At the opening ceremony of the Fair on Wednesday, September 3, Mr. Tse Wai Hang, the Co-Chairman of the Fair Organizing Committee broke the good news: “Hong Kong's export of watches and clocks increased by 14% to a value of US$ 2.5 billion in the first half of the year. Our timepiece exports are expected to expand moderately for 2003 as a whole. The gradual improvement of the world economy, a stabilizing US market, strong European currencies and the revival of the South East Asian consumer market after SARS will benefit Hong Kong's exports. In the Chinese mainland, consumers are increasingly looking for higher quality items; watches bearing the Hong Kong label should enjoy a premium in the market.”



Improved sales figures

The increase of 14% for the first six months of the year is in fact quite remarkable given that around 30% of Hong Kong's watch business is normally written during the Basel Fair. And unless you have been hiding in an igloo in the Arctic circle for the last few months you certainly know that the Hong Kong manufacturers were forbidden by the Swiss Government to sell their products in the ill-fated Zurich section of BaselWorld because of the SARS outbreak. However, despite the Swiss fiasco (which has now been partially resolved by the propitious signing of an agreement between the BaselWorld organizers and the Hong Kong Trade Development Council whereby Hong Kong's manufacturers return to a new, specially conceived pavilion) Hong Kong manufacturers managed to recover some of their lost ground at the JA Show in July in New York.

According to the latest statistics available, Hong Kong remains the second largest exporter of complete watches in both value and quantity, whilst its clock exports are ranked the largest in value terms and second in quantity. The US and the EU remain Hong Kong's largest markets with a combined total of almost 46% of its total exports, whilst countries such as China, Japan, Switzerland and Germany remain very important importers of watches made in Hong Kong.

This year, in the January to June period there were important increases of exports over the corresponding period of 2002 to Germany (+47%), Japan (+32%), Taiwan (+28%) South Africa and Singapore (both +25%). In its re-exports of watches - i.e. those with parts from, or assembled elsewhere - there was an increase of 16%. These figures are corroborated in the import figures which now place China as the largest exporter to Hong Kong with a 42% increase in 2002 and an 18% increase for the first six months of this year. Switzerland remains the second most important supplier with an 8% increase in 2002 and an impressive 24% increase in the January-June period of this year.

Although there is ever increasing competition from some of the other Asian countries, Hong Kong's watch and clock exports have hardly been affected, due mainly to the increased efforts of the exporting companies. However, the biggest challenge facing Hong Kong is the increasing output from mainland China - which leads us to one of the major talking points at the Fair ... CEPA.



What is CEPA?

The acronym CEPA crept into many conversations during the Fair so I approached Stanley Lau, the Managing Director of Renley Watch Manufactur-ing, owner of Swiss brands Buler, Jean d'Eve and Sultana and President, Hong Kong Young Industrialists Council and Chief Adviser, Hong Kong Watch Manufacturers Association.

“CEPA stands for Closer Economic Partnership Arrangement. It is an agreement between the Hong Kong and Chinese Governments that was signed on June 29th of this year and becomes effective January 1, 2004. The talks began some eighteen months ago because Hong Kong has been facing trading difficulties over the past few years and the Hong Kong Government had some ideas on how to work closer with China and to make business easier,” Staley Lau explains.

"Hong Kong has been the window of China for years and our businessmen have been going there for more than forty years and some even began moving there some twenty years ago. Consequently, the CEPA discussions are meant to offer a priority to Hong Kong companies. The major points in the agreement are a free trade deal between Hong Kong and China, a significant liberalization of the Chinese market and preferential access to China from Hong Kong.

“In the CEPA agreement there are 273 products that will benefit and fortunately watches and clocks are included, which means that as of January 1 2004 watch products made in Hong Kong can then be imported to the Chinese mainland with a zero per cent tariff. But one of the points under discussion is just what constitutes a Hong Kong watch? Does this include watches that have parts manufactured in China and assembled in Hong Kong? The Chinese Government initially proposed that 30% of the value of the watch had to come from Hong Kong, but just what constitutes a 'Hong Kong watch' is still under discussion and has yet to be clearly defined.”



Advantage for branded watches

More than 75% of Hong Kong's watch business is what they call OEM (Original Equipment Manufacturing or private label) and only 25% is ODM (Original Design Manufacturing or branded watches), so it appears that the real winners will be those companies who have an established brand name since their products would be imported with a zero tariff. Because Hong Kong watches are considered to be of a superior quality to those produced by Chinese manufacturers, this would dramatically improve their competitiveness on the mainland.

In addition to the zero tariff on 90% of Hong Kong's exports to the mainland the CEPA agreement is being referred to as 'A new springboard to China' or 'Your expressway to China' since it will make Hong Kong the simplest and most profitable route into and out of China for 'service providers' (in 18 CEPA eligible areas) and for manufacturers and distributors of goods (273 categories of goods covered).

Overseas companies can also take advantage by using a CEPA-qualified firm in Hong Kong, or invest in a CEPA-qualified company, or buy a CEPA-qualified company. They can also access the Trade Development Council's CEPA services. Further information on this can be found on www.tdctrade.com.

Expressway to ... everywhere

Relaxation on individual travel combined with the CEPA factor has boosted mainland buyer attendance at this year's Fair - 1,489 mainland buyers visited. It has also boosted Hong Kong's retail business since sales to visitors from the Chinese mainland's major cities has increased by as much as 50%.

Benjamin Chau, the Hong Kong Trade Development's Director of Exhibitions said, “With the increase in buyers from the Chinese mainland up by 10.5% this year, the turnout is satisfactory. However, we are going to increase our promotions in the Chinese mainland to attract more private enterprises to source Hong Kong products from our fairs.”

Despite the inauspicious beginning to 2003, Hong Kong's watch and clock manufacturers have so far managed to improve on last year's performance. The opening of the Chinese mainland is clearly an important element in the healthier export figures. However there is another important factor playing a significant role in these performance figures: over the past five years there has been a vast improvement in both the design and quality of Hong Kong's timepieces - not only in the OEM domain but also in their branded watches which are slowly, but surely making impressive inroads into most of the world's important retail markets.