Shrinking profits force hundreds of Chinese shoe makers to quit

Hundreds of shoe makers in southern China have closed down this year as profits slumped due to the rising yuan, higher costs and a weakening demand overseas, industry insiders said Tuesday.

Around 500 shoe factories -- or 10 percent -- in Huidong county in Guangdong province have closed, Mingdanni Shoes Co. owner Ye Hua told AFP.

Huidong is on the Pearl River Delta, the world's largest footwear production centre, which lost a total 2,331 shoe firms between January and May, the official Xinhua news agency reported on Tuesday.

"Customers from the United States and Europe have reduced since last year due to the appreciation of the yuan," Ye said.

"We are under big pressure and it feels like it's hard to breathe."

The Chinese currency has appreciated about 20 percent against the dollar in three years, making the country's exports more expensive -- and therefore less attractive -- to foreign buyers.

What makes matters worse is costs are increasing dramatically. Some raw material prices have doubled while domestic inflation has spiked and international oil prices have soared.

"Costs are rising ... but the price of my shoes is lower than last year. All these have squeezed my profits," Ye said, adding the profit margin for his shoes is 80 percent less now than it was a year ago.

Wu Hang, the Association of Guangdong Shoes Manufacturers secretary general, said local shoe makers have limited bargaining power because they have too many competitors.

"Many companies are shifting their focus on to the domestic market. At least they now walk with both legs by looking at both foreign and home markets," Wu told AFP.

Despite manufacturers' pain, customs data shows the value of shoe exports actually rose by 9.4 percent to 3.97 billion dollars in the first five months of 2008, Xinhua reported.

It said the trading environment has evolved, leading to industrial upgrades that would help drive the unit price of China-made shoes higher.

"The industrial structure will definitely be optimised, with strong players getting stronger," Wu said.