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Leather firms seek fresh pastures

By Xu Xiaomin (China Daily)
Updated: 2009-08-21 08:05

Green concerns and cost factors have triggered the move of relocating part of leather goods manufacturers' operations. [CFP]

Cost and environmental concerns are forcing many leather goods manufacturers in the coastal regions of Zhejiang and Guangdong provinces to relocate part of their operations to the less developed inland regions.

Taking the lead is Aokang, a well-known shoemaker from Wenzhou in Zhejiang. The company began moving parts of its operations about five years ago to Chongqing, where the production cost was at least 20 percent lower than in its home turf.

Soon after, many other leather producers from Zhejiang and Guangdong followed suit. In the early days, only a few small and medium-sized producers saw the need to move. Now, "even companies with mass production capabilities are planning or have already moved, though most of them are not willing to talk," said Su Chaoying, secretary-general of China Leather Industry Association. Indeed, turning their back on a home that nourished them isn't something tradition minding Chinese companies wants to talk about.

But economic realities seemed to have taken precedence over cultural concerns. Escalating labor and other costs, particularly those related to environmental conservation, have greatly trimmed the profit margin of the highly polluting leather industry.

Richina Industries Inc, the parent company of Shanghai Leather Co Ltd and Shanghai Richina Leather Co Ltd, said last month that it intends to build its wet blue facility in Fuxin, Liaoning province.

"It is impossible to build a leather processing facility in Shanghai as pollution treatment costs are far too high," said an official with the company who asked not to be named. In Fuxin, the government will cover the treatment costs utilizing world-class environment technology in its model leather making zone.

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Supported by local governments, many newly developed industrial zones with comparatively cheaper land prices, laborers, raw materials, water and electricity, modern sewage treatment systems are being set up in inland provinces. These are incentives that leather producers are finding hard to resist, especially at a time when overseas orders are dwindling and foreign buyers are becoming increasingly demanding.

To be sure, none of these newly developed industrial zones can usurp the crown of leather capital from Wenzhou in Zhejiang or Dongguan in Guangdong.

"Restricted by the lower labor quality, incomplete industry chain and slow logistics in inland places, most enterprises still keep research and development, sales network and administration in coastal areas," Su said.

But going inland is seen by a growing number of leather goods manufacturers as a way out of the present gloom. In Dongguan, more than 1,000 leather goods makers had folded and another 1,000 or more in other parts of the Pearl River Delta are known to have closed down or stopped production. In Wenzhou, over 600 enterprises went bust in the past year or so, Su said.

To take advantage of any recovery in overseas orders, leather goods manufacturers are rushing to control costs and improve efficiency.

A positive clue can be seen from the All China Leather Exhibition, China International Footwear Fair and Moda Shanghai, which will be held at Shanghai New International Expo Center from Sept 2 to 4. More than 1,000 exhibitors have signed up and over half of them are potential buyers from overseas.

Statistics show that the country's export and import volumes of leather, fur and related products in June decreased 10.8 percent and 17.7 percent compared with the same period of last year, but the positive signal is that the fall has slowed since June.

"We expect the leather goods trade to recover by the end of this year," Su said.