Solid growth predicted for the years ahead

With the SARS epidemic and the Iraq war now behind them, China has been witnessing increased activity, particularly in the footwear sector. However, footwear companies in eastern China's Fujian province say that the war in Iraq had a negative impact on their business. According to the Xinhua news agency, local officials say that the war has resulted in an increase in both production and operating costs for companies in Fuzhou, the provincial capital. The main reason for the increase was the sharp rise in oil prices. In the long term, the staging of the Olympics is expected to stimulate leather useage. Current sports and casual footwear per capita consumption is 4.8 pairs/year in the US, 3.7 in western European countries, 4.4 in Japan and only 0.2 in China. The number of Chinese in the population under the age of 18 exceeds 600 million and these are the primary consumers of sports and casual footwear. When China acts as the Olympic hosts in 2008, it is reasonable to suppose there will be a huge increase of interest in sporting activities and related clothing and footwear. Solid growth is predicted for China's leather industry over the next few years. In 2002, exports rose to around $19 billion from $12.48 billion in 2001, accounting for approximately 5% of the country's total exports. In all, the country produced 426 million sq m of leather, 1.36 billion pairs of leather shoes, 63.41 million leather garments and 737 million leather briefcases and bags. The Chinese leather industry consists of four principal industries: tanning; leather footwear (including sports); leather products (including garments); and the fur industry. In addition, there are the leather chemicals and leather machinery sectors. There are more than 16,000 large scale enterprises in the Chinese leather industry, of which at least 2,300 are tanneries, 7,200 are footwear manufacturers and 2,000 are leather products makers. More than two million workers are involved. The leather products industry is scattered throughout the country but there is a greater concentration in the southeast with Zhejiang, Fujian and Guangdong recognised as three major production bases. In the period from January-May this year, imports and exports by China's leather industry continued to grow but the rate was reduced. The difference in growth rate for exports by value was larger than that of imports while the footwear sector experienced much faster growth than in the same period of last year and the growth rate of imports by value was higher than that of exports. The exports amounted to US$5.93 billion, 24.4% up compared with the same period of last year (2002), accounting for 3.8% of China's total export value. Fur or woolskin garments reported the largest growth rate to reach US$44.18 million, up by 91.5% over last year. Next came leather gloves with an export value of US$540 million, an increase of 51.3%, leather garments US$630 million, up 41.9%, raw hides and finished leather US$460 million, an increase of 26.5%, and leather shoes (US$2.02 billion) increased by 19.8%. Exports of footwear in the January-May period in 2003 were 2.03 billion pairs by quantity and with an export value of US$4.75 billion, showing increases of 16.1% and 19.1% respectively. The ten largest importers of raw materials and leather, excluding fur, from the China mainland are Hong Kong (accounting for 57.4% by value), South Korea (9.4%), Italy (7.3%), Taiwan (7.1%), Spain (4.5%), Vietnam (2.8%), United States (2.1%), Thailand (1.5%), Indonesia (1.2%) and Singapore (1%). The top ten countries and regions accounted for 94.5% of the total value of Chinese exports of these commodities. Meanwhile, China imported US$1.69 billion-worth raw hides, leather and leathergoods from January-May 2003, an increase of 23.3% compared with that of last year and accounting for 1% of China's total imports value. The top ten countries and regions with the highest value of exports of raw hides and finished leather to China were Taiwan (16.9% by value), South Korea (16.2%), followed by the US (15.7%), Italy (8.0%), Australia (6.7%), Brazil (4.4%), Canada (3.1%), Argentina (2.7%), New Zealand (2.6%) and Hong Kong (2.2%). The export value by the top ten countries and regions accounted for 78.5% of China's total imports value. The world's biggest shoe manufacturers, Yue Yuen Industrial Holdings Ltd, recently announced a 7.4% year-on-year rise in full year profits in 2002 to $228.6 million due to increased sales. The company make sports shoes for the likes of Nike, Adidas and Reebok, and report sales up by 8.9% over 2001 to $1.94 billion, while their operating profit rose 3.4% to $234.7 million. Yue Yuen make around 20% of the world's shoes. Last June, they announced plans to acquire a raw material operation from their parent company, Pou Chen, as part of a vertical integration strategy. A couple of years ago, Pou Chen took full ownership of their joint venture with Prime Tanning, USA - Prime China - to cover losses in the tannery operation. Not all good news According to the NZ Herald: 'SARS, fickle fashion trends and quality issues with New Zealand hides have conspired to promote a profit downgrade by investment company Richina Pacific.' As a result, the half-year forecast has been reduced by $700,000, down to $3.5 million. At the agm in Auckland on July 17, chairman Alastair MacCormick reported that trading in the second quarter had been particularly difficult and volatile and things were not expected to get much better in the second half of the year. The full year profit forecast has been downgraded from $8.2 million last year to $6.5 million. Richina have three main investments, one of which is the tannery Shanghai Richina Leather. It is one of the biggest in China and has suffered reduced margins due to the downturn in US and European demand for lamb leathers. Not only is pigskin said to be more fashionable this year, but raw materials sourced from New Zealand are said to have dropped in quality.