The dragon continues to rise

In the period January-May 2002, the volume of Chinese footwear produced rose slightly, while in value it fell by 0.2% compared with the same period of 2001 (table 3). Chinese footwear producers are being forced to manufacture with lower margins. The fall in value can be attributed to a number of factors, including the knock-on effect of increased raw materials prices following the BSE and FMD outbreaks in Europe. China also faces increased competition from other low-cost footwear producers such as India, Brazil, Mexico and Vietnam. Lower consumer demand in major export markets such as the USA will also have played a part as consumers look for cheaper deals. Despite the slight fall, China still remains by far the largest volume producer of footwear in the world. Sales of leather shoes worth US$1.69 billion were reported during the first five months of this year. According to the CLIA, there are around 400 tanneries in China which achieve annual sales of more than US$600,000. In the greater China area, which includes Hong Kong, Taiwan and Macao, most tanneries are situated in the eastern part of the country close to the coast and/or major cities. In terms of numbers, most are located near to Guangzhou in the south east followed by Taiwan, Wengzhou, Hebei province, Shangdong, Sichuan province, and Haining in the Jiangsu province close to Shanghai. There are also a smaller number of tanneries spread around the north-eastern and north-western areas of the country but they are not as concentrated. The Chinese government, through the CLIA, is actively encouraging local and international investors to open more factories in the western regions of China. However, the infrastructure and education of the local people in the west is lower than in the east. The strategy for 'developing China's west' is to provide good opportunities in an area which accounts for 57% of the country's land mass and 40% of China's total livestock. The region is technologically lagging behind and there is a lack of qualified personnel, advanced leather processing technology and talented personnel both from home and abroad. The CLIA says that Chinese tanneries produce approximately 500 million sq m of leather per year for the domestic market. From the total domestic production, 40% is destined for leather shoes, 45% for garment and 15% for other leather products. The most reliable estimates suggest that there are approximately 1,000 reasonably sized tanneries in China and 600 of these have annual sales of under US$600,000. According to local sources, there is a high number of companies which are very small and perform specific leather making tasks. For example, a tannery may specialise in taking blue hides, splitting and shaving them in small batches, and then passing them on to the next processor who performs the post tanning operations. 'Many of these companies will not make it in the future as their production techniques, environmental controls and business ethics do not lend themselves to the modern methods of tanning', a source inside China told Leather International. 'They will not be able to compete with the more modern and inclusive tanneries in China.' The CLIA has already sought to remove many of the 'cottage tanneries' and issued a decree so that those tanneries with a low capacity will be forced to close. In a presentation given by Zhang Shu Hua, deputy chairman, secretary general, CLIA, during the Panamerican Leather Fair in Miami, 2000, she said: 'The annual capacity of a newly-opened tannery must not be lower than 100,000 pieces of cowhide per annum. A centralised administration must be provided for any tannery with an annual production capacity below 100,000 pieces and over 30,000 pieces. Tanneries without an administrative capacity will be closed down as will tanners who produce less than 30,000 pieces annually.' In 2001, over 4 million sq m of light leather was manufactured in China. Exports Total exports amounted to US$4.77 billion in 2001, up 2.5% compared with 200, accounting for 4.7% of China's total export value, according to the CLIA (table 1). The leather-gloving sector reported the largest growth rate from January-May 2002, reaching US$359 million, an increase of 59% compared with the same period of 2001. This was followed by leather travel goods, which were up 5.7% and fur garments which increased by 2.7%. The export value of leather garments decreased by 17% over the same period as many industry observers noted an over-saturation in the market. Leather and raw hide exports also decreased by 6%, as did shoe accessories which fell by 4.8%. The raw materials were most likely swallowed-up by increased domestic demand. 'The garment market is not as good this year as it was in 2001. The main reason for the slowdown is due to increases in raw material prices', says Xie Shaoming, chairman of the Hebei Xinji Dongming Industrial Group. Dongming are one of the largest tanners of sheepskin nappa leathers and leather garments in China with a capacity to produce 20,000 pieces a day. Shaoming told Leather International that there was a shortage of quality raw materials at the moment, which had forced the prices up. 'I decided to diversify part of the business into furniture and car seat upholstery when the sheepskin business began to slow down.' Dongming are located in Xinji City in the province of Hebei. A full report of the garment tanneries in Xinji City can be seen later in this issue. The area around Xinji City and the City of Haining, close to Shanghai, are the two largest sheepskin tanning and leather garment producing areas in China. Imports The balance of trade in leather and leather products is significantly in favour of Chinese exports. However, China has very few hides and skins and most are imported into the country via Hong Kong (tables 2 and 4). The largest ten importers of raw materials and leather, excluding fur, into China are: Hong Kong (60.2% by value) followed by South Korea (10.2%), Italy (10.0%), Spain (5.1%), Taiwan (3.1%), Indonesia (2.1%), USA (1.7%), Thailand (1.6%), Portugal (1.4%) and Vietnam (1.0%). A full listing is given in table 2. From these figures, Hong Kong acts only as a trading destination and most of the hides will have been imported from other sources, mainly the USA. China imported a total of US$13.7 million worth of leather shoes from January-May 2002 this year which increased by 17.8% compared with the same period of the previous year. Finished leather garments of US$424,000 increased by 57.5%. Finished leather and raw hide sales of US$1.13 billion showed a 10.2% fall from the same period of 2001. Leather and shoe making machinery also fell by 3.7% to US$30.7 million. The top five countries and regions with the highest value of exports to China were South Korea (34.2% by value), Taiwan (21.5%), Italy (14.3%), and USA and Hong Kong each with 3.5%.