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SCMP Reporter

After a tough two years, the mainland's shoe industry is gleefully anticipating the prospects opened by entry into the World Trade Organisation.

 'It will promote exports and when tariffs come down, imported shoe material will be much cheaper, which means we can cut costs further,' said Zhou Guojun of the Senda Group, one of the mainland's biggest domestic manufacturers.

 Zeng Yang, spokesman for the Chinese shoemaking industry, said: 'After accession, there could be a big surge in exports and our factories will also make bigger profits.

 'Implementation of WTO rules will mean more imports of higher quality foreign materials. The quantity change will lead to a quality change.'  Mainland manufacturers are anxious to move upmarket by producing higher quality and brand products.

 'China still lags behind in shoe designing . . . there will be more foreign designs and designers coming to China. The competition will be good,' Mr Zeng said.

 His office has already been fielding calls from manufacturers from Italy, Portugal and Britain who plan to sell their shoes in the mainland when tariffs come down.

 'I can sense their eagerness,' Mr Zeng said.

 Premier Zhu Rongji has also been trying to reassure competitors in Southeast Asia about the impact of WTO entry.

 'A pair of sneakers will sell for US$120 in America but the worker in Fujian gets only $2 for each pair. The pad inside the sole of the sneakers is imported for $2, so the Chinese labour is worth only that piece of pad. You Singaporeans won't do that kind of business, so we won't be competition,' Mr Zhu told Singapore businessmen during his visit there last week.

 The mainland's shoe industry is so enormous though that any change is bound to send ripples across the world. The mainland makes about six billion pairs a year, one for every person on the planet and 40 per cent of global shoe production. Production peaked in 1997 when 6.3 billion pairs were made.

 Last year the mainland exported 75 per cent of the four billion pairs traded in the world, earning US$8 billion or about a third of the value of global shoe exports.

 In the past 10 years, the mainland's shoe exports quadrupled and while many of these are cheap rubber or plastic shoes, the proportion of higher value sneakers has been growing fast thanks to the influx of Taiwanese, South Korean and Italian manufacturers - 90 per cent of Taiwanese shoe-makers now have mainland factories, mostly in Guangdong and Fujian.

 Among them are the Cai brothers, who own several thousand assembly lines around the world employing about 100,000 workers, mostly making sneakers for big names like Nike, Reebok, Fila and Puma.

 Their Baocheng factory in Dongguan, which employs about 30,000 workers could be the biggest in the world.

 Workers at this factory and others like it stitch together imported shoe parts. The finished goods produce more than half the volume of mainland exports and 70 per cent of the value.

 The Asian financial crisis had little impact on such firms according to statistics for the first half of the year. It is the domestic shoe industry which has suffered the most.

 'The orders of many factories were cancelled and China suffered by not devaluing. Buyers shifted to other countries,' Mr Zeng said.

 'Many shoe factories halted production and larger numbers of workers were not paid or were laid off.'  The China National Information Centre for the shoe industry believes up to 30 per cent of mainland shoe factories went bankrupt between the end of last year and June this year.

 'They usually comprise small workshops with several hundred workers in Guangdong, Jiangsu and Fujian. The Taiwan-invested companies suffered the worst,' Mr Zeng said.

 Many export-orientated factories tried shifting sales to the domestic market but, without a proper distribution network, the strategy failed and last year the mainland reportedly had a stockpile of 300,000 shoes.

 Most mainland manufacturers say sales have picked up in the second half of the year as the economies of neighbouring countries improved.

 'Many buyers are coming back and the domestic market is improving but Chinese producers have learned some lessons,' Mr Zeng said.

 Many factories in Wenzhou and other places have found new markets in Eastern Europe such as Serbia and set up their own sales network.

 'Our companies now cherish reliable partners because during the crisis many foreign dealers deserted their Chinese partners,' he said.

 The second lesson drawn is that the domestic sector is now determined to build mainland brands.

 Producers think the mainland probably has reached the limits of what it can reasonably hope to export and now wants to concentrate on grabbing a big share of the market.

 'We have to improve quality in a big way by spending more on advertising and promotion. We have to create our own international brands if we want to survive in the future,' Mr Zeng said.



Global market entry to help shoe factories step up quality