Date
14 November 2018
Profit margins have shrunk in the garment industry in the Pearl River Delta as labor costs have risen. Photo: Bloomberg
Profit margins have shrunk in the garment industry in the Pearl River Delta as labor costs have risen. Photo: Bloomberg

INTERVIEW: Rising costs send HKI to the garment factory exit

Diversified Hong Kong-based HKI Group will finally shutter its garment factories and retail clothing businesses in the Pearl River Delta over the next three years as profit margins unravel from rising labor costs, according to the group’s chairman.

A decline in new orders as a result of the global economic recession and the rising yuan have also helped spell the end for HKI’s garment factories, which at their peak employed more than 20,000 people, a number that has since shrunk to about 1,500.

“I’ll close our mainland factories in three years when most of the staff have reached retirement age,” group chairman Jose Yu {楊孫西} told the Hong Kong Economic Journal’s EJ Insight.

“I could have ended the business earlier but I have to be responsible for the staff, some of whom have served for the company for 30 years.”

HKI’s exit comes more than four decades after it started out in Hong Kong’s Kwun Tong district in 1969 as a small clothing workshop before expanding into toy manufacturing, international trade, and property development.

In the 1990s, the company was one of the first of what would be a tide of manufacturers heading to the mainland to take advantage of China’s reform and opening up.

The clothing manufacturing arm thrived amid the mainland’s cheap labor and land prices before hitting turbulence in 2008. That was the year China introduced the Labor Contract Law, setting a higher labor protection standard, which added costs to manufacturers. It was also the year of the global financial crisis and a rapidly rising Chinese currency, which combined to force thousands of garment makers in the delta to move or shut up shop.

The minimum monthly salary for workers roughly doubled between 2007 and 2013, rosing from 850 yuan (US$133) to 1,600 yuan in Shenzhen, from 780 yuan to 1,550 yuan in Guangzhou, and 690 yuan to 1,310 yuan in Dongguan, according data from human resources authorities.

“I have not dared to hire any more workers since then,” Yu said.

HKI may be winding down its garment operations but it will retain a manufacturing presence in the delta. “We’ll keep our toy-making unit, because the group still has comparative advantages in certain technical production processes,” Yu said.

Found property

But the loss of the garment business is not a huge blow for the group when much of its income now comes from mainland property. These days HKI is best known for its big, high-end commercial projects in several key business districts across the nation.

“We’ve just inaugurated a grade-A office building in Beijing’s central business district and set a new record for rent in the city with an average of 500 yuan per square meter per month,” he said.

The company is also on the lookout for promising projects in Chongqing, Tianjin, Jiangsu and Fujian.

With decades of experience working on both sides of the border, 74-year-old Yu has had time to reflect on Hong Kong’s rising social and political tensions with the mainland.

“Hong Kong has to face the fact that the city is now a part of a country of 1.3 billion people,” Yu said, when asked about his view on the issues.

“I wish both sides could sit down and have peaceful dialogue,” he said. China’s reform and opening up has given Hong Kong businesspeople many opportunities and incentives. “We should seek out mutual benefit for Hong Kong and the country,” Yu said. 

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