The warning, issued by US President Biden on 16 July, ended decades of the US Government encouraging US businesses to work in Hong Kong. The territory – officially autonomous – remains a clothing and textile production centre, as well as a hub for international trading houses and major retailers.

“We expect more Western companies to relocate their Hong Kong operations, following others that have moved the sourcing and merchandising operations to places like Shanghai, Bangkok or Singapore,” said Renaud Anjoran, a Hong Kong-based quality engineer working in the Chinese manufacturing industry, who is CEO of Shenzhen-based supply chain consultant Sofeast.

Anjoran spoke to Just Style about clothing and textile companies working from Hong Kong. He said: “Those that are locally owned will probably keep diversifying their areas of production, while those that are Western owned may feel more pressure over the years to set up other companies in other countries, and to reduce the importance of their HK headquarters in their overall company.”

Hong Kong’s apparel sector certainly has a lot to lose. According to the Hong Kong Trade Development Council (HKTDC, buyers sourcing from Hong Kong include Macy’s, JCPenney, Federated, Karstadt Quelle, C&A, Sears, Target and Carrefour among others.

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. The US receives the lion’s share of Hong Kong clothing exports and re-exports by value, accounting for 26% in 2020, according to the HKTDC trade statistics and census department.

Nick Marro, The Economist Intelligence Unit‘s Hong Kong-based lead for global trade, said it is the sum of policy measures – such as the US customs ban on Xinjiang-sourced cotton – that are going to be impactful, in terms of supply chain and sourcing. This is instead of other operational concerns like talent and investment attraction caused by Biden’s recent warning. Marro observed companies are already aware of the risks highlighted by the US Government and are moving to reduce their compliance exposure via due diligence and other supply chain reviews.

For the time being, he suggested that the Biden advisories “aren’t injecting anything new into corporate strategies,” especially for multinationals, whose key focus remains “to maintain operational normality for as best and as long as possible,” Marro said.

Among many corporates operating within and from HK, for the time being, “the perceived opportunities simply outweigh the risks, even if we think this calculus could very rapidly change,” he added.

One issue that is of concern to any overseas company dealing with the Greater China region (mainland, HK and Macao), is the potential for retaliatory sanctions by China’s Government to actions taken by the West, especially, over human rights concerns.

According to a note sent to Just Style by Hong Kong-based risk consulting company SVA (Steve Vickers Associates), clothing and textiles are not among the sectors in which the risk of retaliatory regulatory action by China is especially high. SVA singled out aviation, shipping, technology and munitions manufacture as offering more risk.

Nonetheless, looking forward, political risks for companies operating from Hong Kong will probably intensify, SVA warned.

“China’s National People’s Congress (“NPC”) reportedly plans a meeting on 17 to 20 August 2021, to consider the implementation in Hong Kong of a blocking statute on sanctions, through Annexure 3 of Hong Kong’s Basic Law,” SVA wrote. This could punish companies operating in HK who comply with US and other sanctions elsewhere. “Such a law will present businesses with an acute challenge in dealing with potentially incompatible US and Chinese rules,” the consulting company added. 

By Just Style