No longer Asia's export sweatshop, Hong Kong is still a textile hub in the region.
Hong Kong warehouses are stockpiling increasing quantities of expensive Italian yarn, as traders take advantage of the city's tax-free status and its proximity to high-end garment factories on the mainland.
Large orders for branded garments are flooding into mainland factories ahead of the elimination of global textile quotas on January 1 next year, industry observers say.
Chinese manufacturers pay a tariff on imported yarn but get a rebate after the final products are exported. Suppliers are not eligible for the rebate if they store the yarn in China.
Hong Kong offers a tax-free solution to suppliers storing the yarn and enables factories to build up yarn stocks without incurring long lead times between duty payments and rebates.
'Many companies in Hong Kong are now setting up yarn warehouses,' said Willy Lin Sun-mo, vice-chairman of the Textile Council of Hong Kong.
Industry watchers say European brands are now outsourcing more of their high-end garment manufacturing to mainland factories.
