The textiles and clothing industry has long been a key part of Hong Kong's economy. Last year, our total exports of textiles and clothing products exceeded US$40 billion in value. This represented 28% of our domestic exports and 11% of our re-exports. In addition, the industry provides almost 20% of our total manufacturing employment.

Over the years, our textiles and clothing traders have gained substantial knowledge and expertise about sourcing products. They are able to cater for the preferences of a diverse customer base. They have developed global supply chains which respond promptly to world fashion trends and seasonal demands as well as the ability to deliver quality products with a short lead time.

While major retailers are putting more emphasis on branding and design to differentiate and upgrade the image of their products, our garment industry has been diversifying into services complementary to manufacturing, including sourcing, research, design, marketing and supply chain management. I am pleased to note that some of our brand names have gained attention in both overseas and Mainland markets.

Hong Kong is one of the best places for doing business. We are fully committed to free trade and open markets. Earlier this year, the US-based Heritage Foundation ranked our economy as the freest in the world. We have retained the No. 1 spot for 15 years in a row.

During this time, we have experienced the Asian financial crisis, the SARS outbreak in 2003, the bursting of the dot.com bubble and the onset of the current financial crisis.

Freest economy

Throughout it all, we have remained the world's freest economy. This ranking is important to us because it signifies international recognition of the success of our business-friendly model in the good times and the not so good times.

Moreover, we have a low and simple tax regime, a sophisticated financial system, a freely convertible currency, minimum red tape, a sound legal system and a free media.

Our location also places us at the crossroads of trade and in easy reach of many of the world's largest markets, which is particularly important for the textile and clothing industry where the ability to respond fast to market trends is paramount. Together, these attributes generate the confidence needed for long-term investment.

The textiles and clothing sector is also the Mainland's traditional pillar industry. In line with the nation's economic development policy, the Mainland has recently announced measures to invigorate the industry.

These include upgrading manufacturing technology and replacing resource-based and polluting processes, as well as providing financial support services to small and medium-sized enterprises. The objectives are to help the Mainland apparel industry to expand domestic sales on the one hand, while at the same time diversify its international appeal.

In this regard, Hong Kong's unique role as the gateway for the Mainland market offers local and foreign enterprises the best channel to benefit from these Mainland policies. Overseas companies wishing to set up their operations in the Mainland can draw on our decades of expertise in doing business there.

In terms of adding value to their products and services, we have an extensive pool of creative talent and are known for our high quality and efficient services including logistics, financial services, legal services, information technology, marketing and advertising services.

Our proximity to the Mainland has also helped to establish Hong Kong as a pioneer of the borderless manufacturing concept. As a sourcing centre, not only do we connect the Mainland to the rest of the world, we are also home to a large number of international trading houses which have established buying offices or intermediaries in the city to source their products from the Mainland or to oversee the operation of their production lines there.

That said, perhaps our greatest advantage as an entry point to the Mainland market is our unique free trade pact with the Mainland, what we call the Closer Economic Partnership Arrangement, or CEPA.

Under CEPA, all products of Hong Kong origin enjoy zero import tariffs into the Mainland. The beauty of CEPA is that it is nationality neutral. In other words, foreign enterprises incorporated in Hong Kong can enjoy the full benefits of CEPA.

The textiles and clothing sector has also been a major beneficiary under CEPA. As at end January this year, a total of over 41,000 Certificates of Origin applications under CEPA had been approved. More than a quarter - 26.8% - of them covered textiles and clothing products.

Apart from being a hub for design, sourcing, marketing and manufacturing for apparel products, I could not over emphasise Hong Kong's role and potential as a premier tourist destination and shopping paradise for consumers from around the world, particularly the Mainland.

Last year, Hong Kong attracted more than 29.5 million overseas and Mainland visitors, more than four times the size of our population.

Tourists spent about US$9 billion on shopping, an increase of almost 14% compared to 2007. According to the Tourism Board's Departing Visitor Survey, almost 40% of our vacation visitors rank shopping as their most favourite activity in Hong Kong.

As an externally oriented open economy, Hong Kong is feeling the full force of the global financial turmoil. Like many other sectors, 2009 will not be an easy time for the textiles and clothing industry. But amid all our hard work to cope with the difficult times, we must not lose sight of the need to upgrade our product quality. So what is the Government's role in this?

In Hong Kong, we have introduced a range of measures to foster brand development with the aim of expanding our market share around the world. One initiative is the Innovation & Technology Fund, or ITF, which was set up to provide funding support to projects that contribute to innovation and technology upgrading in industry. The ITF aims to increase the value added, productivity and competitiveness of our economic activities.

Since its establishment in 1999, the Fund has supported 61 innovative textiles and clothing-related research projects. Total funding for these projects is US$31 million. Another programme is the Design Smart Initiative set up to promote the wider use of design and innovation in industries, including textile-related sectors, to help them move up the value chain.

Separately, we have been working hard to ease the credit crunch and to help our businesses obtain bank loans. Through the Special Loan Guarantee Scheme that we launched in December last year, each eligible company may obtain a loan of up to US$770,000. The banks will take up 30% of the risk while the Government bears the remaining 70%.

To date, loans worth over US$1.5 billion have been granted under the scheme. Our Export Credit Insurance Corporation has also introduced a series of measures to assist exporters in these difficult times, including the provision of higher covers for exports, exemption of annual policy fees for policyholders for one year and free overseas buyer credit assessment services for exporters.

These are just some of the measures we are taking to lessen the impact of the global economic crisis on our companies and our economy. No doubt this forum will provide a good opportunity to discuss the issues in greater depth and find new ways for the industry to emerge stronger from the current economic crisis.

Secretary for Commerce & Economic Development Rita Lau gave this address at the Prime Source Forum 2009.