“…Chinese shoe makers, battling rising costs and an appreciating currency, are shifting production inland from more expensive coastal provinces, where thousands of manufacturers have been pushed into bankruptcy in the past year…”

By Samuel Shen
Source: Reuters

Chinese shoe makers, battling rising costs and an appreciating currency, are shifting production inland from more expensive coastal provinces, where thousands of manufacturers have been pushed into bankruptcy in the past year.

Aokang Group, based in Zhejiang province south of Shanghai, has begun building the second phase of an industrial park in Chongqing municipality in southwest China that will produce 100 million pairs of shoes a year by 2012.

Paramont Footwear Co, in Guangdong province near Hong Kong, said it recently opened a factory in Sichuan province and plans to add eight production lines in neighbouring Chongqing. “Labour in Guangdong is getting expensive,” said Jerry Shum, a spokesman at Yue Yuen Industrial (Holdings) Ltd (0551.HK: Quote, Profile, Research).

The company owns factories in Dongguan city, a manufacturing hub in Guangdong, and makes shoes for Adidas AG (ADSG.DE: Quote, Profile, Research), Nike Inc (NKE.N: Quote, Profile, Research) and Timberland Co (TBL.N: Quote, Profile, Research).

Yue Yuen has also been studying the possibility of opening factories in western China, encouraged by government incentives, Shum said, although moving abroad to Indonesia or Vietnam would also be an option.

China’s shoe-making industry, the world’s largest, has been suffering from rising costs for labour, energy and raw materials, as well as an appreciating currency that makes its exports more expensive abroad.

Of about 6,000 shoe makers in Guangdong, more than 1,000 folded last year, Aokang said in a recent news release, citing industry data.

“The cost of making a pair of shoes has jumped 20 percent in the past year, but most shoe makers are unable to raise sales prices,” said Fan Manru, production manager in Aokang’s Dongguan factory.

Wealth Gap

The government, in an effort to bridge the wealth gap between China’s prosperous coast and less-developed inland regions, has been offering incentives for manufacturers to go west.

But market forces, not government policies, have been most important in driving manufacturers to the hinterland, according to Zhang Shuhua, director of the China Leather Association.

The average monthly wage for a shoe factory worker in Chongqing or Sichuan would be less than 1,000 yuan, compared with about 1,800 yuan in Guangdong.

That, along with other savings on overhead, allows shoe makers to cut production costs by about 30 percent if they relocate, company officials said.

“There is a clear trend that China’s shoe-making industry is moving from east to west,” Aokang President Wang Zhentao said in a recent statement.

Aokang’s industrial park in Chongqing has already drawn more than 1,300 shoe makers from other parts of China and makes 60 million pairs of shoes a year.

While cost-conscious exporters are moving west, however, at least one major manufacturer with its own brand and a focus on the domestic market is staying put in Guangdong.

“We don’t have a lot of cost pressure, because as a retailer we can pass our costs on to our customers,” said Gloria Qian, an investor relations official at Belle International (1880.HK: Quote, Profile, Research), a seller of women’s footwear in China.

Last year, Belle raised its product prices between 5 and 8 percent to offset rising costs, she said.