However, according to the CLIA: 'rising concerns about the environmental impact of tanneries, particularly discharged wastewater, limit the development of the industry.'
The report went on to say that 'wastewater treatment facilities require substantial capital investment and adherence to strict regulatory practices adding to costs and reducing margins.' The Association added that bigger tanneries can afford their own facilities but smaller ones cannot and this contributes to the consolidation of the industry. Local governments in developed areas have limited or even prohibited tanneries in their regions.
It is reported that Hangzhou city has banned tanneries and tanners from Shenzhen have relocated to Dongguan and Huidong in Guangdong and Guangxi Province. Other developed areas have also implemented strict regulations to limit expansion of tanneries.
On a positive note, the CLIA said: 'some tanneries have moved to less developed areas where centralised tanning industry production zones have been established such as Qingyuan and Huizhou in Guangdong province, Zhaoyuan in Heilongjiang province, Baicheng in Jilin Province and Quanzhou in Fujian Province.'
The report states that the Chinese leather industry is facing increased competition from surrounding countries such as such as Vietnam and India, where there are cheaper labour and less environmental policy restrictions. It also said that it was aware that India is looking to expand its industry even though pollution issues are becoming as important as they have become in China.
In addition to the rising costs of pollution control measures, skilled worker salaries in China have doubled over the past two years.
The impact of vat was also reported to have a negative impact on the Chinese tanning industry. The report said that three government agencies, the Ministry of Finance, State Administration of Taxation and China Customs jointly announced that tariffs for wet-blue skins would be subjected to regular import duties of 7% plus an additional 17% vat if converted into finished leather and then re-exported.
However, if the skins are subsequently converted into value added products such as footwear or other finished leather products and then re-exported, the tariff and vat are exempted.
Then in June, the Chinese Ministries of Finance and the State Administration of Taxation together produced a circular announcing 'adjusted' tax rebates for certain leather products starting on July 1, 2007. The rebate for leather footwear and bags was lowered from 13% to 11%. The rebate for leather apparel and gloves was lowered from 13% to 5% and all tax rebates for the exportation of finished leather terminated. The government said that this was due to 'global pressure to lower governmental support.'
The CLIA noted that the new policy demonstrates the central government’s intent to limit the export of leather (which is not value-added) and slow the demand for leathergoods (which are). Lack of brands and OEM status for Chinese operators handicaps them from increasing margins.