Risk experts are warning increased
tensions with Beijing and a growing Chinese security presence could damage Hong
Kong's apparel sector.
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