TEXTILE MARKET IN HONG KONG

TEXTILE MARKET IN HONG KONG TABLE OF CONTENT 1. Introduction.............. 2 2. Hong Kong textile industry.......... 4 2.1 Overview............ 4 2.2 Import............ 4 2.2.1 Fabrics.......... 4 2.2.2 Yarns.......... 6 2.3 Export.............. 7 2.3.1 Fabrics.......... 7 2.3.2 Yarns.......... 10 2.4 Local production.......... 12 3. Italian textile in Hong Kong.......... 13 3.1 Import............ 13 3.1.1 Fabrics.......... 13 3.1.2 Yarns.......... 13 3.2 Position of Italian textile........ 15 3.3 Comparison of Italian textile with other countries 16 3.3.1 Types of textiles........ 16 3.3.2 Price............ 16 3.3.3 Delivery and response...... 17 4. Buyers profile.............. 17 5. Distribution network............ 18 6. Import regulation............ 18 7. Payment terms............ 18 8. Promotion activities............ 19 8.1 Exhibitions............ 19 8.2 Journals............ 19 8.3 Local associations related to textile sector.. 19 9. Conclusion.............. 20 10. Recommendation to Italian textile suppliers.... 20 Page Updated 6-2005 (Figure 2004)

1. INTRODUCTION This research aims at providing ideas to readers about the current situation of textile market in Hong Kong. Textile in this research includes fabric and yarns. The content will be focused on the following areas: Trade performance of the current market situation of textile in Hong Kong. Position of Italian textile in the Hong Kong market and competitive analysis Distribution network of textile in Hong Kong Promotional activities for the textile sector in Hong Kong Conclusion and recommendation for Italian company The statistics of fabric and yarns refer to the HS category as follows. The source of statistics is World Trade Atlas and they are processed by Italian Trade Commission Hong Kong. HS Code of the Category of Fabric for this research 5007 WOVEN FABRICS OF SILK OR SILK WASTE 5111 WOVEN FABRICS OF CARDED WOOL OR FINE ANIMAL HAIR 5112 WOVEN FABRICS OF COMBED WOOL OR FINE ANIMAL HAIR 5113 WOVEN FABRICS OF COARSE ANIMAL HAIR OR HORSEHAIR 5208 WOVEN COTTON FABRICS, NU 85% COT, WT NOV 200 G/M2 5209 WOVEN COTTON FABRICS, NU 85% COT, WT OV 200 G/M2 5210 WOVEN COTTON FABRICS, UN85%COT, MMFMIX, NOV200G/M2 5211 WOVEN COTTON FABRICS, UN85%COT, MMFMIX, OV200G/M2 5212 WOVEN COTTON FABRICS NESOI 5309 WOVEN FABRICS OF FLAX 5310 WOVEN FABRICS OF JUTE OR OTH TEXT BAST FIBER NESOI 5311 WOV FAB OF OT VEG TEXTILE FIB WOV FAB OF PPR YARN 5407 WOVEN FAB OF SYN FIL YN, INCL MONOFIL 67 DEC ETC 5408 WOVEN FAB OF ART FIL YN, INCL MONOFIL 67 DEC ETC 5512 WOV FABRIC, SYNTH STAPLE FIB NU 85% SYNTH ST FIBER 5513 WOV FABRIC, SYN ST FIB UN85%, COT MIX, NOV17OG/M2 5514 WOV FABRIC, SYN ST FIB UN85%, COT MIX, OV 170 G/M2 5515 WOVEN FABRICS OF SYNTHETIC STAPLE FIBERS NESOI 5516 WOVEN FABRICS OF ARTIFICIAL STAPLE FIBERS 5801 WOVEN PILE & CHENILLE FABRICS NESOI (NO TERRY ETC) 5802 WOVEN TERRY FABRICS NESOI; TUFTED TEX FABRIC NESOI 5803 GAUZE (OTHER THAN NARROW FABRICS NOT OVER 30 CM) 5804 TULLES & OTHER NET FABRICS; LACE IN PC, ETC. NESOI 5806 NARROW WOVEN FABRICS EXCEPT LABELS ETC IN PC ETC 5809 WOVEN FABRICS OF METAL THREAD & METALIZED YARN NEC 5901 TEXTILE BOOK COV FAB; TRAC CL; PAINT CANVAS ETC 5903 TEXTILE FABRICS (NOT TIRE CORD) COAT ETC, PLASTICS 5906 RUBBERIZED TEXTILE FABRICS, OTHER THAN TIRE CORD 5907 TEXTL FABRC,COATD,ETC,THEATRCL SCENERY,BACK-CLOTHS 6001 PILE FABRICS, KNITTED OR CROCHETED 6002 KNITTED OR CROCHETED FABRICS, NESOI

HS Code of the Category of Yarns for this research 5004 SILK YARN, NOT SPUN FROM WASTE, NOT RETAIL PACKED 5005 YARN SPUN FROM SILK WASTE NOT PUT UP RETAIL SALE 5006 SILK YARN & YARN FROM WASTE RETAIL PK; SILKWM GUT 5106 YARN OF CARDED WOOL, NOT PUT UP FOR RETAIL SALE 5107 YARN OF COMBED WOOL, NOT PUT UP FOR RETAIL SALE 5108 YARN OF FINE ANIMAL HAIR, NOT FOR RETAIL SALE 5109 YARN OF WOOL OR FINE ANIMAL HAIR, FOR RETAIL SALE 5110 YARN COARSE ANIMAL HAIR PUT UP OR NOT RETAIL SALE 5205 COTTON YARN (NOT SEWING THREAD) NU85%COT NO RETAIL 5206 COTTON YARN (NOT SEWING THREAD) UN85%COT NO RETAIL 5207 COTTON YARN (NOT SEWING THREAD) RETAIL PACKED 5306 FLAX YARN 5307 YARN OF JUTE & OTHER TEXTILE BAST FIBERS NESOI 5308 YARN OF VEGETABLE TEXTILE FIBERS NESOI; PAPER YARN 5402 SYNTHETIC FILAMENT YARN (NO SEW THREAD), NO RETAIL 5403 ARTIFICIAL FILAMENT YARN (NO SEW THRED), NO RETAIL 5406 MANMADE FILAMENT YARN (NO SEW THREAD), RETAIL PACK 5509 YARN (NO SEW THREAD), SYN STAPLE FIB, NOT RETAIL 5510 YARN (NO SEW THREAD), ART STAPLE FIB, NOT RETAIL 5511 YARN (NO SEW THREAD), MANMADE STAPLE FIBER, RETAIL 5605 METAL YRN WHET O NT GIMP TEX YRN O STRIP W/METAL 5606 GIMP YRN & STRIP, 5404/5405 CHEN YRN LOOP WALE-YRN 5609 ART O YRN LIKE OF HEAD 5404/5405 TWINE O CABLE NES

2. HONG KONG TEXTILE INDUSTRY 2.1 OVERVIEW Hong Kong is the second largest exporter of textiles in the world after Mainland China. Hong Kong is reputed as a supplier of quality dyed and printed fabrics. It is also strong in cotton spinning, denim weaving, knit-toshape panel knitted and fine-gauge cotton knit manufacturing. This industry has made contribution in supporting the Hong Kong clothing industry as well. In 2004, Hong Kong exported US$6660.3 million of fabrics and US$3689 million of yarns that the industry was one of Hong Kong's major export earners among other industries. On the other hand, Hong Kong is lack of development and technology in new fibres, yarns and fabrics. Therefore, sourcing textile from overseas such as China, Taiwan, Korea and Italy are very important for supporting the Hong Kong clothing industry. Besides, after China s accession into WTO, the import tariff will be gradually reduced; this is anticipated that the import of textile will increase. Hong Kong, being an international sourcing hub, has geographical advantage to the Mainland China. For overseas suppliers which want to develop the market in China, this is important to establish a good relationship with Hong Kong in order to further develop the market in the Mainland China in the future. 2.2 IMPORT Hong Kong s lack of research and development on new fibres or yarns and absence of specialty fabric manufacturers impede product development and diversification of its textile production. In addition, the local textile industry manufactures mainly cotton yarns and woven fabrics, so other fabrics like knitted fabrics, silk, linen, ramie, wool, animal hairs, man-made fibre and blends thereof are mostly imported. 2.2.1 FABRIC In 2004, the import value of fabric increased by 9.39% when compared with 2004. China was still the leading supplying country with market share of 48.33% in 2004, amounted to US$3067.6 million, increased by 10.72%. Other major countries supplying textile to Hong Kong were Taiwan (shared 15.15%, US$961.26 million, +1%), South Korea (shared 10%, US$634 million, -5.3%), Japan (shared 8.06%, US$511.82 million, +14.38%) and Italy (shared 5.29%, US$335.56 million, increased by 29.44%).

Hong Kong Imports of Fabric Top 10 Countries (value: US$) (2002, 2003, 2004) Millions of US Dollars % Share % Change Rank Country 2002 2003 2004 2002 2003 2004-04/03-0 --The World-- 5,648.87 5,802.08 6,346.92 100 100 100 9.39 1 China 2,480.41 2,770.56 3,067.60 43.91 47.75 48.33 10.72 2 Taiwan 1,048.80 950.89 961.26 18.57 16.39 15.15 1.09 3 Korea, South 721.24 669.48 634.01 12.77 11.54 9.99-5.3 4 Japan 460.41 447.49 511.82 8.15 7.71 8.06 14.38 5 Italy 221.09 259.25 335.56 3.91 4.47 5.29 29.44 6 Pakistan 130.31 119.55 141.93 2.31 2.06 2.24 18.73 7 United States 94.34 93.90 103.86 1.67 1.62 1.64 10.6 8 Malaysia 76.71 59.74 83.02 1.36 1.03 1.31 38.97 9 United Kingdom 51.85 58.44 71.82 0.92 1.01 1.13 22.89 10 Indonesia 50.63 46.70 47.00 0.9 0.81 0.74 0.65 In 2004, category HS5209 woven cotton fabric was the top imported item. The import amount was US$1265.34 million that shared 20%, +17%. The 2 nd and 3 rd were HS5407 (woven synthetic fabric) and HS5208 (woven cotton fabric). The import amounts were US$1151.85 million, shared 18.15%, +7.35%; and US$1112.12 million, shared 17.52%, +17% respectively when compared with 2003. The 4 th top item was HS5903 textile coat fabrics (not tire cord), that was imported US$487.91 million and shared 7.69% among other categories, and dropped 3.66%. The 5 th largest imported item was HS5512 woven fabrics of synthetic, amounted to US$259.78 million, recorded an increase of 11.41% and shared 4%.

2.2.2 YARNS Similar to import of fabric, the import performance of yarns also increased by 8.34% in 2004, amounted to US$4101.56 million. China again was the largest supplying country that shared 57%. Besides, China showed continuous growth in the past 3 years. In 2004 the import value increased slightly by 6.19% when compared with 2003, amounted to US$2,330.5 million. Other major import countries were Taiwan (shared 10.5%, increased by 7.5%) and Pakistan (shared 9.5%, increased 23%). Italy ranked the 4 th. Italy was nevertheless the no. 1 European country in supplying yarns to Hong Kong. This year, it showed strong increase of 8.6%, increasing the amount from US$240.81 million to US$261.5 million. South Korea was the 5 th largest yarns supplying country with a slash of 15.6% in 2004 when compared with 2003. In the whole year of 2004, 44.56% of yarns that Hong Kong imported were HS5205 Cotton Yarn. The import value reached US$1846 million and increased by 9% when compared with 2003. The 2 nd major import item was HS5402 Synthetic filament yarn that amounted to US$645.64 million, shared 15.5% among other items, but decreased by 1.28%. Other major import products as usual included HS5509 Synthetic staple fiber yarn, HS5108 yarn of fine animal hair and HS5107 Yarn of combed wool.

Hong Kong Imports of Yarns Top 10 Countries (2002, 2003, 2004) Millions of US Dollars % Share % Change Rank Country 2002 2003 2004 2002 2003 2004 04/03 0 --The World-- 3,325.80 3,785.95 4,101.56 100 100 100 8.34 1 China 1,811.97 2,194.68 2,330.50 54.48 57.97 56.82 6.19 2 Taiwan 347.54 401.29 431.32 10.45 10.6 10.52 7.48 3 Pakistan 297.55 314.78 387.52 8.95 8.31 9.45 23.11 4 Italy 212.83 240.81 261.50 6.4 6.36 6.38 8.59 5 Korea, South 193.56 197.29 166.46 5.82 5.21 4.06-15.63 6 India 103.21 83.60 137.76 3.1 2.21 3.36 64.79 7 Indonesia 93.17 95.05 111.39 2.8 2.51 2.72 17.18 8 Japan 103.39 99.41 95.34 3.11 2.63 2.32-4.1 9 Thailand 22.09 19.30 33.01 0.66 0.51 0.81 71 10 United Kingdom 19.80 22.76 27.82 0.6 0.6 0.68 22.22 Source of data: Hong Kong Census and Statistics Department 2.2 EXPORT 2.3.1 FABRIC In the whole year of 2004, Hong Kong's total exports of fabric recorded a slight increase of 8%. Asia was Hong Kong s leading market for exporting fabrics. As this was found that in the top 10 destinations for textiles exported from Hong Kong, nine of them were Asian countries. The Mainland China was the predominant export market of fabric, shared 73.28% in this period and amounted to US$4880.68 million. Major countries that follow included

Bangladesh, Indonesia, Cambodia that shared 3.19%, 2.31% and 2.28% respectively. Hong Kong Export of Fabric Top 10 Countries (value: US$) (2002, 2003, 2004) Millions of US Dollars % Share Rank Country 2002 2003 2004 2002 2003 2004 % Change - 04/03-0 --The World-- 6,140.26 6,156.62 6,660.30 100 100 100 8.18 1 China 4,473.49 4,451.45 4,880.68 72.86 72.3 73.28 9.64 2 Bangladesh 169.60 176.54 212.39 2.76 2.87 3.19 20.31 3 Indonesia 130.17 144.97 153.63 2.12 2.36 2.31 5.98 4 Cambodia 141.93 153.19 152.14 2.31 2.49 2.28-0.68 5 Sri Lanka 119.23 132.06 142.93 1.94 2.15 2.15 8.23 6 Philippines 149.17 148.29 134.46 2.43 2.41 2.02-9.33 7 Vietnam 77.91 112.09 129.87 1.27 1.82 1.95 15.86 8 Thailand 98.49 90.05 102.66 1.6 1.46 1.54 14.01 9 United States 137.92 91.22 90.10 2.25 1.48 1.35-1.23 10 Macau 72.39 62.67 67.15 1.18 1.02 1.01 7.16 30 Italy 10.25 11.32 11.72 0.17 0.18 0.18 3.51 Source: Hong Kong Census and Statistics Department HS 5209 woven cotton fabrics was the major export product in 2004 that shared 26% and +13% when compared with 2003, amounted to US$1719.33 million. The second largest export fabric item was HS5208 woven cotton fabrics that also increased by 13% and amounted to US$1226.6 million. The 3 rd was HS5407 woven fabrics of synthetic filament yarn, amounted to US$934 million shared 14% among other categories. HS5903 coat fabric recorded a drop of 5.12%, with value US$440.5 millions. HS5309 woven

fabrics of flax, increased by 0.6%, amounted to US$266.71 million and shared 4%. Hong Kong Re-Exports of Fabric Top 10 Countries (value: US$) (2002, 2003, 2004) Millions of US Dollars % Share Rank Country 2002 2003 2004 2002 2003 2004 % Change - 04/03-0 --The World-- 5,443.63 5,633.47 6,196.67 100 100 100 10 1 China 4,184.59 4,253.45 4,676.81 76.87 75.5 75.47 9.95 2 Bangladesh 137.72 148.46 185.28 2.53 2.64 2.99 24.8 3 Indonesia 109.13 123.46 135.33 2.01 2.19 2.18 9.62 4 Cambodia 115.88 122.74 134.57 2.13 2.18 2.17 9.64 5 Sri Lanka 101.12 118.91 129.20 1.86 2.11 2.09 8.65 6 Vietnam 67.75 98.75 118.31 1.25 1.75 1.91 19.81 7 Philippines 113.63 121.67 115.80 2.09 2.16 1.87-4.82 8 Thailand 88.32 82.15 94.15 1.62 1.46 1.52 14.62 9 India 40.33 44.77 59.04 0.74 0.8 0.95 31.89 10 Macau 48.76 48.66 57.72 0.9 0.86 0.93 18.6 32 Italy 7.33 7.01 6.23 0.14 0.12 0.1-11.14 Source: Hong Kong Census and Statistics Department Re-exports accounted for 93% of total exports, which recorded a double-digit increase of 10% compared with 2003. The re-export amount reached US$6196.67 million. 75.5% of the fabrics were re-exported to China, increased by 10% in 2004 and accounted for US$4676.81 million.

2.3.2 YARNS Hong Kong s exports of yarns increased by 7.5% when compared with year 2003. China, the leading market of Hong Kong s yarns exports, occupied 86% of the total exports of yarns. In 2004, the value of total exports of yarns increased by 7.4% and reached US$3201.54 million. The 2nd major export country was Japan, increased by 33% with the export amount increased from US$49 million to US$65.72 million. Thailand, the 3 rd largest exporting market, the total export value of yarns increased to US$59.47 million, with an extent of 7.8%. Australia remained stable with 0.9% increase. Other top countries such as Bangladesh, UK, Philippines and Vietnam recorded negative growth of 5%, 12%, 4% & 12% respectively when compared with 2003. Whereas Cambodia leaped 107%, amounted to US$38.35 million with market share of 1%. Hong Kong Exports of Yarns Top 10 Countries (value: US$) (2002, 2003, 2004) Millions of US Dollars % Share Rank Country 2002 2003 2004 2002 2003 2004 % Change - 04/03-0 --The World-- 3,014.79 3,430.82 3,689.10 100 100 100 7.53 1 China 2,555.95 2,980.75 3,201.54 84.78 86.88 86.78 7.41 2 Japan 42.81 49.33 65.72 1.42 1.44 1.78 33.24 3 Thailand 54.01 55.16 59.47 1.79 1.61 1.61 7.8 4 Australia 61.51 58.12 58.64 2.04 1.69 1.59 0.9 5 Bangladesh 41.66 42.66 40.31 1.38 1.24 1.09-5.51 6 Cambodia 22.84 18.52 38.35 0.76 0.54 1.04 107.05 7 United Kingdom 30.48 31.42 27.52 1.01 0.92 0.75-12.41 8 Philippines 32.93 28.26 27.16 1.09 0.82 0.74-3.92 9 Vietnam 8.15 22.92 20.07 0.27 0.67 0.54-12.41 10 Malaysia 16.22 13.19 18.50 0.54 0.38 0.5 40.23 22 Italy 1.97 2.46 3.15 0.07 0.07 0.09 28.28 Source: Hong Kong Census and Statistics Department

HS5205 Cotton yarn was the major exporting item in 2004 that shared 49% among others and the export amount increased from US$1696.6 million to US$11796.26 million, up 6%. HS5402 Synthetic filament yarn that was the 2nd largest exporting item, amounted to US$570.72 million, also increased by 6% in 2004. Other major products included HS5509 Synthetic staple fiber yarn, HS5107 yarn of combed wool and HS5206 Cotton yarn (not sewing thread).

2.4 LOCAL PRODUCTION In recent years, with rising production costs and stringent environmental regulations, an increasing number of manufacturers have shifted their production of lower-end products to the Chinese mainland and Southeast Asian countries. Their manufacturing operations in Hong Kong are focused on sophisticated and high value-added items, including quality ring-spun, openend yarn, fine gauge knitted fabrics as well as complicated dyed and printed fabrics. China's WTO accession offers good opportunities for Hong Kong's textiles industry. On one hand, phasing out the quota restriction on imports of Chinaorigin apparel in accordance with the Agreement on Textiles and Clothing (ATC) schedule is expected to encourage Hong Kong manufacturers to shift more of their production to the mainland, thereby enhancing their cost competitiveness. On the other hand, China's commitment to further open its domestic market will facilitate Hong Kong's textiles manufacturers and traders contemplating or expanding domestic sales on the mainland. The textiles industry is a major supplier to the local clothing industry. With textile plants in the South East Asia, Hong Kong textile manufacturers have an advantage in accommodating orders from local garment manufacturers in short notice. Meanwhile, a significant portion of textiles exports is destined for use in Hong Kong companies' offshore production of garment, especially in the Chinese mainland.

3. ITALIAN TEXTILE IN HONG KONG 3.1 IMPORT Italian textile is famous and popular in Hong Kong. In 2004, Italy ranked no. 4 and 5 in yarns and fabric respectively of Hong Kong imports in terms of value and that was competing with the Hong Kong s adjacent countries such as China, Taiwan, Korea, Japan and Pakistan. Italy is undoubtedly the strongest European textile supplier in Hong Kong import market. 3.1.1 FABRIC In 2004, the import market of fabric was recovering. Hong Kong s import of Italian fabric also increased by 30% to an amount of US$335.56 million. The market share showed slight increase from 4.47% to 5.29%. Italy ranked the 5 th top supplying country. In 2004, HS5208 Woven cotton fabrics was the major item imported from Italy to Hong Kong market, shared 22% with import amount of US$74 million, increased strongly by 62% when compared with year 2003. HS5112 Woven fabrics of combed wool, HS5209 Woven cotton fabrics, HS5903 Coat textile fabric and HS5407 Woven fabrics of synthetic filaments as well as HS5309 Woven fabric of flax recorded strong raises of 28%, 7%, 42%, 21% and 20% respectively. Hong Kong Imports of Fabric from Italy Top 10 Categories (value: US$) (2002, 2003, 2004) Millions of US Dollars % Share % Change - 04/03 HS Description 2002 2003 2004 2002 2003 2004 - Italy 221.09 259.25 335.56 3.91 4.47 5.29 29.44 5208 WOVEN COTTON FABRICS, NU 85% COT, WT NOV 200 G/M2 30.18 45.83 74.11 13.65 17.68 22.09 61.72 5112 WOVEN FABRICS OF COMBED WOOL OR FINE ANIMAL HAIR 49.27 53.31 67.99 22.28 20.56 20.26 27.54 5209 WOVEN COTTON FABRICS, NU 85% COT, WT OV 200 G/M2 19.46 27.79 29.75 8.8 10.72 8.87 7.07 5903 TEXTILE FABRICS (NOT TIRE CORD) COAT ETC, PLASTICS 12.90 16.34 23.14 5.84 6.3 6.9 41.62 5407 WOVEN FAB OF SYN FIL YN, INCL MONOFIL 67 DEC ETC 12.84 17.35 21.04 5.81 6.69 6.27 21.26 5309 WOVEN FABRICS OF FLAX 13.71 14.88 17.84 6.2 5.74 5.32 19.87 5408 WOVEN FAB OF ART FIL YN, INCL MONOFIL 67 DEC ETC 12.22 13.81 15.60 5.53 5.33 4.65 12.94 5210 WOVEN COTTON FABRICS, UN85%COT, MMFMIX, NOV200G/M2 10.86 10.31 14.89 4.91 3.98 4.44 44.33 5111 WOVEN FABRICS OF CARDED WOOL OR FINE ANIMAL HAIR 12.81 10.41 11.35 5.8 4.02 3.38 9.08 5007 WOVEN FABRICS OF SILK OR SILK WASTE 6.79 6.81 9.94 3.07 2.63 2.96 45.9 Source: Hong Kong Census and Statistics Department 3.1.2 YARNS In 2004, yarns from Italy also increased. Import value was US$261.5 million which increased by 9% when compared with 2003. Italy kept the ranking as 4 th top supplying country, apart from United Kingdom, Italy was the only European country among the top 10.

In 2004, HS5107 Yarn of combed wool and HS5106 Yarn of carded wool were the top popular items as usual that shared 43% and 15% among others. Both HS5107 & HS5106 increased by 9% and 5% respectively. HS5108 yarn of fine animal hair still kept dramatic growth of 37% from US$25.54 million to 34.88 million, which ranked it the top 3rd item. Another top item was HS5205 cotton yarn also recorded a substantial growth of 15% with import value of US$16.64 millions. Hong Kong Imports of Yarns from Italy Top 10 Categories (value: US$) (2002, 2003, 2004) Millions of US Dollars % Share % Change - 04/03 HS Description 2002 2003 2004 2002 2003 2004 - Italy 212.83 240.81 261.50 6.4 6.36 6.38 8.59 5107 YARN OF COMBED WOOL, NOT PUT UP FOR RETAIL SALE 89.04 103.39 112.68 41.84 42.94 43.09 8.98 5106 YARN OF CARDED WOOL, NOT PUT UP FOR RETAIL SALE 45.02 37.86 39.80 21.15 15.72 15.22 5.12 5108 YARN OF FINE ANIMAL HAIR, NOT FOR RETAIL SALE 15.18 25.54 34.88 7.13 10.61 13.34 36.6 5205 COTTON YARN (NOT SEWING THREAD) NU85%COT NO RETAIL 12.95 14.47 16.64 6.08 6.01 6.36 14.97 5509 YARN (NO SEW THREAD), SYN STAPLE FIB, NOT RETAIL 16.15 18.76 15.00 7.59 7.79 5.74-20.02 5510 YARN (NO SEW THREAD), ART STAPLE FIB, NOT RETAIL 7.40 11.82 14.27 3.48 4.91 5.46 20.73 5402 SYNTHETIC FILAMENT YARN (NO SEW THREAD), NO RETAIL 9.17 9.52 9.98 4.31 3.95 3.82 4.89 5403 ARTIFICIAL FILAMENT YARN (NO SEW THRED), NO RETAIL 5.68 6.96 6.25 2.67 2.89 2.39-10.23 5206 COTTON YARN (NOT SEWING THREAD) UN85%COT NO RETAIL 3.44 4.44 3.90 1.62 1.84 1.49-12.26 5109 YARN OF WOOL OR FINE ANIMAL HAIR, FOR RETAIL SALE 3.24 2.64 2.72 1.52 1.1 1.04 2.8 Source: Hong Kong Census and Statistics Department

3.2 POSITION OF ITALIAN TEXTILE Hong Kong is a regional centre for sourcing garments over the years. Major export markets of garments manufactured in Hong Kong include USA, Germany, Japan, UK and China, etc. Hong Kong s manufacturers have moved towards higher-value-added fashion items through design and quality improvements. Moreover, many designer labels like DKNY, CALVIN KLIEN, POLO, ESCADA, MONDI, etc. have shifted part of their production to Hong Kong and they require higher quality textile materials. Italian textile, being positioned in the high price / quality segment fulfills the requirements of these garment manufacturers. Italy is renowned of its textile technology and innovation in Hong Kong. Italy, with the best textile machinery in the world, together with continuous investment in research and development, produces the highest level of fabrics and yarns. Every year, many companies engaged in the textile industry in Hong Kong go to the textile trade fairs in Italy to update their latest textile trend and to look for suitable suppliers. Italy is famous of its creativity in textile design no matter for the use of material, blending and outlook. Although it is common that their design will be copied by the Asian textile manufacturers, the latter usually cannot copy exactly the pattern due to the limitations in technology and the quality will also not be comparable with those made in Italy. The most popular textile items imported from Italy are fabrics or yarns of carded / combed wool or fine animal hair. These textile items are usually used in producing high quality garments like knitwear, overcoats, suits or tailleurs. Many designer labels use only Italian textile materials and even local chain stores like G2000, Moiselle, Gay Giano, they will have an assortment strategy for using the textile from Italy and from Asia. Other popular items imported from Italy include fancy yarns (for yarns sector), nylon/polyester fabrics, cotton fabrics, knitted fabrics and fabrics of various blends. With high level in quality and design, Italy is also well known for its position in the high price bracket and therefore its popularity is limited in the Hong Kong manufacturing industry. Fortunately Italian textile suppliers also adopt a low minimum order strategy that usually fits the need of the garment manufacturers. Comparison of pricing/quality or other attributes with different countries will be presented in the coming section.

3.3 COMPARISON OF ITALIAN TEXTILE WITH OTHER COUNTRIES 3.3.1 TYPES OF TEXTILES China China has always been the leading textile supplier to Hong Kong. The extent of textile specialized by China is quite wide, ranging from various kinds of textile yarns (particularly for cotton yarns), cotton fabrics, knitted fabrics and other woven fabrics. Taiwan Taiwan is the second largest textile supplier to Hong Kong after China. Taiwan is more specialized in producing man-made woven fabrics, knitted fabrics and cotton fabrics. Regarding yarns, Taiwan is good at filament yarns made of nylon / polyester. Korea Being the third supplying country of textile to Hong Kong, Korea is strong at producing man-made woven fabrics and filament yarns of man-made fibres. Japan As the fourth largest textile supplying country to Hong Kong, Japan is more specialized in producing different kinds of fabrics including knitted fabrics, woven fabrics like cotton. Italy As the no. 1 European supplier of textile to Hong Kong, Italy is more specialized in producing woven fabrics of wool / fine animal hair, textile yarns of same material or blends thereof. 3.3.2 PRICE Basically the supplying countries can be generally categorized as follows according to the pricing of most kind of fabrics: Highest price: Italy / France / Spain / Germany Middle to high price: USA / Japan Low to Middle price: Taiwan / Korea Lowest price: China/Pakistan/Thailand/Philippines/Indonesia Of course the above is just indicative categorization only since Japanese textiles could be more expensive than some Italian textiles. The range of difference among the countries of supply differs for different kinds of fabrics. For example, it is said that for cotton yarns from China or Pakistan can be of price a few times less than those from Italy. But of course the Italian yarns are usually of much higher quality, for example they are

mercerized cotton using softer, cleaner and longer filament. Also it is said that although the price of Italian textile is usually higher, the minimum quantity is usually lower. This provides a competitive advantage for garment manufacturers, which cannot import large quantity for high priced textile. It is found that for manufacturers which produce medium or medium-low level garments or knitwear, they would usually select fabrics or yarns from Taiwan / Korea / China or other countries which are of medium or low price range. Companies which mainly select European or Japanese fabrics are buying offices of designer labels or fashion chain shops. For these companies, they are more concerned about the quality and would be willing to pay higher price for better quality and design. 3.3.3 Delivery and Response For countries like China, Taiwan and Korea, due to their proximity to Hong Kong, the delivery is usually more on-time and the response is usually quicker as mentioned by the garment / knitwear manufacturers. Italy, being famous of its design and innovation of its textiles, one of the major drawbacks is its delivery and response. According to some manufacturers in Hong Kong, the delivery of Italian suppliers is usually not on-time and the response of the mills is usually slow. This might be because of the different mentality and the Italian textile suppliers do not have many staffs who speak / write English well. 4. BUYERS PROFILE In Hong Kong, the target buyers of fabrics are garment manufacturers. While for yarns, only industrial knitting yarns of which the buyers are knitwear manufacturers will be concerned. It is because in Hong Kong, there are not many weavers of fabrics and therefore weaving yarns are not popular. Purchase concerns of both garment and knitwear manufacturers are quite similar. Nowadays, garment / knitwear buyers or buying offices used to purchase directly with fabrics suppliers fabrics or spinners yarns for production of their collection. In this case, the garment / knitwear manufacturers will have to follow the buyers instructions to use the selected suppliers fabrics or yarns. Or when the buyers have any ideas about the yarns to be used, the manufacturers will have to look for suitable fabric suppliers / spinners products to suit their buyers requests. Therefore, the garment / knitwear manufacturers have to follow the garment / knitwear buyers / buying offices budget to choose what kind of fabrics / yarns to be used, what country of origin to be sourced, and sometimes even what brand name or suppliers fabrics or yarns to be actually used. Price is particularly important when the manufacturers are producing medium/low priced garment / knitwear. As mentioned by the fabric / yarns agents in Hong Kong, garment / knitwear manufacturers are not loyal to any brand or suppliers products and they will shift to other suppliers whenever they can get a better price for similar quality.

5. DISTRIBUTION NETWORK Capitalising on the long experience in the manufacturing of textiles, many Hong Kong companies are engaged in textiles trading. Some international textiles companies also set up regional headquarters in Hong Kong to provide prompt services to the clients in the region, particularly Hong Kong and the Chinese mainland. Hong Kong is both a leading production centre and a hub for clothing sourcing globally. As such, Hong Kong's textiles industry is well positioned to serve both the local and overseas clothing manufacturers and merchandisers. The distribution network is quite simple for the textile sector in Hong Kong. Usually the overseas textile suppliers will sell their products to the garment / knitwear manufacturers through the following channels: Textile Agent Branch office Trading companies The Internet also offers a cost-effective solution to buyers and suppliers in the textiles and garment industries. Web-based information technology is being used to enhance supply chain management and distribution networks. Hong Kong companies are also embracing this phenomenon in earnest. They provide B2B web-based support for garment traders. Prominent examples include TexWatch.com, i-textile.com and ApparelCircle.com. 6. IMPORT REGULATION Hong Kong is a free port with no particular rules on import of textile from other countries. There is also no duty or tax on imported textile and there is no particular specifications required for labeling and packaging. Only the following documents will be required: Import license form 7 (to be applied by the importer in Hong Kong before shipment) Import declaration form 1 (to be submitted by the importer in Hong Kong within 14 days after shipment) 7. PAYMENT TERM The most common form of payment is by letter of credit which is usually issued by the garment / knitwear manufacturers banks to the textile suppliers directly. However if the order amount is too small, usually the textile agents can pay on behalf of the manufacturers to their principals. Usually the textile agents can offer up to 30 days credit period to the local manufacturers. While the textile suppliers can offer up to 60 days of credit period to their agents in Hong Kong. Regarding the commission, it is usually settled every 3 months by the textile suppliers with their agents in Hong Kong.

8. PROMOTION ACTIVITIES The textile industry is mainly promoted through various exhibitions, seminars and specialized trade magazines in Hong Kong. 8.1 EXHIBITIONS Interstoff Asia This is a textile show in Hong Kong, which is held twice a year in March and October at the Hong Kong Convention & Exhibition Centre. Major exhibits include all kinds of textile fabrics like silk, cotton, wool, knitted, man-made, coated, linen, ramie. Textile yarns, fabrics for lingerie and swimwear, embroideries, lace and accessories, etc. are also presented. Moreover, new technologies for design / styling, CAD/CAM/CIM, plus publishers of textile related magazines also take part in this exhibition to reach the textile buyers and garment manufacturers. 8.2 JOURNALS Some major industrial magazines of textile are also popular for the industrial people in Hong Kong as below: Inside Fashion Textile Asia ATA Journal China Textile & Apparel Textile & Clothing Bulletin Garment World Accessories Collection 8.3 LOCAL ASSOCIATIONS RELATED TO TEXTILE SECTOR The followings are some local associations in Hong Kong related to the textile sector. The Federation of Hong Kong Garment Manufacturers The Federation of Hong Kong Cotton Weavers Hong Kong Garment Manufacturers Association Hong Kong Association of Textile Bleachers, Dyers, Printers & Finishers Hong Kong Chinese Textile Mills Association Hong Kong Cotton Made Up Goods Manufacturers Association Hong Kong Cotton Spinners Association Hong Kong Embroidery Merchants Association Ltd Hong Kong Institution of Textile and Apparel Hong Kong Knitwear Exporters & Manufacturers Association Hong Kong Piece-Goods Merchants Association Hong Kong Weaving Mills Association Hong Kong Woollen & Synthetic Knitting Manufacturers Association IWS International Pty. Ltd. Textile Council of Hong Kong

9. CONCLUSION In recent years, Hong Kong government encourages the garment industry to focus on high fashion and to become a competitive fashion centre. Therefore, the local garment manufacturers are of increasing interest to improve the technology and to purchase higher quality materials to add value to their textile products. With improved functions and high level of comfort, multipurpose fabrics are expected to be increasingly popular in outerwear and activewear. For instance, greater attention has been given to the fabrics with functions like waterproof, anti-bacteria, odour-prevention and quick drying. Also fancy and fashionable fabric and yarns still have great demand from Hong Kong importers. Besides, China's accession into the WTO benefits Hong Kong manufacturers in terms of increased access to overseas markets for China-origin textiles and clothing products, and further opening of the mainland's consumer market. 10. RECOMMENDATION TO ITALIAN TEXTILE SUPPLIERS Although competition is keen for textile supply from other countries, Italy is still the number one high quality textile supplier to Hong Kong. For countries like China, Taiwan, Korea and Pakistan, though they attain a very large market share regarding Hong Kong s textile import, they are primarily supplying textile of lower-priced segment. Nevertheless, in order to maintain its leading position in the niche market of high level textile and to adapt to Hong Kong s changing market needs as to move towards high quality garment production, Italian suppliers have to strive their best particularly in the following areas: Good price in good quality Innovative design Shorter lead time Rapid response