The tenth Jinjiang shoe fair was a disapointment for local shoemakers. China Business News takes a look at an industry under pressure

The tenth Jinjiang International Shoewear Fair attracted just 60 countries and 1500 sourcing professionals, well below the figures posted for previous fairs.

Jinjiang, a city in southeastern China’s Fujian province, produces 10 billion shoes a year, accounting for 40% of the nation’s and 20% of the world’s total. But hundreds of small and medium shoemakers in the city shut down in 2007 because of the rising yuan, labor and raw material costs hikes, tightened monetary policy and the increasing difficulty of hiring workers. This year the situation is getting even tougher.

The local government has tried bailout efforts, such as strengthening interaction with the shoemakers to direct them towards domestic sales.

“A new round of mergers and acquisitions has started,” said Zhao Yong, director of the city’s quarantine bureau. “I think it is the right time for an industrial reshuffle.”

Of the existing 3000 shoemakers in Jinjiang, 80% are exporters. Kangtaike Sports Ware Co exports 90% of its shoes to the EU, fetching US$2.86 million (RMB20 million) a year. “Lots of peer companies want to give up and do something else,” chairman Ding Siyuan said. “But most shoemakers take orders even if losing money because they want to keep their existing customers.”

He said packaging costs grew between 30% and 50%, insole costs 30%, and his labor payroll increased from RMB950 to RMB1150 a month per worker, or 21%. The increase was 30% for technical staff.

Jixiangniao China, which exports half of its shoes and offers OEM services for world-class brands, was not hit as hard. Its marketing supervisor Xiao Zuofa told the newspaper that relatively high-end shoemakers were subject to a cost hike of between 10% and 15% while small and medium shoemakers were more vulnerable, subject to 30% cost hikes.

He said only just over 200 shoemaking plants were closed down in Jinjiang last year compared to nearly 1000 plants in Guangdong because the Jinjiang government was backing the city’s shoemakers.

According to Zhao, Jinjiang exports US$2 billion worth of shoes a year. Howver, even though the rising yuan resulted in fewer orders, their value grew. The city exported 106.85 million pairs of shoes in the first quarter, down 0.42% year-on-year, but the shoes were worth US$333 million, up 9.14% year-on-year. All the same, profits shrank 10% in the first quarter.

Shen Sipeng, Alibaba.com’s regional marketing manager in Fujian province, said the reduced size of the shoe fair was because some shoemakers were not willing to take orders.

Small and medium shoemakers in particular are struggling. Kangtaike is planning to decrease its export portion and ask its foreign trade company to quote in RMB rather than US dollars. It will focus on rock-climbing shoes and beach sneakers.

Xiao also raised concerns over China’s credit system. “We face accounts receivable risks even while 100% of any debts from foreign buyers can be claimed,” he said.

Quanzhou Quli Trade Co is an agent that exports shoes made by 20 Jinjiang shoemakers. It said Jinjiang shoemakers had not improved their raw materials and technologies, which meant many shoemakers were forced to compensate foreign buyers last year fopr inferior products.

Producers of name brands tends to be more confident. Anta, the largest shoemaker in Jinjiang, said its orders for the first three quarters of the year surged 50%, and it was considering a 10% price markup across its product line this year.

The company will spend US$100.22 million (RMB700 million) building eight assembly lines in Fujian province this year to further meet domestic demand.
They are due to become operational by 2010.

“Turning to the domestic market is the right track,” said a Taiwanese shoemaker boss surnamed Lin. “The overseas market has become smaller as the yuan continues to appreciate.”

“Now Jinjiang faces the same problem Taiwan faced years ago,” Lin added. “We need to go green by using new technologies that can save 10-20% on energy consumption to battle soaring oil prices.”

He argued high value-added and name brand shoes will gain popularity on the mainland. “So, it is a good opportunity for Jinjiang’s large players and for the local government to become stronger and wipe out the weak.”

This article originally appeared in Chinese in China Business News on April 30, 2008. The China Perspective takes no responsibility for the accuracy of the original article.