The 3rd Upholstery Leather Conference concluded successfully on April 5 with participants from major tanneries and top manufacturers taking part. The conference was timed to precede the APLF fair in Hong Kong to take advantage of visitors to the region and they were able to hear the views of leather business realities in China and the Asia Pacific region from figures such as Dennis Thams, ceo Shanghai Richina, and Jay Shane, president Cosie Leather Products. Delegates also had the benefit of cocktails, lunch and a gala dinner by courtesy of BASF and Fenice, who were sponsors of the conference along with APLF Ltd.

Dennis Thams explained that the two major issues confronting the leather industry in built up areas such as Shanghai are labour shortages and power shutdowns. For Shanghai Richina this means investing in mechanical means for replacing workers and for power generation. It may seem unthinkable that there should be a shortage of labour in China and in the past it was possible to import workers from other territories where necessary. However, now that development of industry in China is so far advanced and widespread, this is no longer possible and the leather industry has to compete with many other industries who not only offer more attractive work but also more money.

He said that Vietnam was now one of the biggest producers of footwear in the world but that the industry was largely controlled from China. Initially the reason for the shift in manufacturing from China to Vietnam was a way of avoiding footwear quotas which were levied against Chinese made footwear. Now, however, it is the availability of local labour which is a main attraction.

He also explained the difficulties of setting up businesses in China and this theme was taken up by Jay Shane who started his leather clothing manufacturing and exporting business in Taiwan in 1974 but moved to China in 1988. He describes China at that time as a jungle. He lost four factories in one year and said there was no way to fight a lawsuit so he just had to let them go. Copying was rife and many of his experienced workers were poached by other companies. He did not give up, however, and in 1993 went into cut and sewn upholstery kits. At the time there were no professional upholstery leather tanners in China and he imported Lackawanna buffalo hides.

By 1996 he was making sufficient noise in the market to be noticed and once more other companies began copying his lines and stealing his technicians. He says this is the reality and nothing can be done about it. Initially he had his leather contract tanned, importing hides and chemicals and supplying his own technicians but he could not control costs so decided in 1999 to set up a joint venture tannery TTXL. TTXL now process 6 million sq ft of upholstery leather/month.

At first glance, the topic of ‘Import procedures, customs practice, VAT and tax issues in Guangzhou, China’ may not seem the most interesting subject but Wallace Leung, general manager Southern China, Jas Forwarding, Hong Kong, managed to bring clarity and humour to a very necessary side of doing business with China.

Leung has 13 years’ experience in freight forwarding and has developed imports of leather from Italy to Hong Kong. He is a consultant to key enterprises in Shenzen and is presently responsible for marketing stategies and development plans to meet the rapid business growth in the region.

Leung said that commodity inspections are a must. He likened the Chinese economy to a highway but said that Chinese customs are a bottleneck and there will always be congestion at this point.

With revenue from customs duties, VAT and taxes accounting for two-thirds of national income, imports and exports will always be under strict control. Since it has such a direct effect on the national income it can be no other way.

There are two systems being operated depending on whether companies are fully Chinese owned or have overseas involvement. The Customs Handbook sometimes known as the Customs Bluebook, applies to part foreign-owned and foreign-owned companies who can import their raw materials free of duty for products which are then re-exported. The handbook is continually being revised and could be terminated if smuggling is suspected.

General Trading procedures are for local companies involved in international trading who pay full VAT and duties of raw hides and skins. Duties range from 5-14% (MFN), VAT 13-17% and export drawback of 5-13%. Customs get to determine whether wet-salted, wet-blue and splits are according to their declared value and the onus is on the importer to prove the classification with proper documentation. Under-declaration of value to evade tax is a serious offence.

Wet-salted hides carry 5% MFN, 17% general and 17% VAT. Wet-blue and crust is 7% MFN, 6.8% BA (Bank Agreement), 17% general and 17% VAT. Finished leather carries a duty of 8.4% MFN, 7% BA, 17% general and 17% VAT.

Commodity inspections must be carried out for all raw hides and skins imported directly into China to ensure quality, quantity and description of goods. The inspection fee is 3% of the commodity value.

Leung recommended those with no experience of exporting into China to use Hong Kong as the gateway. This adds to the transport fees but gives more control and flexibility. Guangzhou, Shanghai and Beijing are gateways for those who are fully aware of import regulations and procedures.

Adam Hughes, sales director, BLC Leather Technology Centre, spoke about ‘The impact of China and the development of the auto industry’, saying that currently there is a frenzied race to invest in the Chinese auto industry and a 68% rise in vehicles with leather was anticipated by 2007. He said that 20% of China’s population can now afford a car (only 9% actually own cars) which is a potential market of 74 million people.

With 15 million people now reputed to earn more than US$20,000/annum the Chinese automotive industry is growing at a rapid rate (83% in 2003) and profit margins are eight times more than in the US. By 2007 Chinese consumers are expected to purchase more cars than the Japanese and could also be exporting cars by that time.

China is currently the third largest national market and it is predicted that 20 million vehicles/year will be produced in China by 2020. GM are increasing their capacity from 530,000 to 1.3 million vehicles/year. This puts VW in second place. They are already producing more than one million vehicles and their VW Golf sells for $9,000 in China and $15,500 in the US.

According to Hughes there is a voracious appetite for western products in China and this includes leather. In terms of global leather production, he placed China in pole position with 19-20%, followed by Italy with 9% and then India 7%, South Korea 5%, Brazil 4% and Türkiye 3%.

Agha Saiddain, director of marketing and operations for Royal Leather Industries, Pakistan, described Pakistan as a fast growing producer of upholstery leather, accounting for 13% of total production (shoe upper leather 65%, garment 11%, leathergoods 11%). He said that cheap leather production was in decline and better quality on the increase. Also Pakistan is witnessing a rise in the buffalo population which much higher than the general trend, 4% compared with +2% for the world and +1.9% for Asia generally.

Royal Leather Industries received their country’s best export trophy for exports of leather furniture and upholstery leather for 2002/2003 and 2003/2004 and have been approved suppliers to IKEA for 14 years. There are 725 tanneries in Pakistan, mostly in the Punjab near Lahore.