New trade pacts “create risks”: Luen Thai

Uncertainties over new trade pacts are likely to rein in come Chinese businesses’ overseas production moves, said Luen Thai’s CFO, Sunny Tan, in mid-November

Tan is a committee member at the Federation of Hong Kong Industries, as well as a director at family firm Luen Thai – Hong Kong’s largest listed garment firm, with 34,000 employees and garment production of over 80 mn pieces a year in China, the Philippines, Indonesia, India, Bangladesh and Cambodia.

Tan was clear that “the basic formula of producing in China and exporting to the US, which has been almost a guaranteed pay cheque over the past 10 to 20 years, no longer applies”. But he believed “The risk imposed by proposed trade pacts on the industry would go up.   “There will be more volatility. We need to be more conservative in investment, make shorter-term projections and be more flexible.” Businesses seeking to move production out of mainland China would impose stricter controls on start-up costs and make shorter business development plans of about five years in light of the uncertainties.

Tan was speaking in the context of the debate in China about major trade agreements. A TPP, on its current membership,  with a “yarn forward” rule, would give a significant competitive edge in the US market to Vietnamese manufacture from SE Asian-milled fabric. But it is almost impossible to predict how long it will take before such a TPP is agreed, ratified and implemented. It is even tougher to forecast when other trade alignments – such as China joining the TPP, or the US offering duty-free access to China’s RCEP project – might come into play.