Lead the way - China Leather Industry Association (CLIA) chairman Su Chao-ying

Leather International: Is China's grip on high-end tannery facilities a concern for competing markets?

Su Chao-ying: Following the high-speed development stage, China's leather industry has entered a new development era of industrial upgrade driven by technical innovation. The whole industry pays more attention to the improvement of product quality, added value and design level.

China is a traditional major power in leather production, and the industry is characterised by quantity in the global industry, which is indispensable with the development base of China's leather industry, division of work in the world industrial chain, market positioning, huge production capacity and other factors. The implications of product quality and added value is to make improvements on the basis of China's current production level with no impact on the traditional major players for manufacturing high-end leather products.

What is the appetite in China at the moment for luxury goods?

Sales of luxury goods slowed in China during 2014, with the growth rates falling for the first time, partly due to slowing economic growth.

According to a survey of 1,400 respondents made by China Daily, shoppers spent around 380 billion yuan ($61.13 billion) on luxury products worldwide in 2014, up 9% year-on-year. Of this, about 30% of purchases were made within China from brick-and-mortar stores and online shops. However, the total consumption fell by 1% on a year-on-year basis to 115 billion yuan ($18.51 billion), marking the first time that the domestic luxury market has shown such low growth numbers.

Among luxury goods, leather goods sales remained flat for most of last year. Some of the well-established brands remained conservative on new-store openings in the first-tier cities. Emerging brands such as Jimmy Choo, for example, on the other hand, were more aggressive in new-store openings as they are becoming more popular among most of the young consumers.

It is expected that the overall sales of luxury goods in the domestic market will not go lower than last year, which is partly because of the huge market and demand in the second-tier of cities.

Can you break down how different regions in China are adjusting to increased and more stringent legislation, in the south (Fujian, Zhejiang and Guangdong), and especially in the northern Heibei and Heenan provinces where Premier Li Keqiang has cracked down on industrial pollution?

The 'Discharge Standard of Water Pollutants for Leather and Fur making Industry' took effect on 1 May 2014; the 'Regulations on Tanning Industry Development' became effective on 1 June 2014, the new 'Environmental Protection Law' was brought into effect on 1 January 2015; and the 'Action Plan for Containing and Reducing Water Pollutants' was officially issued on 16 April 2015. The tanning industry is facing more stringent policies and regulations. Hence, the tanning enterprises must add their input to ensure the discharge of pollutants according to the standard; otherwise, they have to stop production and be shut down.

Jiaozuo Region, Henan Province, is one of the concentrated areas in terms of lambskin tanning and processing. At present, it is speeding up the construction of a tanning park and comprehensive wastewater treatment plant, which are expected to be completed and put into use before the end of this year. At that time, it will fulfil centralised production and wastewater treatment.

As two important tanning clusters, environmental management in Wu Ji and Xin Ji has been the top priority of concerned for local authorities. To improve the wastewater treatment ability and avoid the behaviour of illegal discharge of wastewater that was happening several months ago in Wu Ji, the local governments decided to take immediate and practical action to ensure the production in those areas can meet the national standard and policy.

In the past year, the Xin Ji leather industry has invested nearly 700 million yuan ($112 million) in the reconstruction of environment protection facilities in this area. Each tannery is requested to set up primary effluent treatment facilities.

The total number of tanneries has decreased from 80 to about 30, but the total production volume in this area remains the same as before the reconstruction. A primary wastewater treatment plant has been established in each tannery. The treated wastewater is discharged to municipal effluent treatment plants for final treatment.

All tanneries are requested to adopt cleaner technologies. Nowadays, most of the tanneries have recovered in their production.

In Wu Ji, a project of environmental improvement was undertaken. The tanneries with beamhouse and wet-finishing operation have been reduced to four (originally the number was ten) aiming at reducing wastewater load. Those four tanneries must be equipped with primary effluent treatment facilities. Up to now, three of them are back to normal operations.

Has the crackdown on negligent tanneries been successful?

As we know, some tanneries in Guangdong, Zhejiang, Hebei and other regions have been shut down in recent years, and this trend will continue; in the future, the quantity of China's tanneries will decrease, but the leather output will not be reduced.

How prohibitive and expensive is it now to open or reopen a tannery in China, and how is that affecting overall costs?

On 4 May 2014, the Ministry of Industry & Information Technology of China officially promulgated the Standard Conditions of Tanning Industry (Standard Conditions), which has been effective as of 1 June 2014. Standard Conditions raises the requirements for the new (renovated or extended) tanning enterprises in six aspects; for example, enterprise layout, production scale, process engineering and equipment, environmental protection, occupational safety and health, as well as supervision and management.

The new (renovated or extended) tanning enterprises and new tanning parks must conform to relevant national and local laws and regulations, industrial policies and development plans, and strictly execute the environmental impact assessment system; the construction (renovation or extension) of tanning enterprises is forbidden in the drinking water head sites and other environmental sensitive areas; new (renovated or extended) tanning enterprises shall move to the tanning parks that set up according to laws and regulations, and those tanning enterprises outside the tanning parks or industrial parks are encouraged to settle within the tanning park.

From the perspective of production scale, the annual processing capacity of a new (renovated or extended) tanning enterprise producing the finished leather should not be lower than 300,000 standard cowhide pieces. The small-scale enterprises are encouraged to conduct merger and restructuring according to law, and the production scale of restructured enterprises shall meet the requirement for new (renovated or extended) ones.

From the perspective of process engineering and equipment, the new (renovated or extended) enterprises shall adopt all kinds of cleaner technologies and water-saving processes, use the water field-processing equipment and machinery that can fulfil energy conservation and emission reduction; the existing enterprises shall conduct the water-saving and cleaner-production transformation; during technological transformation, they shall positively use the equipment that can realise energy conservation and emission reduction, and reduce energy consumption.

From the perspective of environmental protection, the new and existing enterprises shall all implement the policies and systems of environmental impact assessment and issue of pollution discharge licence; they shall discharge the pollutants up to standard and meet the requirement for total discharge, and shall treat the solid wastes based on the principle of reduction, resourcefulness and harmlessness according to law and standard; they shall install as required the automatic online monitoring facilities, establish the environment risk control plans and effectively treat chrome contained wastewater separately from other wastes.

From the perspective of occupational safety and health, the new and existing enterprises shall set up and improve their operations according to the laws of safety production, fire safety, occupational disease prevention and cure systems, and ascertain the responsibility system. In addition, occupational safety and health also concerns the provisions on the production operation conditions, safety of storage of rawhides and chemical materials, employee safety protection or health check-up, for example.

For those tanning enterprises that don't conform to the laws and regulations as well as the requirements of Standard Conditions, the investment administrative departments will not put them on file (or grant approval); the Departments of Land and Resources will not handle relevant land-use formalities; the financial institutions will not grant any form of additional credit extension support; and the quality inspection departments will not approve the qualification of designated import animal rawhide processing enterprises.

The above requirements will add the costs to new (renovated or extended) tanning enterprises to a certain extent, but will promote their development in a normalised and sustainable way, and create a sound external development environment. Therefore, the cost increase is a necessity for the healthy development of enterprises, and is also affordable in terms of cost.

According to CLIA, the whole Chinese leather industry chain achieved a steady growth in sales revenue and export in 2014. Is that trend continuing in 2015, and what is the forecast for 2016?

It is expected that the steady growth trend of 2014 will continue in 2015, but the growth margin will be, at the same, level or slow down a bit when compared with last year, and the growth rate is expected to be around 7-8%. This growth rate will be maintained or increase in 2016, but will not exceed 10% as anticipated.

It was recently reported that the price of Texas steers is down 38% since APLF. How much of an opportunity does this present for Chinese importers?

The previous high and unreasonable rawhide price is unfavourable for the industrial development; reasonable price is an important factor to ensure the healthy development of the leather industry, especially the tanning industry. The rawhide price reduction is good for easing the cost pressure of tanning enterprises. But, too much of a price-drop margin and too-fast drop speed would bring huge risks to the tanning enterprises that previously purchased rawhides at a higher price. Hence, the tanning enterprises hope that the rawhide price is reasonable and steady.

How are Russian sanctions affecting the Chinese market?

Russia is a major export destination of China's leather products. Since last year, impacted by the conflict between Russia and Ukraine, and other factors, the export volume and amount of leather products to Russia are down.

In January to December 2014, China exported $62.08 billion of leather, fur and products and footwear to Russia, an increase of 13.3% on a year-on-year basis with the growth rate dropping by 16.5%. In January through March 2015, China exported $7.07 billion of leather, fur and products and footwear to Russia, a decrease of 24.3% on a year-on-year basis.

Taking the Wenzhou footwear industry as an example, a large Russian foreign trade company went bankrupt due to the conflict between Russia and Ukraine last year, causing the overstock of around $1.00 billion in capital and goods of over 400 Wenzhou footwear enterprises.

Where is China heading next? How is the downturn of the Chinese economy affecting imports? Is the domestic market thriving as a result?

Industrial upgrade and adoption of new technologies, including the application of automatic and intelligent production lines that can improve labour productivity, and the implementation of machinery/automation technology, will be the future industrial development directions of China.

The downturn of the Chinese economy will affect the import of leather raw materials and products. In January through May this year, China exported $32.82 billion of leather, fur and products and footwear, an increase of 2.94% on a year-on-year basis with the growth rate dropping by 1.7%.

But, as a series of policies promoting economic development made by the state take effect, it is anticipated that the economic growth in the second half of this year will be better than the first half of this year. The statistics showed that the total volume of social consumption retail sales rose for two consecutive months in May and June. The contribution of consumption to economic growth was up to 60% in the first half of this year, an increase of 5.7% when compared with the same period last year.

Can you describe how the footwear and automotive sectors are developing? Are these still the main drivers of the Chinese leather industry?

In January through May 2015, 8,012 leather and fur products, and footwear enterprises with annual sales revenue of above 20 million yuan ($3.22 million) achieved an increase of 5.77% on a year-on-year basis with the growth rate dropping by 4.09%.

The sales revenue of footwear enterprises increased by 5.94% on a year-on-year basis with the growth rate dropping by 3.3%, accounting for 55.2% of the sales revenue of overall leather and fur industries.

In January through May, the footwear export volume was 4.13 billion pairs with an export amount of $19.8 billion, down by 6.3% and up by 0.4% respectively on a year-on-year basis, accounting for 60.4% of total export of whole leather and fur industries.

It may be seen from this data that the footwear industry is still one of the main industries that supports the development of China's leather industry.

China's automotive output has maintained high-speed growth, but its performance was not sound in the first half of 2015, where the automotive output and sales only increased by 2.6% and 1.4% on a year-on-year basis - the automotive output and sales decreased in June on a year-on-year basis. Hence, it is a fact that the Chinese market has shifted into minor growth from high-speed growth. In terms of automotive leather, it showed a good performance among all leather kinds.