quota system which kept out their Japanese competitors they must pay the same price as British textile manufacturers and use British-made rayon yarn." So from June 1937 the 'spun, woven and finished within the empire' requirement was enforced for all cotton and artificial silk garments if they wished to qualify for preference as empire products."
Apart from boots and shoes, forches, cotton and artificial silk clothing and hosiery there were many other Hong Kong manufactured products exported to the colonial empire which were able to claim the benefits of the imperial preferential tariff. They included hats, umbrellas, leather bags and purses, suitcases, furniture, mats, lamps, rope, firecrackers, paper, books, cigarettes, perfumes, medicines, condiments, sauces, biscuits, preserved foods and refined sugar." Complaints of the abuse of this privilege continued. In June 1938 the Colonial Office issued instructions that Hong Kong goods should be admitted to preference only if the suppliers' declaration that the article had a 50 per cent empire content was supported by a detailed statement of costings certified by a chartered accountant and countersigned by an officer of the Hong Kong government." It cannot have been easy for a workshop in the back streets of Kowloon to afford the fees of a chartered accountant and get all the paperwork in order. Many justifiable claims to imperial preference must have gone by default. The Colonial Office was under pressure from the Board of Trade active on behalf of British manufacturers who found their trade threatened by Hong Kong's success. It sought to defend the principle that all parts of the empire should be treated equally. It could not stop the self-governing dominions from discriminating against Hong Kong, but it prevented the colonial territories from doing the same. The price it had to pay was the elaborate documentation required to prove that Hong Kong goods were genuinely made in the colony and were not products transhipped from China or Japan.
In 1937 manufacturing industry in Hong Kong received an unexpected stimulus from the Japanese invasion of China. Industrialists transferred production from Shanghai to Hong Kong when their factories were attacked by the Japanese. When Japan blockaded the Yangtse river and seized all the coastal ports in East China, Hong Kong became a vital entry point for military supplies. Factories were quickly established to provide clothing and equipment to the Nationalist forces. Factories were set up to produce steel helmets, gas masks, mess tins, webbing and military uniforms. Parts for lorries, trucks and even aircraft were imported and assembled in Hong Kong. The Commercial Press moved from Shanghai and began printing currency notes for the Chinese government. The number of factories employing more than 20 workers went up from 642 in 1936 to 864 in 1938, 925 in 1939 and 1,143 in 1940. Domestic exports of manufactured goods in 1938 totalled at least HK$91,610,000 (about £6,000,000).**