What are the implications of this change?

RICHARD SMITH

 

 

 

 

In early February 2010 an interview was published with Michael Duck, Senior Vice President of UBM Asia Ltd. and Director of APLF - Hong Kong and ACLE – Shanghai, with the central theme being the coming “paradigm shift”  underway in Asia. The nub of Duck’s argument was that Asia and China in particular was changing from a producing nation to a consumer society with China’s huge internal market being at the center stage of this shift.

Now, some eight months later, it is worth reexamining this thesis in the light of factors which have arisen just this year as the leather and footwear industry has dragged itself out of the global recession which had a negative, broad based impact on all sectors of the global economy.

This year it has become abundantly clear that the wealth generated from more than thirty years of double digit GDP growth is spreading from major conurbations to third and fourth tier cities in China. This is evidenced by the fact that major auto makers are opening up dealerships in such cities and the demand for western designed goods continues to spread throughout the rising middle classes.

 

This is a clear sign of a fundamental paradigm shift towards more consumption. Just look at the property boom and car sales in China, now the world’s biggest auto market. Only a few days ago a short article was published on the China Leather Industry Association web site decrying the fact that only five years ago Chinese industry was “over dependent” on exports with the degree of dependence on foreign trade reaching 80%.

The leather industry was no exception and in reference to the next five year plan announced by CLIA president, Madam Zhang, during the ACLE 2010 event in Shanghai, it is clearly stated that the plan involves “maintaining annual growth of 10% in production output and of 5% in export value”. These figures imply that one half or even slightly more of the 10% growth in production output will be directed towards the internal market despite the intention to maintain 5% export growth in export value rather than volume.

Mathematically 10% growth in production output means that the size of the Chinese leather industry will double in just over seven years. On the other hand, 5% growth in export value is talking in revenue terms. Higher export prices could account for more revenue but not necessarily more products being exported. Therefore, one must ask the question, where will all these additional products be sold? The only answer based on Madam Zhang’s presentation is into the internal Chinese market.

With more production being directed at the Chinese internal market one can draw the conclusion, albeit by inference, that the potential of the internal market is not being overlooked by the CLIA and that the ground is being prepared in terms of policy guidelines looking towards 2015.