Trump’s attack on the ‘Made-in-HK’ label expected to hurt some firms but not local pride in brand

17-Sep-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

At a factory tucked away on the east of Hong Kong’s border with mainland China, entrepreneur Kelvin Shi Kam-fung rolls up his sleeves, hops into a crane and manoeuvres it to pick up heavy wooden pallets and toss them into a machine.

The sound in the 20,000 sq ft space is deafening as the machine swallows the pallets whole, grinds them up and spits out the nails sucked up by a gigantic magnet. The broken wood is processed into a final product cat litter for sale at pet shops in Hong Kong.

Shi, 31, started his Green Paws business from scratch last year, driven by an ambition to offer environmentally friendly, “made-in-Hong Kong” products. An interior architect by training, he has seen his peers take up cushy jobs in banking and accounting, but he is determined to put his brand on shelves in markets such as Taiwan and Japan.

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“I don’t mind working in this dusty factory,” he said, his shirt soaked with sweat. “This business is the first of its kind in the city and is truly 100 per cent made in Hong Kong.”

But that label, and the cachet it bestows upon products, faces a threat. Under sanctions imposed by the Trump administration over what it claims is an erosion of civil liberties in Hong Kong, the city must start labelling its home-made exports to the United States as “Made in China” beginning on November 9.

Losing that distinction would be a blow to the city’s manufacturers that either rely on the American market or have ambitions to break into it. After price, the source of origin is often the next piece of information consumers check before deciding whether to buy a product. It guides their opinion on quality and whether it is safe and reliable.

The question facing local manufacturers is how to leverage their international reputation to expand into other markets, while at the same time overcoming the existing hurdles standing in the way of a potential revival costly factory space, a dearth of talent that gives birth to innovation and the limited demand at home.

Down but not out

The city’s roots in manufacturing run deep, with the made-in-Hong Kong label once a familiar sight around the world on everything from toys to cheap electronics. But with the opening of mainland China in the late 1970s, factories started to shift across the border, lured by cheap labour. The government began to focus on service industries, setting down a path that would eventually transform the city into a global financial hub.

They now take up the lion’s share of Hong Kong’s economy, at 93.1 per cent in 2018, while manufacturing accounted for just 1 per cent, figures that were about the same over the five years before that, according to latest available government statistics.

The city was home to about 7,400 manufacturing companies in 2018, down by 2.65 per cent from the year before. But fewer than 400 brands are home-grown, according to Dennis Ng Wang-pun, president of the Chinese Manufacturers’ Association, one of Hong Kong’s largest business groups. Those products range from jewellery and food to pharmaceuticals and electronic goods that ship to markets including the US, mainland China, the European Union and other parts of Asia.

In terms of locally made products, the city exported $471 million worth of goods to America, accounting for just 0.1 per cent of the total exports. But depending on the company, that access can be a lifeline. For jewellery manufacturers, for instance, the US market can be lucrative, with consumers more ready to spend.

Banking on local trust

Jeffrey Lam Kin-fung, a member of the city leader’s de facto cabinet, has faith in the city’s established experience behind the made-in-Hong Kong label. He led a group of undisclosed investors in April to set up face mask production in the city. The local label meant a vote of consumer confidence, he said.

“There is a situation in the market where more people go for more expensive, made-in-Hong Kong masks than those produced across the border, even though they cost less,” Lam said. “Hong Kong’s product quality, design, certification and intellectual property protection have been well-recognised worldwide.

The masks, sold under the CareHK brand, were originally meant to meet chronic shortages during the Covid-19 pandemic in the spring. But with no end in sight to the public health crisis, Lam is confident of long-term demand. The company is now churning out 10 million masks every month for local consumption at its Tai Po factory.

CareHK is among scores of factories that have set up more than 200 mask production lines in the city since the outbreak of the pandemic, according to the business chamber Federation of Hong Kong Industries.

Shi of Green Paws is also relying on the local market, with an eye on the growing popularity of keeping pets such as cats, chinchilla and birds. His products sell for about HK$60 (US$8) per 4.5kg, about half the price of imported versions. The factory also produces horse pellets for the Macau Jockey Club.

Shi, who returned to Hong Kong in 2017 after finishing his university studies in Australia, was inspired by his family’s electronic manufacturing business across the border and his own cat. He tailor-made his production facilities by modifying recycling machines imported from the mainland, blending in European upcycling technology, to produce what he said is hygienic, biodegradable and chemical-free cat litter.

“There is no machinery on Earth that upcycles wooden pellets into cat litter,” he said. “So I bought individual components and put them together. When the machinery arrived at the factory in parts, I assembled them based on a one-page guide.”

To save costs, Shi’s plant is heavily automated, allowing him to keep the company’s headcount to just five, including himself. He has invested nearly HK$10 million (US$1.29 million) into the project.

“Land is so scarce and costs are so high that I don’t think the business will thrive without automation and innovation,” he said, adding his biggest cost was the factory rent of HK$100,000 a month.

The lure of new markets

But Hong Kong’s innovation and technology ecosystem remains in infancy, compared with the US where bigger companies such as Google, Facebook and Apple attract talent, according to Kevin Tsui Ka-kin, an associate professor of economics at Clemson University in South Carolina.

“Hong Kong’s market is too small to make a business profitable,” Tsui said. “Manufacturers will have to tap other markets such as [mainland] China, Asia or even Europe.”

Wing Cheong Jewellery International is doing exactly that. The jewellery maker and wholesaler is looking to reduce its reliance on the US and push deeper into both the mainland and the United Arab Emirates, according to chair and CEO Benny Do Yuen-ling.

Made-in-Hong Kong products are known for their quality and sophisticated craftsmanship

Benny Do, head of Wing Cheong Jewellery International

The company, which has been selling diamond and pearl products to the US for more than 30 years, will keep its Hong Kong workshop running even though the industry has recently fallen victim to deteriorating US-China ties.

“I have never seen US-China tensions reach such a bad stage, nor the type of policy the US has imposed on Hong Kong in my 40-year career in the industry,” Do, 57, said. “How will the new labelling be enforced that’s the question.”

About half of Hong Kong’s jewellery exports had gone to the US in the past few years, Do said. Amid the ongoing fallout between Washington and Beijing, the company has cut its presence in the US from about 40 per cent to roughly 10 per cent over the past two years, he added.

While WCJ mass produces jewellery in its factory in Shunde, Guangdong province, its higher-end products are crafted in its workshop in Hong Kong’s Hung Hom district in Kowloon.

“Made-in-Hong Kong products are known for their quality and sophisticated craftsmanship,” Do said. “Made-in-China products are normally mass-produced and their prices tend to be more mass market.”

Local start-up Farm66 is also banking on local and overseas markets. Gordon Tam Chi-ho, a co-founder of the hydroponic cultivation firm in Tai Po, recently signed two contracts with governments to export his company’s farming technology and know-how to Hengqin, a special economic zone in Zhuhai in Guangdong, as well as Dubai in the United Arab Emirates.

“Farming in the city is a drop in the bucket,” Tam said. “We insist on growing vegetables in Hong Kong to provide safety and value for consumers because we basically live on imported food.”

Founded in 2013, Farm66 aims to compete on efficiency, technology via automation, robotic equipment and big data analysis at its 10,000 sq ft indoor farm, which it intends to expand to 18,000 sq ft by April.

At the vertical farm, shovels and hoes have been replaced with artificial intelligence and robotic arms.

Tam said a system powered by AI gauges lighting, temperature, water quality and crop growth in a controlled environment.

At the end of the month, the robotic arms will harvest vegetables such as lettuce, wild rocket, endives, radish and cabbage. It is testing growing ginseng and vegetables used in traditional Chinese medicine.

Tam said the technology could help reduce the growing cycle from 55 days to 30 days, save 30 per cent space and reduce monthly operating costs by 50 per cent, all while lifting monthly output by 80 per cent. But the venture is costly investment has jumped fourfold to HK$8 million.

“This is the fruits of our made-in-Hong Kong technology and know-how,” he said.

The robotic arms on trial at Farm66 are also designed and manufactured in Hong Kong by Inovo Robotics at its office in the science park at Pak Shek Kok. Co-founder Jonathan Cheung, an engineer who previously designed bomb disposal robots in Britain before returning to the city to set up the company in 2015, said the collaboration with the farming firm was a win-win arrangement for products made in Hong Kong. The company had ploughed about HK$4 million into developing and producing robotic arms, which were suitable for use in kitchens and manufacturing processes, he said.

“We make automation easier and bring capability of using robots in factories to small and medium-sized enterprises in Hong Kong for quicker production and higher quality of products and reduced cost of labour,” he said.

Despite having lived most of his life in Britain, Cheung is proud of the made-in-Hong Kong robotic arms.

Looming deadline

The White House is arguing the recent adoption of the Beijing-decreed national security law has robbed the financial hub of its defining freedoms. If Hong Kong is to become just another mainland city, then the US will treat its exports exactly the same way.

Technically, with Hong Kong a member of the World Trade Organisation member, it enjoys the status of a separate customs territory from mainland China under the “one country, two systems” principle that affords the city a high degree of autonomy.

With the US mandated changeover fast approaching, the Hong Kong government is being urged to step up its lobbying efforts or come up with a workaround, with “Made in Hong Kong, China” one possibility.

Pro-establishment Liberal Party leader Felix Chung Kwok-pan has urged the government to hold its ground.

“The US is the only market out of about 170 requiring producers to change the Hong Kong label to ‘Made in China’, which gives a false impression that Hong Kong-produced goods no longer exist,” Chung said.

As Jeffrey Lam put it: “The made-in-Hong Kong label means a lot.”


Category: Hong Kong

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