In terms of industrial policy, the State Council issued the Opinions on Improving Cross-cyclical Adjustment and Further Stabilizing Foreign Trade, which clearly stated that the export enterprises of labor-intensive products, including shoes and boots, should increase export credit, export credit insurance and other policy support in a manner consistent with the WTO rules. Overseas, major shoe manufacturers in Asia have introduced industry support policies: Philippine shoe and leather products manufacturers have received tax relief; The Indian government approved the continued implementation of the Footwear and Leather Development Plan (IFLDP) and approved the financial support of 17 billion rupees; Cambodia launched a new “clothing, footwear and travel goods industry (GFT) development strategy”.
According to the statistics of the General Administration of Customs of China, the cumulative export value of China’s footwear products in the first quarter of 2022 increased by 23.0% year on year. With the resumption of work and production in Southeast Asia, especially the policy support of some countries in Southeast Asia to the shoemaking industry, the foreign trade backflow orders of the shoemaking industry have again flowed out. Affected by the severe domestic epidemic and the obstruction of logistics and transportation, with the rising costs of raw materials, labor, logistics and other costs, some shoe-making enterprises have suffered from a decline in efficiency and lack of stamina. The United States is China’s largest footwear export market. In the first quarter of 2022, China’s footwear exports to the United States increased by 39.9% year-on-year. US footwear prices rose 6.6% in March. In the first quarter of 2022, China’s footwear exports to Russia increased. Although affected by western sanctions, China’s footwear exports to Russia will recover slowly after adjustment.
The COVID-19 situation in 2022 is complex and severe. In addition, the conflict between Russia and Ukraine continues to escalate, which seriously affects China’s footwear industry. The specific risks are as follows: industry risks brought by macroeconomic; The tension of global logistics supply chain increases the export risk of enterprises; Relevant risks caused by the Russian-Uzbekistan conflict; Trade friction is still the main risk faced by China’s shoe industry export enterprises.
1. Overview of shoemaking industry
(1) Review of key events in the industry
In terms of domestic policy, the State Council issued the Opinions on Making Cross-cyclical Adjustment and Further Stabilizing Foreign Trade. The policy clearly proposes that for labor-intensive export enterprises, including the shoemaking industry, all localities should implement various policies and measures to reduce the burden and stabilize the employment, increase policy support for export credit, export credit insurance and other policies in a manner consistent with the WTO rules, and support all localities to research and establish a fixed and regular monitoring mechanism for employment in the field of foreign trade, timely grasp the employment situation, and carry out accurate assistance.
The Ministry of Commerce will resolutely implement the decisions and arrangements of the Party Central Committee and the State Council, go all out to implement the stable foreign trade policy, make good use of the platforms such as the transformation and upgrading base of foreign trade and overseas brand exhibitions, encourage traditional industries such as shoemaking to accelerate the development of new formats and new models, constantly improve the level of trade liberalization and facilitation, help enterprises actively explore the international market, fully guarantee the stability and smoothness of the industrial chain supply chain, and promote the high-quality development of traditional export industries.
In terms of overseas markets, Philippine footwear and leather products manufacturers have been exempted from tax. According to Malikina City Decree No. 110, all shoe-making enterprises and other leather goods manufacturers operating or about to operate in Malikina can enjoy the policy of exemption and reduction of business tax.
The Indian government recently approved that the footwear and leather development plan (IFLDP) will continue to be implemented, and approved the financial support of 17 billion rupees.
Cambodia launched a new “clothing, footwear and travel goods industry (GFT) development strategy”. In late March 2022, the Ministry of Finance and Economics of Cambodia launched the new “Development Strategy of Cambodia’s Clothing, Footwear and Travel Goods Industry (GFT) 2022-2027″, which is expected to solve the structural problems of Cambodia’s GFT industry and promote the development of Cambodia’s GFT industry and sustainable economic growth. According to the Ministry of Finance and Economics of Cambodia, Cambodia’s clothing, footwear and travel goods manufacturing industry will export US $11.38 billion in 2021, with an annual increase of 15.2%, which is an important pillar of Cambodia’s economic growth. Despite the continuous development of the industry, its structure has remained a low value-added manufacturing center in the past 30 years, and its integration with the international supply chain and value chain is limited, especially in terms of environmental protection or environmental sustainability, which requires additional assistance at the policy level. The new strategy is to prepare for the future development of Cambodia’s clothing, footwear and travel goods manufacturing industry. In addition to continuing to strengthen the management of the internal development of the industry, it also adjusts the overall industry to meet the regional and global requirements for environmental sustainability.
(2) Basic situation of industry operation
1. Export of footwear products
According to the statistics of the General Administration of Customs of China, the export value of China’s footwear products in March 2022 was 3.175 billion US dollars, up 0.3% year on year; In January-March, China’s footwear exports totaled 12.351 billion US dollars, up 23.0% year on year. In 2021, the export value of China’s footwear increased by 35% year-on-year, and the export price continued to rise by 15%. The shoemaking industry chain and supply chain show strong resilience. From the perspective of local conditions, Fujian and Guangdong are still the top two provinces of China’s footwear exports, with the export volume increasing by 38% and 27% respectively year on year. The total export volume of the two provinces accounts for 44% of China’s footwear exports.
In the first quarter of 2012, the global economy was still affected by the complex situation of the COVID-19, and some domestic shoe production areas were shut down. In terms of exports, with the resumption of work in Southeast Asia, foreign trade backflow orders have again flowed out. As of March 2022, from the perspective of export countries (regions), the United States, Russia and Germany are the three major export markets of China’s footwear. Vietnam has dropped from the third largest shoe export market to the 29th, and its export volume has dropped significantly year on year. In addition, China’s exports to the Philippines, India and other countries also began to show a certain degree of decline because some countries in Southeast Asia began to support the footwear industry.
2. Performance of enterprises in footwear industry
With the rising costs of raw materials, labor, logistics and other costs, some shoemaking enterprises have suffered from a decline in efficiency, insufficient stamina and continued pressure on profits.
(3) Analysis of industry operation situation
The footwear industry is one of the representative industries of China’s light industry. China’s footwear industry has huge capacity and industrial chain advantages. China is the world’s largest shoe manufacturer and exporter, and plays an important role in the global footwear export trade. The epidemic has brought a certain impact on the entire footwear industry chain, but in the long run, the impact of the epidemic is only phased.
The market price of raw materials in the upper reaches of the footwear industry continued to rise. In the global leather trade, China is not only a major exporter of leather products and footwear products, with exports accounting for about 1/3 of the total export value of the global leather industry, but also one of the most important importers of raw leather, semi-finished leather, finished leather and products. In terms of raw leather, China has a huge gap in leather raw materials, about 50% of which are imported. The United States is the largest supplier of cow leather in China. From the perspective of price, from the second half of 2021, the rising trend of cattle hide market in the United States and Europe has continued. Since 2022, the leather market has risen slightly from the middle of January to the end of February. The further development of the Russian-Uzbekistan conflict may lead to further increase in the price of Russian cowhide market. After that, it is difficult to predict the market trend due to various factors. In addition, the shortage of shipping and other factors also led to the delayed arrival of raw leather imports or insufficient supply, which not only increased the supply gap of raw leather for domestic leather enterprises, but also increased the pressure on production costs of enterprises.
The Russian-Uzbekistan conflict has continued to escalate, the orders of Ukraine have been greatly reduced, the performance of some foreign trade enterprises’ orders and the flow of funds have been affected, and the pressure on operating costs has increased. According to statistics, after the Russian-Uzbekistan conflict, about 50.2% of foreign trade enterprises in Wenzhou reported that orders were delayed or cancelled, seriously affecting the development of enterprises.
The Russian-Uzbekistan conflict has intensified a series of supply conflicts affecting the global economy in recent years, and the global economic recovery has been slow. The World Economic Forecast released by the International Monetary Fund in April 2022 lowered the forecast value of global economic growth in 2022 and 2023 to 3.6%. Inflation has become a clearly demonstrated danger, consumer spending has begun to slow down, and the demand of the main downstream export markets remains to be boosted. Take the United States as an example. In February 2022, American consumer spending increased by 0.2%, but the growth rate was lower than expected due to rising inflation. After adjustment for inflation, actual expenditure decreased by 0.4%. The survey of consumption expectations conducted by the Federal Reserve Bank of New York’s Microeconomic Data Center in March 2022 showed that the inflation rate in 2023 would reach 6.6%, which is expected to be higher than the 6% growth in February this year. From the above economic performance in the first quarter, it is expected that the economic recovery in the United States and the euro area will slow down, and the demand for footwear in the international market will be difficult to improve in the short term, and the sales prospects of footwear are not optimistic.
2. Industry risk outlook
The development situation of the COVID-19 in 2022 is complex and severe, which is still a global leading risk. In addition, the conflict between Russia and Ukraine continues to escalate, which seriously affects China’s foreign trade enterprises. The cost of raw materials, labor and logistics in the shoemaking industry has been rising, the outflow of foreign trade orders has intensified, and the phenomenon of order destruction has increased sharply. The risks of the shoemaking industry can be summarized in the following four aspects: 1. The industry risks brought by the macro economy; 2. The tension of global logistics supply chain increases the export risk of enterprises; 3. Relevant risks caused by the Russian-Uzbekistan conflict; 4. Trade friction is still the main risk faced by Chinese footwear export enterprises.
(1) Industry risks brought by macro-economy
The economic situation of the exporting country is an important indicator of whether its order can be fulfilled normally and whether the payment for goods will be delayed. As China’s largest exporter of footwear products, the United States is still one of the key objects of concern. The International Monetary Fund (IMF) released the world economic forecast, reducing the forecast value of global economic growth in 2022 and 2023 to 3.6%. The IMF estimates that inflation will remain high for a longer time. In the United States and some European countries, under the background of tight labor market, inflation has reached the highest level in more than 40 years. On the supply side, with the slow recovery of economic activities, the supply chain is under pressure, and the output of enterprises decreases. On the demand side, the consumption of major exporting countries fell, driving the economic downturn, and the Russian-Uzbekistan conflict amplified the global economic pressure. The economy of the United States and the European Union, the major export countries (regions) of footwear in China, is not optimistic, and the export risk has risen sharply. It is suggested that the export enterprises should be reminded to communicate with the buyer in time, and negotiate with the buyer in time for orders that may be suspended or cancelled by the customer to reduce the export risk.
(2) Global logistics supply chain tension increases enterprise export risk
In 2022, the global shipping demand will remain strong. Under the influence of multiple factors such as the repeated COVID-19 epidemic and limited supply of transportation capacity, the global logistics supply chain will continue to be challenged and impacted by complex situations such as port congestion, container shortage, and inland transportation stagnation, and the supply and demand relationship of container transportation will continue to be tense. The rise in container prices has a great impact on footwear export enterprises with low price tag and low product added value. Due to low profits and weak anti-risk ability, the orders of these enterprises have dropped sharply, and some enterprises may be forced to stop production after the freight exceeds the value of the goods.
(3) Relevant risks caused by the Russian-Uzbekistan conflict
The Russian-Uzbekistan conflict continues to escalate, seriously affecting China’s foreign trade enterprises. Most of the foreign trade enterprises exporting to the region were seriously affected by the war. Many customers could not be contacted, and some orders had to be suspended. In addition, the proportion of delay or default of orders in Ukraine and Russia is also significantly increasing, and the delay or cancellation of orders is the main difficulty affecting the development of enterprises. In addition, the Russian-Uzbekistan conflict has led to a significant tightening of the global financial environment, which has increased the risk of financial stability. The current situation of sanctions imposed by the international market on Russia will have a direct impact on future transactions with Russian buyers. It is recommended that export enterprises adopt cross-border RMB settlement for Russian businesses to reasonably avoid risks.
(4) Trade friction is still the main risk faced by Chinese footwear export enterprises
In the first quarter of 2022, the ITC of the United States officially launched a 337 investigation on knitted shoes, and released the 337 final decision on casual shoes and their packaging. The Brazilian Foreign Trade Commission issued the final decision announcement on the sunset review of the anti-dumping case against footwear products originating in China in the Federal Government Gazette. In the long run, the structural contradictions between China and the United States are difficult to reconcile, especially the quantitative changes in China’s strength in the post-epidemic era may eventually lead to qualitative changes in Sino-US relations, with risks and trends of intensification of contradictions. In the future, the spillover effect of the Sino-US trade game will make China face trade protectionism and unilateralism from many sides. It can be predicted that the risk of anti-dumping investigation or review of China’s footwear products will increase significantly.
Post time: Jan-28-2023