Is China'S Footwear Industry Moving Inland?

According to Zhang Huarong, chairman of the Asian Footwear Association, the rising cost has forced about 15% of shoemaking enterprises in a major industrial center in southern China to close or relocate in the past year.

In an interview with the financial times, Zhang Huarong pointed out that rising wages is a key factor in closing factories and moving away from Dongguan.

Dongguan is located in Guangdong, a southern province of China. It has about 1000 shoemaking enterprises.

The shoe industry reflects a broader problem that affects the manufacturing sector in the Pearl River Delta region of China.

The strictness of labor laws and the appreciation of RMB also make manufacturing enterprises more difficult.

The Pearl River Delta is the core of China's industry.

The problem of large-scale closure of factories is basically limited to small businesses, which are being squeezed by larger and more efficient competitors.

The closure of these enterprises does not seem to pose a threat to the overall strength of China's manufacturing industry.

Despite rising costs, Guangdong still has many advantages that many shoemaking enterprises and other exporters do not want to give up. The most important thing is the first-class infrastructure in the region and its skilled labor force.

Last year, Guangdong's exports increased by 22.3% to 369 billion 300 million US dollars, accounting for 30% of China's total exports.

But the rising cost of China may mean that the world's factory will soon become a major export destination for inflation.

After years of decline in export prices, the so-called "Chinese price" -- an unparalleled benchmark purchase price for us, European and Japanese retailers -- began to rise at the end of 2005.

But so far, the year-on-year growth has been relatively mild.

By contrast, China's domestic consumer price index (CPI) reached 7.1% last month, a 11 year high.

Zhang Huarong is also the founder and chairman of Huajian group, one of China's largest shoemaking enterprises.

According to Zhang Huarong, the average price of a pair of shoes produced by the company will increase by 1 US dollars this year.

Last year, Huajian exported more than 7 million pairs of shoes.

"The monthly wages of the medium skilled workers in our Dongguan factory have risen from US $100 in 2006 to US $200," Zhang Huarong said.

Due to rising wages and other costs, Huajian has abandoned the plan to double the total number of workers in its Dongguan factory to 40 thousand, and will expand to a sister factory in Jiangxi, an inland province.

Jiangxi is Zhang Huarong's hometown.

The global footwear industry has always been known for its free flow, from Taiwan and South Korea in the late 80s to the South China in the 90s of last century.

Zhang Huarong's estimate of the number of closed businesses in Dongguan is based on data provided by the association members and local governments.

This shows that the global footwear industry may start to move to inland provinces or other Southeast Asian countries.