Dongguan Industrial Chain Attracts High-end Footwear Industry

The zero-tariff tariffs in the China-ASEAN free trade zone have added a lot to the region’s investment advantages, bringing many industries to a close.

However, Hua Jian Chairman Zhang Huarong firmly told reporters on January 7 that before this industry “temptation”, “the advantages of Dongguan footwear industry can still exist for 10 to 20 years, in the next few years, China-ASEAN The advantage of the free trade zone is still very limited."

Shoe prices are hard to resist

In addition to China, ASEAN has already signed agreements with Japan, South Korea, India, and other countries on the free trade zone. Once Chinese enterprises invest in ASEAN, the products produced can also enjoy the preferential tariff treatment of free trade zones between ASEAN and these countries.

Not only that, the ASEAN labor cost is 3/5 lower than that in mainland China, and the land is cheap. This has already attracted many global shoe giants to deploy ASEAN, such as the “Dongjia” of Dongguan Yuyuan Shoes Factory – a factory of Taiwan Baocheng Group. In Vietnam, Indonesia and other places have blossomed. Coupled with the temptation of "zero tariff" after the completion of the free trade zone, many companies are "ready to move."

"With the opportunity of zero tariffs in the China-ASEAN Free Trade Area, the company is ready to transfer some of its production lines to Southeast Asia. This will help greatly in avoiding trade frictions in the future." Wu Zhenchang, chairman of Chuangxin Footwear, revealed to the media that he was considering moving. The production line includes production lines exported to the EU and ASEAN. "The labor force in Southeast Asia was originally cheap, and the anti-dumping tariffs on the ASEAN's exports to the EU could be eliminated by 16.5%, which could completely offset the cost of raw material transportation," said Wu Zhenchang.

What attracts investors in the ASEAN market lies in its huge market prospects. According to data released by the China Economic Net yesterday, ASEAN has become China's largest footwear export market in 2009. Throughout 2009, the Shenzhen port exported 490 million pairs of shoes to ASEAN, a rapid increase of 1.1 times, accounting for 22.1%, making ASEAN leapfrog in the Shenzhen Port footwear export market first. This group of increasingly large ASEAN footwear exports, Dongguan is the "main force."
The weak industrial chain

“As long as the ASEAN countries are in a stable political situation, they have great enticement for Dongguan shoe companies, especially Vietnam, Myanmar and other countries.” Zhang Huarong acknowledged the attractiveness of the China-ASEAN free trade zone but believed that the current high-end footwear industry was very limited.

The industry believes that despite the obvious cost advantage of ASEAN, Dongguan shoe industry has a greater advantage in the industry chain, high-end footwear industry is more value is the industry chain support, including raw material supply, human resources, production machinery and other aspects. Only from these perspectives, Zhang Huarong said, "Dongguan shoe-making companies have at least 10 to 20 years time, and in the next few years, the large-scale transfer of Dongguan enterprises to ASEAN investment is unlikely to occur."

A few years ago, Hua Jian set up a factory in Vietnam. Although the local labor cost is 3/5 lower than that in Dongguan, the footwear production in Vietnam is far inferior to that in Dongguan. Many raw materials are needed here, and the production efficiency is slow. The quality of skilled workers is even worse than the Dongguan workers who are well-developed in the footwear industry. They are also unfamiliar with the local cultural background and face great difficulties in their management.

"Zero tariffs in the free trade zone are good news for Chinese companies. As for whether the Vietnam factory will restart, it is still under consideration." Zhang Huarong said.