Manufacturing in Hong Kong consists of mainly light and labour-intensive industries. Manufacturing started in the 19th century after the Taiping Rebellion and continues today, although it has largely been replaced by service industries, particularly those involving finance and real estate.
As an entrepôt, Hong Kong had limited manufacturing development until the Second World War, when the development of manufacturing industries was discontinued due to the Japanese occupation. Manufacturing in the city revived after the War. The 1950s saw the city's transition from an entrepôt to a manufacturing-based economy. The city's manufacturing industry grew rapidly over the next decade. The industries were diversified in different aspects in the 1970s. One of the most notable reasons of diversification was the oil crisis.
Early development
1842 to 1918 After the British acquisition of Hong Kong Island in 1842, manufacturing started to develop. Most factories were limited to small workshops producing hand-made goods. Primitive methods, techniques and facilities were used for production. Productivity was low and manufacturing was not as important as the re-exportation, which was most important at the time.
At the beginning of the colonial era, all factories in the city were owned by the British. The British-owned factories were mainly limited to shipbuilding and rattan furniture.Zhang 1999, p.227 British industrialists did not consider Hong Kong to be favourable for manufacturing because Hong Kong lacked natural resources, and instead focussed on entrepôt trade and such related industries as shipping and banking.
Guangdong officials fled to Hong Kong because of the Taiping Rebellion in the 1850s and 60s, bringing in capital and boosting manufacturing. Such factories were the first Chinese-owned ones to appear in Hong Kong. The first printing company appeared in 1872, followed by many different industries such as sweets,Zhang 1996, p.140 clothing and soap-making.封, p.27 By the end of the 19th century, the first mechanised factories emerged, including a match factory and a pulp company.
Small metal and electronic goods had emerged in the early 20th century. With the development of commerce, a few large manufacturing firms appeared. Although these firms were few in number, there was large investment into them and most were leaders in their respective industries. After the 1911 Revolution, many Chinese firms relocated to Hong Kong to avoid the constant warfare between warlords.Zhang 1996, p.141 During the First World War, supplies of daily necessities from Europe were cut off. Industries such as towels, cigarettes and biscuits emerged to support the local population, resulting in a rise in the light industries.
1919 to 1950 The 1920s and 30s saw the initial rise of the city's manufacturing. The textile industry became the backbone of Hong Kong's manufacturing sector. Industries such as the firecracker, glass and leather industries also emerged, and there was a shift from hand-made to machine-made products. Nevertheless, Hong Kong's manufacturing sector was still behind most industrialised cities as the source of capital was rather narrow and was largely limited to Guangdong entrepreneurs. There are several factors leading to the rise of manufacturing in the 1920s and 30s, including a decline in European industries, the tax reduction granted by the Ottawa Agreement of 1932, and the relocation of factories from Mainland China to Hong Kong. For example, Cheoy Lee Shipyard, the largest Hong Kong–based shipbuilding company as of 2009, moved from Shanghai to Hong Kong in 1936 because of military conflicts between China and Japan.何, p.11
Manufacturing in Hong Kong faced many challenges during the early 1930s. After China regained the right to control its tariffs in 1928, the tax imposed on Hong Kong goods rose tremendously, but the Chinese government rejected pleas from Hong Kong industrialists to lower tariffs. The United Kingdom's abolishment of the gold standard destabilised exchange rates. Japan's dumping policy also hit Hong Kong, which did not impose tariffs on exports. The consumption power of Mainland China decreased. The Great Depression further damaged manufacturing in the city and led to the liquidation of over 300 factories.Zhang 1999, p.229 However, a series of favourable events led to another surge in manufacturing in 1935, including a decline in Japanese and Italian goods, the stabilisation of exchange rates, an expansion in mainland markets, and the rise of the Malay Archipelago.Zhang 1996, p.141
By 1941, there were 1250 factories in Hong Kong with nearly 100,000 employees in manufacturing. The largest industries at the time were shipbuilding, textile manufacturing, torches and plastic shoes. These goods were sold to Mainland China as well as other Southeast Asian countries near the South China Sea. Among these industries, the largest was the shipbuilding industry. The shipyards of Tai Koo, Hung Hom Bay and Cheoy Lee Shipyard were the largest, each employing over 4,000 people.
Manufacturing declined during the Japanese occupation. Like most other industries of the city, they faced a near-total destruction by the Japanese.封, p.28 After the end of the Second World War in 1945, Hong Kong earned much by resuming its role as an entrepôt. From 1945 to 1950, its earnings by re-exportation rose by over half every year.何, p.2 This led to the restoration of the city's economy. During this period, most factories that were shut down during the Japanese occupation period were reopened.
Industrialisation During the 1950s and 1960s Hong Kong was restructured from being an entrepôt to being an industrial city. This was also the first change in economic structure.
One cause of industrialisation was the Korean War. The United States' embargo on China led to a decline in the entrepôt trade with China, Hong Kong's biggest market at the time. But Hong Kong focused on manufacturing instead.封, p.29 Moreover, as China's products could not be exported, Hong Kong replace these exports. In 1954, the United Nations bought 10 ships from Cheoy Lee Shipyard to assist in the revival of Korea.何, p.12
Another factor was the Chinese Civil War. After the Second Sino-Japanese War, Chinese businesses bought huge numbers of machines and facilities to restore their pre-war production. When the Civil War broke out, many businesses moved those facilities to Hong Kong warehouses to continue production. Furthermore, industrialists from Tianjin, Shanghai and Guangzhou relocated to Hong Kong because of the Civil War. They brought skilled labour, technology and capital to Hong Kong.何, p.3 Many Mainlanders also fled to Hong Kong, adding to the city's workforce. Altogether, some US$100 million were brought to Hong Kong because of the Civil War. After the war, the facilities and equipment stayed in Hong Kong, leading to a rise in Hong Kong's manufacturing. From 1946 to 1948, the number of factories increased by 1211 and 81,700 workers were employed in manufacturing.
The economic restructuring of more developed countries was another factor. After the Second World War, Western countries started to upgrade their products and technology, leaving labour-intensive industries to the less developed countries. This encouraged overseas investment and allowed developed technology to be imported to Hong Kong, boosting manufacturing there.
1952 to 1962
From 1952 to 1954, the rate of growth was relatively low. The number of factories increased from 1902 to 2001, while the number of workers employed in manufacturing rose from 85,300 to 98,200. Nevertheless, the total value of domestic exports dropped from HK$29,000,000 to HK$24,170,000. This was because manufacturers focused on building factories and altering their products rather than increasing productivity.封, p.30
From 1955 to 1962, the rate of growth was faster. The number of factories increased 80%, while the number of factory workers increased 160%. However, the value of exports decreased from 1958 to 1959. In 1959, for the first time, the value of re-exports exceeded exports. By 1962, the value of re-exports had shrunk again to a third of exports.
During this period, textile manufacturing and clothing industries took the lead. The Kwun Tong Industrial Estate was the first industrial estate in Hong Kong. By the early 1960s, Hong Kong's textile manufacturing was the most successful in Asia.
The textile industry in particular flourished at the time. Chinese textile manufacturers set up many factories in Tsuen Wan. Some of them had dyeing factories and their own docks.何, p. 23
1963 to 1970 Hong Kong industrialised rapidly from 1963 to 1970. Existing industries continued to prosper, while new industries emerged and thrived as well. The number of factories increased 67% while the number of workers increased 15%. The number of factories and workers in 1970 were 16,507 and 549,000 respectively. The latter took up over 40% of the city's employment structure. The value of exports continued to rise, and in just two years, rose by 172% to HK$12,347,000,000. Hong Kong ceased to be reliant on re-exportation.
One of the new industries that took the lead was electronics, which started in the 1960s. Another industry was the watch industry.何, p.71 Hong Kong manufacturers mainly made cheap watches and watch parts in the 1960s.何, p.55 Likewise, the manufacture of toys also started to succeed during this period. Flip clocks manufactured by Twemco became a symbol of Hong Kong's precision engineering capability during this era.
The textile industry, an existing industry, continued to prosper from 1963 to 1970. Another existing industry, the clothing industry, expanded greatly with higher technology. Clothing was exported, including to Europe and North America. The Tai Koo and Hung Hom Bay shipyards were turned into housing estates, while Cheoy Lee Shipyard remained and became the first factory to produce boats with fibreglass.何, p.15
Hong Kong's industrial areas expanded along Victoria Harbour during this period. Prior to the 1960s, most industrial areas were built along both sides of Victoria Harbour. Such areas were turned into commercial or residential areas.Ip, Lam, and Wong, p.10
Diversification
After the industrialisation of Hong Kong, it faced two major crises in the 1970s, namely the oil crisis and the rise of other industrial states and cities with similar economic structures, such as Singapore, South Korea, Taiwan, Brazil and Mexico. The first three, along with Hong Kong, are known collectively as the Four Asian Tigers. Before this, the city's economy had faced little competition since Hong Kong's industrial development was earlier than the industrial development of most others.封, p.31
To rescue the city's manufacturing, several measures were taken. First, relatively new industries such as toy, electronics and watches, were developed quickly so that the clothing and textile industries no longer dominated the market. This was also due to the fact that Western countries imposed severe restrictions on textile imports, while toys, electronics and watches enjoyed lower tariffs. In 1972, Hong Kong replaced Japan as the largest exporter of toys.封, p.32 Swiss watch companies also moved some of their factories to Hong Kong.
In addition, the quality of products improved. The large number of cheap products were replaced by a smaller number of higher quality and value-added products. Quality and technology of products were also increased as competition increased. The variety of products widened. Hong Kong companies also used flexible ways of producing goods. Faced with the severe restrictions in foreign countries, companies made use of the diversity of their products so that other products could be exported when one kind was restricted. The high value-added jewellery industry, emerged in the 1970s.