale.

The possibility exists that smallscale Japanese firms take on specific Vietnamese firms to start a business; however, it is inconceivable to depend on Vietnam as a whole.

The scale of textile exports from Indonesia is considerably smaller than China. As far as the population is concerned, Indonesia has factors which can compete with China; however, these factors are not effectively organized. Textile machines have become obsolete and the supply of good-quality materials is difficult. The ironical outcome of democratization is unstable politics and incompatible economic policies.

India is the only country that can compete with China, but India is too distant for Japanese buyers and the "Distant World" is still an appropriate expression to define India. The industrial structure in India features many handlooms. In addition, high temperatures continue throughout the year. That explains why few Japanese buyers visit India.

Nevertheless, from Japan's viewpoint, all these places are located at a great distance from China. That distance is a serious handicap in the Japanese distribution industry in which an intensive demand for quick delivery is a prerequisite.

Since apparel manufacturing places within Japan have shrunk to the ultimate size, the return to apparel manufacturing in Japan is impossible. In the final analysis, the only solution left is to move into China's interior. So the outcome is "We would rather move to China's interior than advance to India." After all, it appears that China-Plus-One simply means that China is the only place to stay in business.

The result is the lengthening of the physical distribution line, which in turn will lead to rising costs despite lower wages.

Leading to Higher Costs

Yoichi Mizuno, Managing Director of Tredia Fashion Co., Ltd. points outs, "From the standpoint of apparel manufacturing firms in Asia, they find it easy to do business with Europe and the U.S., but they are probably not actively interested in dealing with countries such as Japan with detailed quality requirements."

Whether the other party can respond to meet the expectations on the Japanese side is not certain.

The reduction of factories willing to produce for shipment to Japan will lead to higher costs on a long-term basis.

Furthermore, Managing Director Mizuno considers, "So far the only options were Europe and the U.S. or Japan, but from now on they can expect sales to a huge Chinese domestic market. They do not need to make Sacrifice exports either."

Many Hong Kong capital-based apparel manufacturing factories are doing business primarily for shipment to customers in Europe and the U.S. because doing business with Japan is difficult.

What Will Happen After Skipping Trading Firms?

The number of factories making products bound for Japan at cheap prices in compliance with Japanese requirements will decline. Against a backdrop of the uptrend of production cost in China on a long-range basis, the first thing that comes to the mind of each retailer, apparel firm and mail order firm is: "How can we reduce cost? Yes, we can skip trading firms to deal with sewing factories directly."

So far slogans such as "the removal of trading firms" and the "winter age of trading firms" have appeared and disappeared through frequent repetition.

When a trading firm established a new style, that know-how will be clarified after the passing of a certain period of time and a number of followers will emerge in the market. Conceivably, trading firms' OEM apparel deals belong to the same cycle.

The apparel OEM deals have become the pillar in trading firms' textile business. The outcome, however, is an excessive competition and the market has presented an appearance of hand-to-hand fighting with the entry of fabric wholesalers and dyeing factories into that business.

What was difficult for everybody in the beginning can be copied easily by everyone now.

The distribution side will enhance its awareness of cost reduction. Otherwise, they cannot win the cost competition with competing distributors.

Against a backdrop of the rising trend of skipping trading firms, how can trading firms maintain and expand their OEM apparel deals?

It All Depends on How and What You Accomplish

M.C. Fashion Co., Ltd. (MCF), a wholly-owned subsidiary of Mitsubishi Corporation, merged with another wholly-owned subsidiary and carried out efforts to reinforce its functions. While drawing the capabilities of technical and production management staff members through a customer-responsive organization, the company has continued to operate in ways to meet the market needs.

At the storefront, customers request a proposal covering the full line of lifestyle products, along with the enhanced need for the planning and supply of items other than apparel.

In April 2005, Mitsui & Co., Ltd. integrated the OEM apparel business into Mitsui Bussan Inter-Fashion Ltd. (MIF) to reinforce the planning and production functions. The result is the evolution of its specialties. The company has narrowed the number of customers to nearly 120 firms. The share taken by the ten top-ranking firms in the company's overall sales is 70%. Here again, the company has clearly announced its axis on products under customer-based organization and it will follow a policy to eliminate waste by strengthening product-based responsiveness.

Then, the company is reviewing the most optimal organization by giving a definition on specific cases suitable for customer-based or product-based responsiveness.

Sumikin Bussan Corporation has carried out the development of the production infrastructure for the OEM apparel business under the theme of "maker-oriented trading firm." The company has set up a planning specialty company and reinforced the capability to offer software. In April 2005, the company established the "China Production Control Center" (CPC) in order to control the production of apparel products in China's local market.

In defiance of trading firms' OEM apparel deals, there are cases saying that, "It is a business that does not receive a fair counter value and it comes to nothing." There are other cases of denial, compared with brilliant brand business. The Managing Director of a local Hong Kong corporation of one trading firm said, "Our OEM workforce has produced a substantial profit for two consecutive years. The point is: It all depends how and what you can accomplish. There is no other business around with so few risks."

Trading Firms Handling Apparel Products

Japanese trading firms in Hong Kong are primarily involved in contracting apparel manufacturing and material trade, but each firm has adopted different systems. What follows is a look at trading firms handling apparel products.

Prominent Apparel

Successful Apparel Making Base in Bangladesh

Prominent Apparel Limited expects that sales for the fiscal year ending in March 2007 will be US$290 million, but there is a very strong possibility that these sales will not be obtainable when consideration is given to the market condition up to October 2006. One of the contributing factors is the decline in the consignment business of apparel manufacturing for shipment to Japan. Fabric sales to the Middle East also declined slightly. Nevertheless, the company as a whole anticipates higher profits against the preceding year.

The breakdown of these sales is: apparel, 75%; and, fabrics, 25%. The strongest item in apparel manufacturing is dress shirts. The company's annual production is 5 million shirts in Bangladesh, 1.2 million shirts in Vietnam and 1 million shirts in China.

The apparel manufacturing base in Bangladesh has been provided with all the necessary equipment over a long period of time and it enjoys a successful business with the U.S. under a quota free system.

The company has expanded the business by effectively utilizing Hong Kong's favorable geographical location, for example, by selling polyester viscose blended stretch fabrics to fashion apparel firms in the U.S. There is a strong tendency on the part of many Japanese trading firms to specialize into apparel products; however, Prominent Apparel has successfully maintained the fabric trade business.

Hideo Nakanishi, President says that the further expansion of offshore trade is the most important target in 2007.

NOW Apparel

Emphasis on Maker s Functions for Expansion

NOW Apparel Ltd. headquartered in Hong Kong has expanded its global business by effectively utilizing its Asian bases in Shanghai, Qingdao and Jakarta. Annual sales are US$400 million. The number of personnel is: Hong Kong, 31; Shanghai, 44; Qingdao, 13; and a total of 88 persons.

The company encompasses the following joint venture firms: Ningbo Vongmian Fashion Co., Ltd. (1,000 sewing machines, 2,000 employees); Nanjing Sumian Garment Co., Ltd. (350 sewing machines, 510 employees); China Qingdao Zhongmian Knitting Co., Ltd. (436 sewing machines, 866 employees); Zibo Huamian Garment Co., Ltd. (400 sewing machines, 411 employees); and Sojitz Apparel Corporation (Qingdao) (schedule in December 2006: 355 sewing machines, 370 employees)

As seen above, NOW Apparel has improved factories in mainland China with special emphasis under the theme of maker-oriented trading firm and the development of customers in the U.S. and Japan is under way.

To summarize, the company considers that business investment in mainland China will increase the maker's functions and enhance the charm of Hong Kong as a base to build up business connections with Europe and the U.S.

Hong Kong-based business rather than staying in Japan will make it easier to make investment in China and bring about easy access to customers in Europe and the U.S.

Sumikin Bussan International (H.K.)

First Results in Developing U.S. Market

Sumikin Bussan International (H.K.) Co., Ltd. has received favorable response from major customers for its offer of the logistic information by means of a production control system.

The company's basic policy is to expand sales to the U.S., in addition to sales to Japan. The company's sales for the fiscal year ending in December 2006 are US$70 million and the expected sales to the U.S. are US$7 million or 10%.

"Sumikin Bussan Textile Corporation" (SBTC), a U.S. corporation, was placed under a direct control of Sumikin Bussan and Michihide Ito, Managing Director of Sumikin Bussan International (H.K.) Co., Ltd. holds the additional post of President of SBTC. With sales of US$7 million to the U.S., the company's sales to the U.S. market has increased smoothly.

Previously, the company's sales were virtually the OEM apparel business for shipment to Japan. By effectively utilizing the favorable geographical advantage of Hong Kong, the company aims to achieve the well-balanced breakdown of business.

Currently, the selling items to the U.S. are sweaters and textiles, fiftyfifty. Textiles are mainly natural fiber woven fabrics from Japan, China and Korea.

Managing Director Ito feels a response by saying, "One year has passed since we started activities in real earnest. Now we have finally begun to really understand the U.S. market."

N.I. Teijin Shoji (H.K.)

Expanding Apparel Making

Sales at N.I. Teijin Shoji (H.K.) Ltd. for the fiscal year ending in December 2006 will remain nearly flat, compared with the preceding year. Sales are about HK$700 million expressed in local currency. The breakdown is: petrochemical products, 48%; apparel, 39%; and fabrics (including yarn and fiber), 13%. The company buys polyester staple fiber and filament yarn from Teijin group firms in Thailand and Indonesia for resale to Chinese firms. These businesses have been on a downtrend in 2006. On the contrary, the company has increased personnel and the expansion trend is noticeable in the apparel manufacturing business.

The analysis of fabrics that account for 13% of overall sales by counting the total as 100 is: Japanese products, 45%; Nangtong Teijin products, 30%; and other products, 25%.

As for the breakdown of fashion items and sports casualwear items, fashion items have a numerical superiority. Currently, the weight of sports casualwear is 20%; however, the company's policy is to increase this figure to 30%.

A flexible responsiveness to customers is the company's creed. Hiroshi Yoshikawa, Managing Director considers, "Customers will change their way of thinking. So we will also have to change accordingly to meet the customer's need."

Customers are diversified. As for apparel products, customers are onethird each for Japan, Europe and the U.S. There is a remarkable difference from the same group firm N.I. Teijin Shoji Shanghai that moves primarily for shipment to Japan.

The company plans to expand apparel products in 2007. The scale of the petrochemical product business is sizable, but this is the kind of business in which the company can not take the principal initiative. As for fabrics (including yarn and fiber), the company considers that the material business with yarn and fiber will fall off, while conversely the fabric business will gain more weight. In the fabric segment, the company's policy is the expansion of the sports casualwear segment.

Historically, the company is strong in the business with Vietnam. "Fashion Force No.1 Factory Co., Ltd." owned by the company has 13 apparel making lines (slightly below 500 sewing machines) with a good performance as a manufacturer for major sports apparel firms. So far this factory has operated with a high degree of independence; however, N.I. Teijin Shoji is going to intensify its operations with the aim to expand contracts in Hong Kong because this is such a valuable apparel manufacturing base.

Tredia Fashion Co., Ltd.

Emergence of CEPA-Based Chinese Firm

Tredia Fashion Co., Ltd. is involved in operations to provide support with regard to the overseas production of apparel products. Specifically, these operations include production management, quality control, information gathering, planning proposals and the procurement of materials.

Expected sales for the fiscal year ending in December 2006 are US$765 million for the whole group. The figure of the newly formed Tredia China will be shown separately, starting this fiscal year. In September 2005, Tredia China was established in Shanghai with the approval of the Chinese government and started operations in February 2006. This is Tredia Fashion's wholly owned company and the establishment was capitalized in the CEPA are (Closer Economie and Trade Partnership Between Mainland China, Hong Kong and Macau known as CEPA).

For the fiscal year ending in December 2006, the breakdown is US$309 million for Tredia fashion in Hong Kong and US$456 million for Tredia China.

Mitsui & Co., Ltd.

Asia-Centered Global Business Development

In April 2006, Mitsui & Co., Ltd. reformed the group's management system in order to cope with a new age. Lifestyle Business Division has Mitsui Bussan Inter Fashion (MIF) to give a strong push to an efficient management with a clear-cut cost streamlining and customer strategy. In Asia, Asian Business Units were established. Alta Moda International (AMI) in Hong Kong is a subsidiary that belongs to these Units. 70% of AMI's sales are OEM deals for shipment to Japan. The balance is 15% for textile materials and woven fabrics and 15% for sundries and toys. In September 2005, a new subsidiary was established based in the CEPA area. This subsidiary has formed the branch network connecting Dalian, Qingdao and Shanghai. By effectively utilizing its specialty in the OEM apparel business, the company is carrying out the development of the Asian market-centered global business.

Trade Trends of Textile Materials

Growing Possibility of Hong Kong

There is still a very strong possibility of doing trade in textile materials such as yarn and fiber in Hong Kong. Until the 1980s, these businesses were possible in Osaka; however, there is the growing possibility of doing these businesses in Hong Kong

This is because today the consumption of textile materials in Japan has shrunk excessively as a result of a complete shift to China in the place of final production of textile products.

Marubeni Textile Asia Pacific

Expansion of Chinese-made Industrial Textiles

Marubeni Textile Asia Pacific Ltd. (MTA) has attached importance to exports of Chinese-made textile materials since 2003. In 2006, the company exported 15,000 tons of Chinese-made polyester filament yarnto overseas markets. Sales for the fiscal year ending in December 2006 are US$602 million. The breakdown of this total is: textile materials (yarn and fiber), US$400 million; fabrics, US$62 million; OEM products for shipment to Japan, US$100 million; and apparel product sales to Europe and the U.S., US$40 million.

MTA handles 300 tons of spandex yarn monthly. A considerable recovery of spandex yarn prices in 2006 was important. Even among Chinesemade polyester yarns, the interest in industrial applications has grown up.

Kuniaki Hihara, General Manager says, "Out of textile materials worth US$400 million, we want to have 10% of industrial material applications." Specifically, the company plans to increase the current sales of US$20 million or 5% to more than US$40 million or 10% in the year 2008. Conceivably, industrial applications include monofilament, glass fiber and para-linked aramid fiber.

Currently, the aramid fiber business is nearly 20 tons annually, but reportedly the expansion to 100 tons is possible.

Itochu Textile Materials (Asia)

Reviewing Placement of More Personnel

The scale of annual sales at Itochu Textile Materials (Asia) Ltd. is US$200 million. For the fiscal year 2006, the company expects lower sales, down 10% and higher profits, up 20%, compared with the preceding year. Yoichi Ikezoe, Managing Director says, "We will not pursue volume. We want to handle only highly profitable items."

The breakdown of US$200 million is: cotton yarn, US$80 million; and synthetic fiber, US$20 million. Synthetic fiber is further broken down into 50% for polyester staple fiber for sewing threads and the remaining 50% for filament yarn.

ITM's business with a distinct feature is its stock operations of Japanese-made polyester yarn for curtain applications. Its quick delivery has gained favorable market acceptance.

The company handles about 20 tons of spandex yarn monthly. Sacrifice exports until last year by Chinese producers have disappeared and the price of Japanese-made 44 dtex standard items made a recovery to US$10/kg in October 2006.

Chinese-made synthetic fiber that ITM handles remains at 10,000 tons annually. Ikezoe says, "In handling Chinese-made products, we want to narrow to highly functional items."

Currently, the non-apparel ratio at ITM is 10%. With special emphasis on the advance of Japanese auto makers such as Nissan and Honda, ITM plans to increase the sales of polyester yarn and woven fabrics for car seats.

Ikezoe says, "We want to increase the non-apparel ratio to 30% three years from now." Against a backdrop of his aggressive plans for the future, Ikezoe says that he wants to increase the number of personnel. Currently, ITM's work force is 21 persons; 8 Japanese staff members and 13 Hong Kongers. Ikezoe plans to intensify the system by increasing 3-4 Japanese staff members.

Teijin Hong Kong

Italian Branch Reporting Favorable Results

Expected sales for the fiscal year ending in December 2006 at Teijin Hong Kong Limited will exceed US$90 million, an all-time high since its inception in 1996. Profits also showed a distinct improvement, compared with the preceding year and the company registered black-ink figures. Contributing factors include a full-fledged operation on the part of the Italian Branch Teijitex Italia (Vercelli) and rising Japanese-made fabric exports to the U.S.

According to Yuji Ezoe, Managing Director, the Italian Branch established in 2005 has become a powerful asset in selling to Europe. Sales of 300 million yen in 2005 at the Italian Branch will increase to 700 million yen in 2006 and the company aims at 1,500 million yen in 2007. Exports of Japanese-made products remained stagnant until 2004, but turned upward subsequently.

As a result, the breakdown of products handled by Teijin Hong Kong by manufacturing factory is: Nantong Teijin Co., Ltd., 65%; Thai Namshiri Intertex Co., Ltd., 25%; and Japanese-made products, 10%. This change in the composition shows higher weight of Japanese-made products.

Toray Industries (South China)

Establishing Firms Successively

As Toray group's regional headquarters of its seven affiliated group firms located in South China, Toray Industries (South China) Co., Ltd. (TSCH) is involved in indirect departmental operations for each group firm.

Masataka Hamazaki, Managing Director has established necessary subsidiaries one after another in order and continues to expand the scale of business operations.

The mainstay commercial company is Toray Industries (HK) Ltd. established in 1974. This company has offices in Guangzhou and Shenzhen, in addition to its head office in Hong Kong.

Sales of Toray Hong Kong for the fiscal year 2005 were 50 billion yen. Expected sales for the fiscal year 2006 are 55 billion yen including 33 billion yen of textiles.

In January 2005, a cut-and-sewn maker in Hong Kong with a factory in Zhuhai in Guangdong province became the company's affiliated firm. Then, the company established Toray (Guangzhou) Trading Co., Ltd. (TGT) in Guangzhou city. By so doing, the company intensified its textile production and marketing activities in South China. The scale of annual sales at this firm is 4 billion yen.

As for this company, the application was first submitted based on the CEPA (Closer Economic and Trade Partnership Bewteen Mainland China, Hong Kong and Macau known as CEPA). However, partly because of a long wait before the approval is granted, and also partly because it has become clear that we can achieve our objective based on theCommercial Measures (the Measures for the Administration of Foreign Investment in the Commercial sector) which came into force in mainland China, we switched our application. As a result, this company was established capitalized on the above-mentioned Commercial Measures. So this company became the first Toray group firm that obtained the official right of import and export as well as domestic wholesaling for the first time in the Chinese domestic market.

Consequently, it has become possible to sell fabrics made of yarn from Toray Fibers (Nantong) Co., Ltd. (TFNL) and fabrics produced by Toray, Japan within China.

Toray plans to expand sales to Japan, Europe and the U.S. by producing innerwear in Zhuhai from yarn to final product.

Even today, Toray is an up-stream synthetic fiber firm in Japan; however, Toray looks differently overseas. In overseas markets, Toray has manifested its presence as a natural fiber spinning firm handling cotton and a woven fabric prodding firm using these natural fibers since 40 years ago.

In South China, Toray has intensified its approach to retail firms as an integrated producer covering from upstream to down-stream sectors in innerwear made from synthetic fiber materials.

The acquisition of a 10% share of synthetic fiber materials in the world of innerwear is the company's dream. In addition to perspiration-absorbing/quick drying, antibacterial and odor-preventive functional polyester and nylon, Toray appears to be willing to expand its share by adding environment-responsive textiles made from corn and bamboo, namely, organic fibers.

The purchased factory now called THK Apparel Ltd. employs 740 workers and produces 700,000 pieces monthly. The company plans to expand this figure to the scale of one million pieces. The company has the relationships with nine cooperative apparel manufacturing factories. By effectively utilizing these relationships, the company is going to expand apparel product exports to the U.S. and Japan.

Other companies include Taltex (Zhuhai) Ltd. (TAZ) producing knitted fabrics and TAL Knits Ltd. (TAK) selling these knitted fabrics.

Including cooperative factories to the group, a system of manufacturing 3 million pieces of innerwear monthly is complete. For the company as a new supplier, a quota free age that allows exports without the acquisition of quota is really the arrival of its long-awaited era. The company's production target in 2010 is 5 million pieces.

Toray China as a whole plans to achieve sales of 300 billion yen by 2010. Of this total, sales in South China will be one-third or 100 billion yen.

Messe Frankfurt (HK)

A Quality Marketing Platform

According to Katy Lam, Director of Trade Fair, Messe Frankfurt (HK), the company will also hold an upgraded textile exhibition in various places in Asia through inputs of its most advanced know-how. The brain group to operate that kind of exhibitions is in Hong Kong, making frequent visits to everywhere in Asia.

On March 14-16, 2007, Interstoff Asia Spring will be held at the Hong Kong Conventional & Exhibition Center. Exhibitors are so anxious to meet "buyers with the right to purchase." So the operation of a high-quality exhibition is imperative to attract these buyers.

That exhibition is broadly grouped with characteristics into three themes: "Creation," "Function" and "Fashion." The "Hall of Creation" is installed for exhibitors of novelty fabrics, textile designers, yarns and fibers. Here the Trend Forum of Interstoff Asia will present the direction of tomorrow's apparel fabric trend. So the Trend Forum is designed for exhibitors who think creation seriously to gain great beneficial effect.

On March 22-24, 2007, China International Trade Fair for Fibers and Yarns (Yarn Expo) and China International Trade fair for Apparel; Fabrics and Accessories (Intertextile) will be held in Beijing.

Hong Kong Trade Data Shows Down Trend of Apparel Exports

The Hong Kong economy in 2005 achieved the growth rate as high as 7.3% of GDP (gross domestic product) (intra-production). High economic growth still continued in the first half of 2006. However, 5.2% in the second quarter shows a down-trend, competed with 8.2%in the first quarter. Judging from the above, it is thought that the economic growth rate throughout the year will tone down from the initial forecast of 7-8% or the same level as the preceding year to only 4-5%.

Personal consumption fell from 7.3% in 2004 to 3.4% in 2005; however, it is on an uptrend as shown in 4.5% in the first quarter of 2006 and 5.0% in the second quarter. The basic supporting factor acting as the engine of business activity in Hong Kong is the spending on the part of from mainland China visiting sightseeing highlights such as Hong Kong Disneyland opened in September 2005.

As for the trade, product exports maintain a double-digit increase for the past three years, namely, up 14.2% in 2003, up 15.3% in 2004 and up 11.2% in 2005. The total for the January-August 2006 period shows a gain of 9.0% from the same period of the preceding year and still maintains a high level. Among other things, local exports show a substantial increase of 20.3% from the preceding year.

Out of exports, apparel product exports in 2005 were US$212.2 billion, a gain of 8.5% from the preceding year on a global basis. It is understandable that these exports achieved a steady growth without being influenced by a shit to a quota free age. The cumulative total from January to August 2006 has also moved firmly with a gain of 3.8% from the year-ago level.

Apparel exports in January-August 2006 by country/region show that exports to the U.S. stand out at HK$51.2 billion and account for 36.1% of overall apparel exports. These apparel exports in 2005 increased considerably by 10.6% from the preceding year, and the total for the January-August 2006 period also maintains the year-ago level with a gain of 0.7%.

Apparel exports to the EU that account for 33.0% are also buoyant at US$46.8 billion, a gain of 6%. Apparel exports to Europe account for nearly 70% of overall apparel exports.

Apparel exports to Japan in the January-August 2006 period moved downward slightly to HK$10.4 billion, a dip of 1.8% from the year-ago level. Of the ten top-ranking countries, Japan is the only country that recorded a decrease. Its share also has edged down from 7.1% in 2004 to 6.5% in 2005 and 6.0% in the January-August 2006 period. Germany outstripped Japan in 2005 and Japan retreated to the fourth destination country and the difference has widened.

Quick Recovery of Apparel Exports to U.S.

Apparel product exports from Hong Kong to the whole world have moved firmly as shown by a gain of 8.5% in 2005 against the preceding year and HK$141.9 billion, a gain of 3.8% in the January-August 2006 period against the year-ago level. Among others, exports to the U.S. account for 36.1% of overall apparel exports and maintain an overwhelming market share.

The statistical data issued by the U.S. Department of Commerce on the destination side show that apparel product exports from Hong Kong to the U.S. in 2005 were 597 million sq. meters in volume, a fall of 19.3% from the year-ago level and US$3,511 million in value, a drop of 8.8%. The analysis of this statistical data reveals an explosive growth of textile product exports from China to the U.S. under the influence of a quota free era.

Nevertheless, the data for the January-June 2006 period indicate 248 million sq. meters in volume or a gain of 24.7% or a substantial gain of 24.7% and US$1,386 million in value, an increase of 24.2%. The data disclose a quick recovery of the supply of apparel products to the U.S. through Hong Kong acting as a window as a result of voluntary restrictions following the textile trade friction between the U.S. and China after the start of a free quota age.

In the meantime, apparel product exports from Hong Kong to Japan have continued to edge down as shown by HK$13.8 billion in value, a dip of 0.5% in 2005 and HK$8.5 billion, and a slip of 1.8% in the January-August 2006 period.

According to apparel import statistics on the Japanese side examined by the Japan Textile Importers Association, the data for the January-June 2006 period reveal 1.4 6 million pieces in volume, a gain of 6.8% and 2.7 billion yen in value, an increase of 25.7%.

Worthy of special mention is knitwear imports from Hong Kong. The data for the January-June 2006 period indicate 1.3 billion yen in value, a sharp rise of 53.5% against 653,000 pieces in volume, a drop of 6.3%.

Simple calculation of unit price per piece of product in 2006 is 2,098 yen, a gain as much as 27% against 1,652 yen in 2005. From the statistical data as well, it is understandable that export items from Hong Kong to Japan are in the process of a rapid change to medium- and high-grade-oriented items that announce real "Hong Kong-like" unique character.