Although the Chinese government has made it perfectly clear that when it comes to choosing between measures to combat global warming and expanding the economy, the latter will win out. However, as recent flooding on an unusually large scale, creeping desertification, and several truly horrendous instances of dangerously toxic discharges into city water supplies, there are instances aplenty in which environmental issues and economic advancement go hand-in-hand.
Tannery causing water pollution
An example of this is the central Chinese government programme for a national tannery waste water discharge standard. It is now being formulated and is expected to be effective by the end of this year. These new regulations will set more strict standards for tannery waste water discharge than hitherto. Moreover, it will apply throughout China, barring only a few areas, such as Beijing, Shanghai and Guangzhou, which have their own local standards that are even more strict than
national ones being proposed. Shanghai, for instance, has long demanded water standards that could be met only by substantial capital outlay on water treatment plant. The standard is closely monitored, and rigorously enforced.
An indication that this is programme is serious came in a report from the Shanghai Daily that 32 firms were shut down for pollution very recently. No tanneries appeared on this list but branch of a Chinese dairy giant and a unit of the biggest oil refiner were ordered to stop production for violating pollution limits. The State Environmental Protection Administration demanded that the companies clean up their operations.
These new measures will affect tanneries where there is no effective effluent treatment plant, or it is not operated properly. Inevitably, some tanneries, mostly small sized ones will face a very difficult situation. Many will likely have to close down: a pattern similar to that of South Korea and Taiwan, both of which witnessed a sizeable cull of smaller tanneries when strict water effluent measures were introduced over a decade ago. There are differences of course. In Korea and Taiwan there was an option for smaller tanneries to close down and decamp to China. That particular option would appear unavailable in this case.
The main concern to buyers will be the effect of all this on prices. In practice it may be quite limited, particularly by those buying high-end leather or in huge quantities from large tanneries since in most cases these operations will already
have water effluent systems installed mandated by either local authorities and/or customer requirement.
As from July 1 this year China reduced export rebates for apparel, footwear and bags from 18% to 11%, while leather export rebates were abolished entirely. One purpose is to reduce foreign trade surpluses between China, the US and the European Union (EU). Sources within the Chinese leather industry concede that leather, leather shoes, and leather goods sectors will be affected. Pressure within the EU to prevent Chinese shoe imports, from Italy and Spain in particular, is likely to continue.
Some Chinese shoes factories are reviewing setting up production facilities outside China but the potential problem of anti-circumvention measures to be taken by the EU remains. (See: Item XXX in this issue) Some, but seemingly not many, are turning towards the domestic China market.
A further consideration for those in the leather sector is the recent change affecting those companies which import raw hides or wet blue and convert it to finished leather for export. They should now pay customs duty and VAT of 17%.
Although this might be mitigated for some by the rise in the value of the Yuan against the USD: such as companies importing raw hides from the US and converting them to leather goods for exporting or selling in the domestic market. Tanneries which import a lot of chemicals from overseas should benefit too.
