It was named the Fragrant Harbour centuries ago, but the agarwood tree that gave Hong Kong its name could become extinct.

The tree's oud oil or resin is sought after not only for traditional herbal medicine, but also for its aromatic fragrance, which is used in incense and perfume.

Surging prices are driving new demand, with the oil fetching higher prices than gold.

With the tree now all but wiped out in China, Hong Kong has become the target of illegal loggers eager to feed the lucrative international trade.

"A piece [is] on sale at a shop very close to here ... valued at $1m for an agarwood bracelet. You can buy loose chips here in Hong Kong," Gerard McGuirk, of Asia Plantation Capital, said.

"They can be anything from 100,000 HKD ($12,900) per kilo upwards depending on the quality. So the demand and expense is great."

Asia Plantation Capital hopes to replace the illegal trade and feed an industry it says is worth up to $12bn a year.

Sarah Clarke reports from Hong Kong.