Even though the city was declared SARS free recently, which should bring foreign buyers back after a three-month absence, Lui isn't sure if his loss-making factory will be able to return to a profit.

  Home of our U.S. clients have turned to South America,?he said in his office, where the windows shake from vibrations from the zigzagging machines on the upper floor.

 Frustrated by growing competition from mainland China and other countries with low costs, Lui recently handed over the day-to-day running of the factory to his sons, describing his retirement as getting out of the abyss of misery?

  But the 64-year-old still keeps an office in the factory and has no plans to throw in the towel just yet.

  A free trade pact to be signed between mainland China and Hong Kong on June 30 could reinvigorate the city fading textile industry, Lui told Reuters in an interview.

  The long-awaited deal, formally known as the Closer Economic Partnership Arrangement (CEPA), is likely to eliminate Chinese import tariffs of as much as 50 percent on about 4,000 types of goods made in Hong Kong, including textiles, watches and jewellery.

  Analysts believe it will result in total net savings of HK$2 billion a year for Hong Kong exporters in terms of tariffs and administration costs.

  Lui is likely to be one of the few remaining Hong Kong manufacturers who will benefit.

  Though Hong Kong is a leading hub for sourcing garments, most of its weaving and spinning factories moved to mainland China long ago, lured by lower labour and land costs.

  Only four spinning mills remain in the city of nearly seven million people, which is better known today as one of the world'S premier financial hubs. They mainly sell yarn to the 20 or so remaining weaving firms in Hong Kong.

  Lui came to Hong Kong from Shanghai in 1949 and set up Datsun Weaving Factory Ltd in 1972. The company has specialised in making denim for U.S., European and Southeast Asian clients including Marks and Spencer and the Gap.

  A high degree of automation and creative product development helped the company thrive in its first two decades, but business began to decline after the 1997/98 Asian financial crisis.

  Annual turnover for the firm, which employs more than 70 people, has shrank to about HK$70-80 million (US$9-10.3 million) from its peak of HK$160-170 million in mid-1990.

  Now, CEPA will be concluded soon and I believe there will be opportunities once again,?Lui said.

  PILLAR INDUSTRIES: Though details of the trade deal remain scarce, Lui hopes it will cut through some of the red tape that often frustrates companies trying to do business in China.

  His son Michael, who quit the high profile investment banking sector to take over his family business, said he is in talks with Japanese jean makers to jointly explore the China market.

  We can use the fabrics produced here to make jeans and sell to China and overseas,?he said.

  The elimination of tariffs under the trade deal will buy Hong Kong manufacturers time to develop their brands in China before the country fully opens its markets to the outside world under the rules of the World Trade Organisation.

  Given China high tariff rate on imported textile products, Hong Kong-produced yarns and fabrics can hardly compete for orders in China now.

  Hong Kong spinners saw that their only chance of survival is China抯 elimination of import tariffs on cotton yarn produced in Hong Kong,?a recent report by the U.S. Agriculture Department attached in Hong Kong said.

  But the window of opportunity may be small.

  Under the WTO Agreement on Textiles and Clothing, quotas worldwide will be scrapped by 2005. Quantitive restrictions on exports of China-origin apparel will be removed entirely, putting fresh pressure on Hong Kong's textile and garment makers.

  Chan Wing Kee, managing director of Yangtzekiang Garment Manufacturing Co Ltd, said his company is considering setting up operations in Hong Kong to make new lines of up-market clothing for export to China if tariffs are removed.

  The company has already diversified its production into low cost countries, mainly China.

  But Chan said it was unrealistic to think that manufacturers would move their existing production lines from China back to Hong Kong because of CEPA.

  Their designs are for exports overseas,?he said. The relocation of labour intensive production to Hong Kong was also not viable due to relatively high costs, he added.