saturated low-end market and intense price
competition is pushing China's leather bag and
wallet suppliers to move upmarket. But while the
percentage of high-end models is expected to
increase in coming months, low-end designs will
continue to comprise the majority of exports.
A large number of companies focusing on low-end
models in 2004 began offering midrange and even
high-end designs in 2005. The trend is more evident
among makers producing synthetic leather models.
Many of these suppliers have already stopped or
reduced the use of PVC in their products, and
switched to the more environment-friendly PU or
In addition, a few companies have decreased their
output of synthetic leather models and switched
focus to genuine leather designs, which are more
profitable. Some have stopped the production of
synthetic leather products altogether.
One of the main reasons for this upscale shift is
intense price competition. With a highly saturated
low-end market, companies that cannot afford to
lower quotes of mass-produced designs are trying to
distinguish their products through value
Another major factor is design copying, which
over recent years has become even more rampant in
the industry. It takes counterfeiters only a short
time to reproduce new releases. This has prompted
many companies to come up with more elaborate,
upscale designs that are more expensive to make and
not too easy to copy.
Even with the upmarket trend, most makers are not
very optimistic about export sales in 2006.
Suppliers are generally concerned about the combined
effects of the possible appreciation of the yuan and
the further reduction of export reimbursement rates.
The export reimbursement rate was reduced from 15
to 13 percent in 2003 and further to 11 percent in
2004. The yuan, on the other hand, appreciated by 2
percent in 2005. There is speculation that the
government will let the currency's value continue to
appreciate and reduce the export reimbursement rate
further this year. While this remains to be seen,
suppliers are nonetheless cautious and have become
less optimistic about 2006 prospects.
Because of these factors, total export volume is
expected to increase by only up to 20 percent in
2006, lower than the 30 percent average growth
recorded over the past two years.
Suppliers have also been affected by other
challenges such as higher production costs and labor
shortage. With oil prices continuing to fluctuate,
the cost of leather is also increasing. Over the
past year, the cost of raw materials has risen about
6 percent. Although this increase may seem marginal,
it is noteworthy in view of the fact that makers are
running on wafer-thin margins. For this reason, a
large number of companies will be increasing product
prices between 5 and 10 percent in 2006.