'Made in Hong Kong' tag bypasses sanctions but cuts into efficiency and profits Buyers in the United States have warned Hong Kong's largest-listed garment maker that they will buy fewer China-made products, forcing the company to hire hundreds of new workers in Macau, Hong Kong and Cambodia. Luen Thai Holdings' customers were unwilling to place confirmed orders in light of escalating Sino-US trade tensions and the prospects of new import quotas, wrote Eddie Lau in an ABN Amro report. Luen Thai's five biggest customers, including US brands such as Liz Claiborne and Polo Ralph Lauren, account for half its sales. 'For categories at risk from US quotas, our customers have asked us to produce garments through the Outward Processing Arrangement and outside China after July,' Luen Thai chief executive Henry Tan said. OPA allows garments manufactured on the mainland but finished in Hong Kong to be deemed 'made in Hong Kong', thereby avoiding any quotas imposed on China-made goods. Factories in Macau can also function under OPA. Luen Thai plans to hire about 500 OPA workers in Macau and Hong Kong over the next few months. It had 300 OPA workers in Macau and 79 in Hong Kong, Mr Tan said. 'We can't find enough workers in Hong Kong, so we're looking in Macau.' Luen Thai hopes to have all its mainland-produced garments processed through OPA in a few months, Mr Tan said. 'We're looking at slowing down expansion in China, and expanding our factory in Cambodia for hot items [those susceptible to US quotas] like woven shirts and pants.' Luen Thai had expanded its manufacturing operations in Guangdong before the expiration of 40-year-old textile quotas on January 1. Diversifying production from China would lower Luen Thai's efficiency, said Mark Po Ka-kit, an analyst with Kim Eng Securities. 'The most efficient firm has one big factory in one place. 'Luen Thai has to train people in Cambodia, where labour is cheaper but less efficient than China. OPA will hurt Luen Thai's efficiency because it has to move garments several times between Hong Kong and Macau and the mainland. 'Ultimately, lower efficiency translates to weaker profits.' Mr Tan admitted OPA operations would raise Luen Thai's costs. KGI Securities has cut Luen Thai's target price-earnings ratio to 10.5 from 12.5, with a downgrade to 'underperform' from 'neutral'. Luen Thai shares fell 3.33 per cent to close at $2.90 yesterday, reflecting a PE ratio of 9.7 based on earnings per share of 30 cents last year.