Injection molding: New tax gives advantage to Chinese machine makers

A change in how the Chinese government applies the VAT on injection molding machines seems certain to help the country's local manufacturers and could also hinder imports. Able to profit from the change is Demag Plastics Machinery (Ningbo) Co., with the company expanding to meet fast-growing demand, and working even more closely with high-end Chinese mold and auxiliary equipment manufacturers. 

Starting this year, processors importing injection molding machines into China face a 17% value-added tax (VAT) that is no longer refundable, while purchasers of locally made machines can reportedly now receive a refund of the same 17% VAT after they purchase those machines. Until last year, the reverse applied, with processors eligible for a VAT refund on imported machines while local machine purchases were subject to the non-refundable VAT.

New tax regulations could benefit Stephan Grief and his colleagues at Demag Ningbo, as well as other injection molding machinery companies in China.

According to Stephan Greif, CEO of Demag Plastics Machinery (Ningbo) Co., the Ningbo-based manufacturing arm of Sumitomo Demag, the Chinese government is also bringing in new certification requirements that will mirror CE certification. In general, he noted, "It is becoming more complex and costly to import machines," and predicts that in the long run it will only make sense to import machines for special applications. The Chinese government's move is viewed as a strategy to promote "local champions" in the injection molding sector, just as it has done in many other industries.

Speaking to PlasticsToday at the Chinaplas show (held Apr. 19-22) in Shanghai, Greif also detailed a shakeout in the injection molding machine-building sector in China that was prompted by the recession but exacerbated by the increasingly technical demands from local processors. He estimates that the number of injection machine OEMs in the city of Ningbo, by far the leading location for production of these machines in China, has declined from around 150 pre-recession to 45 today. "China is no longer a cheap production location and a lot of local OEMs were caught out in that they couldn't raise the [technical level] of their machines to mirror market requirements," said Greif. Also, he added, some machine vendors with weak financials simply could not endure the fall in machine demand regardless of what equipment they had to offer.

Demag Ningbo expands, but still demand is too great
Conversely, Demag Ningbo is expanding its operations in China. Prior to Chinaplas, it inaugurated its new Ningbo plant with floor area of 11,060m² and the capacity to produce 1500 machines annually. Despite the expansion, "One problem we do have now is that we can't produce enough machines to keep pace with rampant Chinese machine demand. We are offering customers two-to-three-month delivery times and as a consequence losing orders," lamented Greif. Demag's plant in Ningbo turned out 350 machines in 2009 and this year it expects production to as much as double to 700 machines. "We also expect to import around 100 Sumitomo Demag machines from Europe," said Greif.

Demag Ningbo started with production of Systec 50-150-ton machines, concentrating on the telecom and computer markets in Southern China, but has now ventured into production of larger machines up to 350 tons. "By the end of this year, we will extend our range to include 420-, 500-, and 650-ton machines, while next year will see the debut of an 800-ton machine," says Greif. "We are widening our customer base to encompass markets such as automotive and appliances."

Demag Ningbo has been manufacturing in China for twelve years, initially in a joint venture with Haitian and now as a wholly owned subsidiary of Sumitomo Demag. Greif says that 5358 Demag machines operated in China as of the end of 2009, not including used machines transferred there.

At Chinaplas, Demag was also eager to prove that high-tech solutions need not be the domain of injection machines produced overseas. On its stand at Chinaplas was a 280-ton locally produced injection press outfitted with what is reportedly China's first stack mold, fabricated by SQ Co. (Ningbo). Demag also showed a German-made El-Exis 100-ton all-electric press equipped with a laminar flow cleanroom unit from Suzhou Nanmar Filter Materials Co. covering the mold area. "We want to prove that such markets can be served with Chinese technology," commented Greif.

China's high-end molding segment gets larger
Such solutions will become increasingly in demand in the future as the Chinese market for injection machines transforms. "The Chinese market for injection machines is typically at least 40,000 machines annually, of which right now 20,000 are low end, 19,000 what I would say are medium level, and 1000 high end," said Greif. "In the near future this split will be 10:25:5 and eventually, the day will come where only 5000 low end machines are sold in China, while medium-level machines will number 20,000, and high-end machines 15,000." —Stephen Moore