China and the upholstery industry12 September 2004
According to statistical data for the year 2003, in China there are 18,000 leather business enterprises with a total of more than two million employees. These include 7,200 shoe factories with an annual production of 5.2 billion pairs shoes (including rubber and fabric); 1,700 leather garment factories with an annual production of 80 million pieces; 2,500 tanneries with a total annual leather production of 4,493 million sq ft and accounting for 39 million pieces of cattle hides, 60 million ovines and 90 million pig skins. The total output value of the leather industry amounts to some US$25 billon. Exports of leather have shown continual growth and reports from China Customs in 2003 give the total value of leather products exports as US$18 billion including US$2 billion for leather upholstered furniture. China has become one of the largest leather producing countries in the world and, as a result, has also become one of largest consumers of raw hides and skins. Therefore, the sourcing of sufficient raw material for the leather industry has become an essential problem in China. Current situation of raw hides and skins in China According to the statistical data from the Agriculture Ministry, the estimated annual slaughter in 2003 reached 100 million sheep and goat with 70% destined for garments, 29% for bags and 10% for shoe upper leather. Yearly slaughter for pigskins amounted to 120 million pieces with 80% for shoe lining and 20% for garments. The cattle population saw a significant growth in 2003 and the estimated yearly slaughter of 35 million head placed China in third position after the USA and Brazil. However, the hides received from the slaughterhouse have been varied in quality which, for the most part, are not completely acceptable and do not satisfy the actual requirements for the upholstery and car leather sectors. Compared with the developed countries, animal husbandry in China is quite backward with most cattle species under obsolescence. As a result, the milking rate is lower and the growth rate of meat cattle is slow. The average weight of local cattle is lower by 30% when compared with those of the USA and Australia. The scale of breeding and husbandry is at a very low level, mainly by individuals in open country. There are heavy defects such as scratches on the hides of local cattle. The finished leather processed from them is, therefore, poorer in quality. Slaughterhouses in China are 70% owned by individuals. Their flaying methods are quite backward and their hides are mostly salted with low-level technology. As there are no uniform criteria and standards for local slaughter, weight and quality of hides are not easy to control. Upholstery leather and automotive leather made from local hides are mainly sold to the domestically market. Since automotive leather is usually used to enhance the car, the appearance will have a direct impact on the value of the car. The leather should not only meet the standards for its physical testing performance but also have an aniline effect with a full grain appearance. However, there are only small quantities of local raw hides available for use as upholstery and car leather. As a result, it is necessary for China to import large quantities of raw hides and skins from abroad. According to statistic data from the China Customs department, the total raw hides and skins imported for the year 2003 were valued at US$1.27 billion. This included 600,000 tons of bovine hides and 107,000 tons of ovine skins. In 2003, around 4,495 million sq ft of finished leather was produced in China, covering 23.6% of total world production of 19,000 million sq ft. For upholstery leather production and exportation, 2003 represented the most rapid development and increased by 28%. There are a number of reasons for this: Since China joined the WTO in 2001, foreign furniture manufacturers have relocated their labour-intensive factories to China in order to utilise the less expensive labour in China, thus reducing production costs and improving their capability for market competition. After fifteen years of continuous and rapid development of the Chinese economy, there has been an obvious increase in national income and many more people have become members of the middle class. Since 2001, there has been an obvious increase in housing consumption and this promotes rapid development in the furniture industry. According to statistical data for 2003, the total output of the furniture industry amounted to US$20.7 billion, just below the €35.2 billion of Germany and €27.6 billion of Italy. Last year, the value of total furniture/upholstery exports from China amounted to US$8 billion, an increase of 26.8%. Leather upholstered furniture covered 20% of total exports. Types of leather upholstered furniture exports from China can be categorised in three ways. The processing trade accounted for 90% of the exports, manufactured for the buyer's own brand. The majority of exports in 2003 were in the low and medium range of upholstery furniture. Foreign invested enterprises contributed 50% of the total export value. Besides the substantial increase in the production of upholstery leather, automotive leather production has undergone a rapid development with the increase of automobile and car production in China. The car industry in China has witnessed rapid growth and has even been likened to 'big fermented bread'. The causes of such development include, again, the continuous expansion of the middle class in China. The main consumption structure has moved to the areas of housing and cars. Urban road and highway construction have rapidly developed and improved, so the car has become a much more convenient method of transportation. The demand for private cars has risen rapidly and has seen more than a 100% increase in car production in 2003 as compared with that of 2002. Foreign car manufacturers have sped up their investment in China. Manufacturers in the United States, Germany, France, Japan and South Korea have established joint-ventures in China with a total investment of more than US$1.5 billion. The year 2003 saw the production of automobiles and cars in China reaching 4.15 million. China has been ranked in fourth place of the world's largest car producers, just below the USA, Japan and Germany. With the increase in the output of automobiles, consumption of automotive leather has increased. Cars made in China by foreign manufacturers have been equipped with leather material, as can be seen in Table 9. With the use of an average of 8m2 of leather for each car, the annual leather consumption for cars in China would be the annual car output of 120 million x 8m2 = 9.6 million m2, which would require around two million hides per year. The huge potential for automotive leather is so attractive that a good many of the domestic shoe upper or garment leather tanneries have changed their product structure and introduced advanced equipment and technologies to transfer themselves to the manufacture of upholstery and automotive leathers, and a number of key enterprises producing upholstery leather or automotive leather on a large scale have emerged. Statistical data shows that there are now 2,500 tanneries in China, among which about 20% have begun to transfer themselves to the production of upholstery or automotive leather. In 2003, the output of upholstery leather is estimated at 800 million sq ft, or 20% of the total output of finished leather. Since 2002, foreign automotive leather producers that have gone to China include: the US; Germany; South Korea and Japan. In China itself, Kasen are among the front runners in automotive and upholstery leather manufacture. They have no doubt that the world demand for automotive leather will move into China. Kasen industrial company were established in 1988 and began their development with an initial capital investment of US$3,000. With seventeen years of operation, Kasen have developed from a small workshop into a large company, the Kasen Group. At present, Kasen Industrial Company Limited have more than 12,000 employees, including 17% managerial and technical personnel. Total assets amount to US$3.2 billion and the value of their annual output amounts to US$650 million. Under Kasen Industrial Company Limited, there are six tanneries as well as their own technical centre and effluent treatment plant. The main products of Kasen Industrial Company Limited include: automotive leather, upholstery leather, sofa covers, and sofas. Most of Kasen production is for export with an average annual export value of US$450 million. Production capacity at Kasen has reached 20,000 pieces of bovine hides per day. It is expected that next year the tanning capacity will increase to 30,000 per day. Finished leather production capacity has now reached 25 million sq ft per month and in 2004 sales revenues of more than US$500 million are expected. The group have a US$4.7 million environmental treatment plant. Kasen Industrial Company Limited are now one of the largest producers of upholstery leather and automobile leather in China. The other big tanneries in China include G Full, Shanghai Richina, Pou Chen (formerly Prime), Henan Prosper, Maydiang (Group) Company, Dong Ming Industrial Group, Pilot Leather Industry, Wendeng Senlu Tanning Co Ltd (Huisheng Tannery), Zhejiang Fubang Group Co Ltd and Genturn Enterprise Company.