China Business Guide 中 国 商 务 指 南 2009 （The Light Industry）

Shoe Industry：Globally, China, India, Vietnam, Indonesia and Thailand in Asia, Italy, Spain and Portugal in Europe and Brazil in South America are the world’s major shoe makers. There are 30,000-40,000 shoe makers across the world, with about ten million people engaged in shoe industry and other related industries. Shoe industry is a labor-intensive industry, and its development and transfer are subject to factors such as land resource, labor cost, supply of raw materials, environmental protection and sales market. Global major consumer markets, shoe makers, wholesalers and retailers are pursuing profit maximization, so they are sure to consider these important factors. The fact has made the center of global shoe industry transfer constantly. Previously, the centers of global shoe industry were located in Italy, Spain and Portugal in Europe. Since 1960s and 1970s, then centers have shifted to Japan, Taiwan, South Korea and Hong Kong with lower labor costs. At the end of 1980s and the beginning of 1990s, the centers have shifted to the coastal regions in China with further lower labor costs and rich industrial resources and better investment environment. China became the world’s largest shoe maker and exporter in 1996. China’s shoe industry has outshone others and gone through ceaseless development in the later ten years, growing by 10-20% annually and becoming the No.1 shoe maker in the world. During this period, Vietnam and India have provided international shoemaker giants with other options with rich but cheap labor resources. The shoe industries in the two countries have therefore undergone rapid development. Up till now, Asian countries including China, Vietnam, India, Indonesia and Thailand have supplied over 85% shoe products to the global market, becoming the center of global shoe industry.

Bicycle Industry：Major bicycle producers are mostly located in Asia, Europe and America. About 65 countries and regions produce bicycles with an annual output of 130 million units. The total trade volume stands at nearly 75 million units, while the inventory is over one billion units. The global production areas are generally divided into three major regions, namely, Asia, Europe and America. The major bicycle producers in Asia include China, Japan, India, South Korea, three countries in southeastern Asia and Taiwan of China. The major bicycle producers in Europe include Germany, France, British, Italy and Holland. The US is the major bicycle producer in America. The Commonwealth of Independent States is also a major bicycle producer. Asia has always acted as a major base for bicycle production and export, and its annual output accounts for 70% of the world’s total. Bicycle output of Europe (15 EU countries) accounts for 10% of the world’s total, America about 8%. Australia and Africa account for the remaining shares.

Lighting Industry: The major producers include the US, Japan, China, British, Germany, Holland, Russia, Italy, and Belgium. The major consumers of electric light source include Japan, Germany, the US, and Russia. In terms of regional distribution, markets of light source and lamps are centralized in North America, West Europe and the Asia-Pacific Region. The three regions accounts for over 85% of the global demands for lighting equipment. North America boasts the largest demand, accounting for one third of the world’s total.

Eyeglass Industry：The major producers of spectacle lens include USA, France, Britain, and Japan. The major producers of glass lens are Britain and German. The major producers of spectacle frame include France, Italy, Japan, Austria and South Korea. France and Italy produce spectacle frames of the highest grade, while Japan supplies spectacle frames of medium grade and South Korea supplies spectacle frames of low grade.

Battery Industry: China boasts the largest battery output in the world, surpassing the US and Japan in terms of output of one-off batteries and ranking first globally. According to the documents provided by the Chinese Association of Electric Source Industry, China’s annual output of one-off monocells are 19 billion units, while the annual outputs of lithium batteries, nickel-cadmium batteries, and nickel-hydrogen batteries are respectively over 400 million, one billion and about 500 million units. In addition, in terms of output of rechargeable battery, China ranks third in the world. Following Japan and South Korea, accounting for 12.5% market shares in the global market.

2.9 Position of China’s Light Industry in the World

Since China adopted the reform and opening-up policy 30 years ago, light industry has always served as a major force for China’s economic development. The accumulated export of light-industry products is close to US $2,000 billion. During the 12 years from 1996 to 2007, China’s light industry had realized a trade surplus of US $1,011.3 billion, 66% of China’s total foreign exchange reserve. The enterprises above the designated size in the light industry is expected to realize a gross industrial output of 9,000 billion yuan and the total value of exported commodities is expected to reach US $300 billion, accounting for 22% of China’s gross foreign export value. China’s light industry is among the industries boasting the highest level of marketization. Through fierce competition in the market, light-industry enterprises have gained continuous increases in size and benefits. China has already become a huge power in terms of light industry, and now is on the way to be an industrial powerhouse, seeing strong competitiveness and development prospects.

A number of China’s light industries have embarked on the way to be their counterparts in developed countries in terms of total value and production technologies, striving to take the lead to fulfill the goal of making China an industrial powerhouse. The household appliance, leather, furniture, bicycle, battery, feather and down, oral care product industries are close to their counterparts in developed countries in terms of total value and production technologies. These industries are building an energetic system of independent innovation, with the goals of mastering core technologies and key technologies, fostering the capability of original innovation, integrated innovation, and re-innovation through introduction, digestion and absorption, promoting innovation in technology, technique, equipment and product through adopting high and new technologies, owning a number of products with independent intellectual property rights, increasing products’ technology contents and added value, making positive efforts to develop new products, new product varieties and new brands, exploring new markets in foreign countries, gaining more market shares, keeping pace with demands from the global market, as well as leading new trends in the international market.

A number of light industries, which have embarked on the way to be their counterparts in developed countries in terms of total value and production technologies, are striving to pave the way to fulfill the goal of becoming an industrial powerhouse during the 11^th Five-Year-Plan period. The industries of papermaking, food, plastic, hardware, sewing machine, lighting equipment, spectacle, ceramics for daily use, glass for daily use, musical instrument, interior decoration, toy, sports and stationary products, pen-making, salt and commodities for daily use are close to their counterparts in developed countries in terms of total value and production technologies. These industries are accelerating their paces in adjusting enterprise structure and product structure. They are investing more into R&D and technological upgrading through independent innovation and cultivation of independent brands, seizing opportunities to strengthen themselves.

China’s light industry owns a number of sectors with the foundation and potential of certain degrees. They are adopting advanced technological achievements from home and abroad, striving to narrow the gap with industrial powerhouses. The industries of light industrial machinery, weighing apparatus, chemicals for daily use, detergent and cosmetics are exploring and improving their capability of independent innovation, in order to form the new pattern featuring independent development, independent research and independent innovation. With high- and new technology, high precision, high quality and high grade as the main targets, they have gradually achieved more market shares in the global market and are close to their counterparts in those industrial powerhouses in terms of quantity of renowned brands, independent intellectual property rights and core technologies.

With investment increases driven by demands of foreign and domestic markets, the light industry boasts huge potential in competition. China’s economy is currently witnessing sound development, with steady increases in incomes of residents of rural and urban areas and quickening upgrade of consumption. As for overseas market demand, the global market will generate further increases in demands for the light-industry products from China under the backdrop of global economic integration. As for domestic demand, the light-industry products will see a further expanding market and more light-industry products will be consumed as the country is accelerating its pace of building a New Socialist Countryside. The light industry will continue to see a booming market in 2007.

Due to the thriving demands of foreign and domestic markets, the light industry has seen rapid increases in investment, providing power for the industry’s development. Investments in the industries of furniture and leather grew by over 40% in 2006, the beverage industry 58%. Boosted by investment, the light industry’s production growth is expected to maintain over 20%.

Chapter 3 Development Environment Facing China’s Light Industry

3.1 Economic Environment

3.1.1 Economic Environment in China

Despite the impacts brought by the global financial crisis and deteriorating economic environment across the world, China’s economy still maintained rapid growth of 9% in 2008. A total of 30,067 billion yuan of industrial added value was achieved in 2008 and the economic aggregate reached up 30,000 billion. Agricultural production continues to see steady development, while grain output has grown annually. In 2008, the total grain output reached up to 528.5 million tons, 26.9 million tons more than that of 2007 and an increase of 5.4%. Increases in yields have been achieved for five consecutive years. Growth of industrial production has slowed down, and enterprises’ profits have fallen back. Industrial added value of enterprises above the designated size grew by 12.9% compared with that of 2007, but the growth rate has declined by 5.6 percentage points. Central and western regions are seeing rapider investment and industrial growth than eastern region, while the regional structure has been gradually optimized. The energy consumption per 10,000 yuan of GDP saw a year-on-year decrease of 4.21% in 2008. Positive progress has been made in saving energy, lowering energy consumption and building an energy-saving and environmentally-friendly society.

Investment has maintained rapid growth, with an upgrading investment structure. In 2008, the investment in fixed assets stood at 17,229.1 yuan, a year-on-year increase of 25.5% and seeing an increase of 0.7 percentage point in growth rate. Import and export maintained rapid growth in 2009, while the fourth quarter saw a significant decline in growth rate. The total volume of import and export stood at US $ 2561.6 billion, 17.8% higher than that of 2007. US $ 92.4 billion foreign investment was utilized in 2008, a year-on-year increase of 23.6%. The trade surplus was US $ 295.5 billion, and the foreign exchange reserve balance reached up to US $1950 billion. The growth rate of broad money supply has been quickened. The net issuance of currency reached 384.4 billion yuan in 2008, with an increasing number of loans.

Domestic market has seen rapid growth in sales, with booming consumption markets in urban and rural areas. In 2008, the total volume of retail sales of consumer goods reached 10,848.8 billion yuan, a year-on-year increase of 21.6%. The growth rate increased by 4.8 percentage points compared with that of 2007. Steady growth of employment was achieved in urban areas, while incomes of urban and rural residents continued to grow. In 2008, per capita disposable income or urban residents stood at 15,781 yuan in 2008, an increase of 14.5 compared with that of 2007, and the increase in real terms was 8.4%. The price markup represented a trend of from high to low, and maintained steady during the second half year. The consumer prices increased by 5.9% in 2008, and markup was 1.1 percentage points higher than that of 2007. Factory prices of industrial products grew by 6.9% and saw a year-on-year decrease of 1.1% in December. The markup was 3.8 percentage points higher than that of 2007.

China’s economic growth witnessed a turning point in 2008 due to internal and external factors. Its economy was facing three challenges of structural adjustment, business fluctuation and the global financial crisis. The target of China’s economic growth in 2009 is to ensure an annual growth of GDP. China has regarded expanding domestic demands as the fundamental solution to growth, coming up with the revival plan for the light industry and the program of “home appliances going to the countryside”. China’s light industry will be faced with both challenges and opportunities during the coming years.

3.1.2 Global Economic Environment

In 2008, global economic growth stood at only 3.4%, 1.8 percentage points lower than that of 2007 and hit a record low since 2001. The global economy will continue to slow down in 2009, and developed economies will see recession. Rising and developing economies will witness significant readjustments, facing more risks.

Growth rate of developed economies increased to about 1% in 2008, while some countries and regions have witnessed economic recession. In the later half of 2008, the US saw obvious shrinkage in its economy. The decline of its GDP growth accelerated, while the Consumer Confidence Index was at the bottom in this country’s history. Drop of the retail sales at the end of the year hit a record low since 1993, while unemployment rate hit a new high in the past 16 years. The industrial output saw the first shrinkage since 2002. The American residents’ attitude toward consumption was changing, while the holiday sales in the country hit a record low in 40 years. According to the IMF’s prediction, the US will see a year-on-year decline of 1.6% in 2009. The Federal Reserve Board predicted shrinkage for the total economic output. According to the Securities Industry and Financial Markets Association, the economic recession in the US will continue to mid-2009 and the GDP will drop by 1% in 2009.

According the non-government think tanks in Japan, Japan’s GDP shrank by 12.1% in the fourth quarter of 2008, and the decline hit a record high in 34 years. In December, 2008, Japan’s production index of its industrial mining dropped by 9.6% compared with November, and the decline hit a record high since 1953 when the Japanese government began to gather the statistics on the index. The unemployment rate soared up 4.4% in December, and the increase hit a record high in 42 years. The sales volume dropped by 2.7% in December, and the decrease hit a record high in four years. The total household consumption dropped by 4.6% in December and the household consumption had shrunken for ten consecutive months by then. According to the IMF’s report, Japan’s economy dropped by 0.3% in 2008 and is expected to drop by 2.6% in 2009.

Figures posted by the European Commission show that consumer confidence dropped to the lowest level in 15 years in Euro Zone in November. In December, activities in the manufacturing industry and service industry in Euro Zone declined at an unprecedentedly high speed in at least ten years. The retail sales in Euro Zone had declined for seven consecutive months by December. The retailers in Euro Zone had laid off employees for nine consecutive months by December, and the number of slashed jobs hit a record high in over four years. The unemployment stood at 8% in December, the highest in recent two years. The industrial production continued to drop in November, by 1.6% compared with October and by 7.7% compared with November of last year. According to the IMF’s report, economy of Euro Zone is expected to drop about 2% in 2009.

Due to factors of significant decreases in global trade and prices of primary products as well as significant shrinkage of international investment and financing, rising and developing economies are going to face significant readjustments. Individual countries and regions will see economic recession. However, as a whole, their economic growth will continue at a higher speed than that of the global economic growth. According to the IMF’s report, China’s economy is expected to grow by 6.7% in 2009, India 5.1%, five ASEAN countries 2.7%. Russia will see a drop of 0.7% because this country is suffering severer impacts caused by sharp drops of oil price.

The global economic environment is still unclear in 2009. Developed countries might go through severe economic recession, which will impose pressure on export of China’s light industry. Meanwhile, deteriorating global economy will cut down on residents’ income, which will create opportunities for cheap light-industry products from China.

3.2 Policy Environment

3.2.1 Government Comes up with the Light Industry Revival Policy

The State Council officially issued the Readjustment and Revival Plan for Light Industry on May 18, 2009. China’s light industry undertakes the important tasks of bringing about a booming market, increasing export, increasing employment opportunities and serving the undertakings related to agriculture, farmer and rural area. Light industry is very important, and plays a decisive role in economic and social development. Since the beginning of 21^st century, China’s light industry has undergone rapid development, and gained significant improvements in enterprises’ size and strength. The competiveness has improved continuously and boasts noticeable benefits of creating jobs and benefiting agriculture-related undertakings. As an action program of the comprehensive measures for the light industry, the Plan was developed to cope with the impacts brought by the global financial crisis, fulfill the requirements of the central government and the State Council of ensuring growth, expanding domestic demands and adjusting structure, ensure steady development of the light industry, speed up structural readjustment and promote industrial upgrade. The planning period is from 2009 to 2010.

The Readjustment and Revival Plan for Light Industry includes the status quo of the light industry and the situations facing it, guiding theories, fundamental principles and goals, as well as the major tasks of industrial readjustment and revival. The implementation of the policies, measures and plans are divided into five sections. Specific measures and actions have been defined for each section. The Plan provides a direction for the development of China’s light industry in the coming three years.

The major policies and standards defined for China’s light industry in 2008 are listed as follows:

★ On December 22, the SAC issued the national standards on sports drinks, providing the definition of sports drinks, related technical requirements, testing methods, inspection rules and requirements on label, package, transport and storage.

★ On December 1, the Chinese Light industry Federation began to implement the industrial standards on the paper based intaglio prints for decorating. Surveys on, collection of, analysis and researches on quality requirements of the paper based intaglio prints for decorating have been conducted to develop the industrial standards. Meanwhile, regulations on classification, requirements, testing methods, inspection rules, mark, package and transport are defined in the standards.

★ On December 1, the SAC approved to issue the national standards on product of geographical indication - Dehua white porcelain (GB/T21998-2008) as the 14^th announcement in 2008, defining product of geographical indication - Dehua white porcelain, product classification, quality of raw materials, requirements on production techniques, product quality level, testing methods, inspection rules, and requirements of product symbol, package, transport and storage.

★ On November 19, 13 departments including the SDRC and the AQSIQ developed the Dairy Industry Rectification and Revival Program, providing plans for dealing with the infant milk powder accidents, solving the difficulties and deep-seated problems facing the dairy industry and promoting the steady and healthy development of the dairy industry.

★ On October 7, the AQSIQ and the SAC began to implement the Testing Methods on Melamine Contained in Raw Milk and Dairy Products, defining several kinds of methods to identify melamine.

★ On October 1, the SAC issued the Standards on Quality and Safety Control on Exported Tea, defining detailed regulations on each steps from production to export of tea. In addition, management on source of tea, including management on tea plantation and primary processing as well as pre-warning for export and recalling system, has been added in line with current situations.

★ On October 1, the SAC began to implement the General Standard for Labeling of Prepackaged Alcoholic Beverage. Warning words shall be appear on the labels of the alcoholic beverage, alcohol concentration of which is higher than 0.5, including beer, wine, fruit wine and liquor.

★ On September 1, the SAC issued the national standards, Requirements of Restricting Excessive Package for Foods and Cosmetics, defining requirements of restricting excessive packaging for foods and cosmetics and the calculating methods for limited indexes. Interspace ratio, package layers and packaging cost are compulsory requirements.

★ On September 1, the Chinese Furniture Association, the Chinese Furniture Standardization Center and some other institutes began to implement the Standards on Valuable Hardwood Furniture in Deep Color. Valuable hardwood furniture in deep color refers to the furniture featuring mahogany culture. Besides the 33 kinds of rare tree species listed in the original standards on mahogany or some kinds of tree species adopted to make furniture since Ming or Qing Dynasty, the valuable woods or high-quality imported woods listed in the Names of Chinese Main Imported Woods and the Names of Chinese Main Woods are covered in the definition of mahogany culture.

★ On June 1, the Ministry of Health began to implement the Hygienic Standards for Uses of Food Additives, defining categories and application range of food additives. Food additives are classified into 22 categories, 1,812 kinds including 290 kinds of additives, 1,528 kinds of spices, 149 kinds of processing aids and 55 kinds of gum bases.

★ On May 1, the AQSIQ and the SAC began to implement standards on food stuffing, defining comprehensive standards on food stuffing in terms of requirements on raw and supplementary materials, sensory requirements, chemical and microbial index and hygienic index. The standards also provide testing methods, inspection and decision rules.

3.2.2 Industry Planning

In order to carry out the Scientific Outlook on Development, speed up structural adjustment and economic growth mode of the light industry and promote the sustainable, healthy and coordinated development of the light industry, the Chinese government has developed the 11^th five-year development plan for the major light industries from 2006 to 2010 to define guiding theories, development goals, development priorities and major tasks of the light industry.

1. Food Manufacturing Industry

In October 2006, the SRDC, the Ministry of Agriculture, the Ministry of Science and Technology and the Chinese Light Industry Federation jointly issued the 11^th Five-Year Plan for Food Industry. The Plan defines eight industries as the major sectors of the food industry, namely, grain processing industry, edible vegetable oil processing industry, fruit and vegetable processing industry, meat processing industry, fish processing industry, dairy processing industry, beverage manufacturing industry and sugar refining industry.