It is well reported in the West that with a population of 1.3 billion people, China's market is moving quickly toward surpassing those of North America and Europe combined. Companies from around the globe are flocking here to buy, sell, manufacture, and create new products. To many new comers, however, there are still serious questions about why one should come to China, and how one can enter the market and be successful. The following are a briefing on China's plastics market, and four case studies of foreign companies operating in China.
1. Briefing on China's Plastics Market.
2. Adjust and Compete, Sell to the China Market
3. The Trend: High-Tech and Environmentally Friendly Building Material
4. Win the Customers by Optimizing Your Operation
5. Make It in China and Ship It throughout the World
Briefing on China's Plastics Market
China's plastics industry has been growing at double-digit rates annually since 1996, and that rapid growth will continue in the next decade. China consumes 48.5 pounds of commodity plastics per capita while the world averages 55 pounds. Currently, China makes $ 53.4 billion worth of plastic products. $12.8 billion of them are exported, while it imports $7.1 billion worth of plastic products from overseas.
China's demand structure had changed drastically over the past five years, with the ratio of soft to rigid PVC production evolving from 55:45 in 2000 to 40:60 in 2005. Soft PVC applications in China included film (12% of total PVC output), cable materials (7%), leather (6%), shoes and sole materials (5.2%), while rigid PVC applications included house surfacing products (22.9%), pipes (13.3%), hard flake and calendar grade products (9%).
The largest 700 Chinese processors, all with annual sales exceeding $10 million, represent about half of the total market. The industry's emphasis is on moving toward high-value-added sectors, such as the auto, electronics and medical markets. The construction plans for the countryside, as laid out by the central government in China's 11th Five-Year plan (2006-2010), would require huge amounts of film, pipes and house surfacing products, that would be a big boost to the industry.
The nation's 1,000 domestic equipment manufacturers，of which 600 are small，cannot meet domestic demand. Imports supply about half of the country's equipment demand, and that level of dependence is unlikely to change in the foreseeable future. About 50% of plastics processing equipment made in China are injection molding machines while extruding and blow moulding machines account for 35% of the market. Various other machines make up the balance.
Adjust and Compete, Sell to the China Market
（Extracts from Tom Goodpasture's Capital Hill Hearing Testimony on July 20, 2006.
Tom Goodpasture is President and owner of Pride Manufacturing Co., Inc.）
"I am an active member in the National Tooling & Machining Association (NTMA) and through this testimony hopefully I can voice the concerns of our company and our 1,600 member companies across the nation. NTMA is one of the largest metalworking associations in America. It consists primarily of small- to- medium sized companies with average employment of 27 employees and average sales of 4 million dollars.
The manufacturing sectors hardest hit by the China factor are the tool, die and mold industry, and the precision-machined parts industry. Every product that is manufactured is formed by a tool, die, or mold made by our industry. Precision machining and tooling industry is truly the backbone of manufacturing.
The precision tooling and machining industry operates in a very competitive global marketplace. The industry has experienced a massive shift of production and orders to low-cost overseas competitors. Many of the big name / large US manufacturing firms have picked up and moved plants, or work to China with little regard for communities, employees & families. Vendor chains previously supplying tooling, components and assemblies to these plants while in the states have lost a tremendous amount of business.
I visited with Kim Hayden of Supreme Tool & Die in St. Louis a few weeks ago. Their company was so negatively affected by the amount of work going to China that their employment was forced from 65 to 32 almost overnight. Their sales revenue was cut in half, and they have gone through some very difficult times. By making huge adjustments they have survived and that's a success story."
"Currently it is almost impossible to compete with the low wages being paid in China. The only way we can keep our costs as low as China's is by having automation that runs unattended and requires 0 labor. That is how many of our businesses have survived the recent hard times. At Pride, we have invested in robotic equipment and Swiss Turn Lathes that run unattended "lights out". Our machinists have now become technicians as well. I'm proud to say that currently, we are producing component parts 24/7 for our local customer, which is being sold to China to be used in the Light Rail being constructed from Beijing to Shen Yang. That investment is huge to our small business and we could not have done it without accelerated depreciation. American manufacturers need the R&D Tax Credit ..."
"Last fall, I spent nine days in China on a NTMA Study Mission. I found that what we see and hear on the American news does not accurately reflect the China that I saw. Both Beijing and Shanghai are ultra-modern cities comparable to any city in the U.S. The construction going on there is like nothing I had seen before. I was told they complete one power plant of some size in China every single day.
Most of the manufacturing jobs are not the slave labor sweatshop jobs that I would have envisioned. Although China has few labor laws controlling safety, most of the machines were guarded to protect the worker. I noted a few unsafe conditions, but for the most part they take a very practical view of safety, in spite of having no regulations.
Technology that I was hoping we could keep from China, is already there in abundance. The German, Swiss and Japanese influence in the plants is apparent and it is obvious that they were there long before us.
Some of the shops are very modern with the same technology that we have available. Although many of the laborers are young and less skilled that is rapidly changing. Firms from the U.S. and other countries, setting up plants in China, send teams of engineers over to accelerate plant operation, in turn accelerating the Chinese manufacturing economy. I came away from that trip with two thoughts:
1. Whatever the United States decides to do or not do about manufacturing in China would make little or no difference to the Chinese.
2. The United States, because of our adversarial position, is missing a huge opportunity to sell to the commodity market in China. While many other countries are selling to them."
… “Does China play fair? No. Factor in the alleged subsidization of the Chinese government, currency manipulation, no safety and environmental standards, and low wages, it is clearly not a level playing field.”
| High-Tech and Environmentally Friendly Building Material |
The Bayer Group entered the China market early. China now has become Bayer's fastest-growing market. Bayer MaterialScience China, a sub-group of Bayer China, has signed an agreement to supply 13,000 square metres of glass-like substitute called Makrolon polycarbonate material for the roof of Tianjin Olympic Centre, which will host soccer matches during the Beijing 2008 Olympic Games. With high impact resistance and low weight, the Makrolon polycarbonate sheets offer excellent heat insulation，clarity and durability. They can be cold-bended easily and be inserted in different roof and facade designs without any problems.
Juergen Dahmer, chief executive officer (CEO) of Bayer China, says "we are very honoured that our Makrolon polycarbonate sheets can be selected as the material of choice. It comes in the wake of increasing emphasis from the Chinese government and the building industry on the use of high-tech and environmentally friendly materials in the construction of sporting venues for the Games." Apart from the Tianjin Olympic Centre, Bayer MaterialScience China is also in talks with other Olympic projects about supplying raw materials.
China's construction industry will continue its rapid growth in the next decade or two. The Chinese government is encouraging the use of technologies to significantly increase the efficiency of new and renovated Chinese buildings. Traditional construction materials such as cement and glass will grow at a slower pace, while new construction materials will grow rapidly in the 11th Five-Year Program (2006-10) period.
Win the Customers by Optimizing Your Operation
Germany's Demag Plastics Group plans to produce its all-electric injection molding machine in China, at its Ningbo plant, in the first half of 2007. Right now, Demag sells all-electric machines that are made in Germany. But they are not selling very well, "because the German price is too high. That is the reason we want to produce here in China," said Gerhard Massfelder, chief executive officer of Demag Plastics Machinery (Ningbo) Co. Ltd.
Demag's current capacity in China is 600 machines annually. The actual production is 400-450 presses a year. In the next two to three years, however, Demag plans to add 200 jobs and reach 1,000 presses in annual production.
Make It in China and Ship It throughout the World
The Dominion Post of New Zealand reported on January 25, 2006, that plastics manufacturer Calvert Plastics plans to produce a plastic pallet in China because of cheaper costs there. The following are extracts from the article:
Co-owner and trading manager John Matthews said the company, which employed 20 fulltime staff in Stokes Valley, was testing the new plastic pallet, which could take heavy weights, with an American customer.
"As soon as these trial ones get to the States and the customer is happy with them, I'll be going to China to get the whole thing going."
"We are going to make it in China and ship it throughout the world hopefully."
He would rather make the pallets in New Zealand but it was not viable.
"We can make them in China, get them shipped out here, and we can sell them for a similar cost to a wooden pallet."
About 75 per cent of Calvert Plastics' business was making plastic components for other manufacturers. The company was experiencing fewer orders.
"The end of last year started to get quite difficult . . . and that's still continuing. We are not predicting any layoffs but we are predicting tighter conditions at least for the next six months anyway."
"At one end you've got the high dollar affecting our customers not selling as much overseas. And at the other end you've got all your costs rising continuously."
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