Sponsored By

They say you can gauge the health of China’s export-driven economy by the level of atmospheric pollution in Southern China. Assuming that is true, then a recent low smog-level drive through the industrial city of Dongguan clearly indicated that China’s export machine is suffering as the global economy flounders. Factories have been shuttered and migrant workers have not returned from hometowns in the country after the January Lunar New Year.

May 28, 2009

12 Min Read
Chinaplas 2009: Blue skies prevail in Guangzhou (but smog can be a good sign)

They say you can gauge the health of China’s export-driven economy by the level of atmospheric pollution in Southern China. Assuming that is true, then a recent low smog-level drive through the industrial city of Dongguan clearly indicated that China’s export machine is suffering as the global economy flounders. Factories have been shuttered and migrant workers have not returned from hometowns in the country after the January Lunar New Year.

The big question on everyone’s lips at the recent Chinaplas show in Guangzhou, however, was whether the current domestic stimulus-driven recovery in China is sustainable or not. Some were of the view that China was in the throes of a “W”-shaped recovery. The government had indeed succeeded in kick-starting the domestic economy through its stimulus efforts, but once these effects have flooded through the system, a repeat package of similar proportions would be difficult, and China would thus then depend on a global recovery to bolster its export-led economy. Clariant Greater China’s Juergen Heise, head in Guangzhou for the additives and colorants supplier, is one forecasting two-pronged recovery, saying, “We expect the current run-up to come to a halt in a few months, before a real recovery around May 2010.”

NewsFeed_May29_Chinaplas_Crowd_0.jpg

Chinaplas 2009 attracted 69,298 visitors, including 11,340 from overseas.


NewsFeed_May29_Chinaplas-Arburg_0.jpg

Arburg’s Man: The strong get stronger.



However, Engel Machinery Asia (Pyongtaek, South Korea) President Robert Bodingbauer expects the current global crisis to boost China’s long-term prospects. “Once the world recovers, I think the majority of companies will look at investing in production facilities in Asia rather than Europe and other developed economies. The main beneficiary will be China,” opined Bodingbauer.

Southern China export strife

The plastics processing sector in Southern China at present is characterized by two extremes, according to Max K.W. Man, general manager at injection molding machine manufacturer Arburg’s Shenzhen operation. “They either have no work whatsoever or they are busy. Customers are looking for the strongest companies when they place their orders.” The next six months will likely be critical to the survival of many, he predicted. “Processors reliant on export orders have to prove to the banks that they have orders in order to get financing,” said Man, who added that while Arburg has suffered from the downturn, it has not been hit to the same extent as machine suppliers serving the low-end market. “We have already seen some confidence restored in the second quarter, although machine buyers are taking longer to sign,” he said.

Healthy homeland

Closer to the home market, the picture brightens significantly. Since March, various government stimuli and initiatives have kicked in, and the local economy has begun to tick again. While the majority of China’s $586 billion fiscal stimulus package is destined for infrastructure and construction, other government initiatives are boosting the processing sector. Tax rebates have seen auto sales in China at record levels of late, while ready availability of credit and VAT (Value Added Tax) rebates have boosted capital investment. A voucher distribution program has ignited appliance demand, to quote some examples.

As part of its efforts to boost the local economy, China exempted purchases of injection molding machines from a 17% VAT burden in January, a move that helped drive sales, according to Helmar Franz, chief strategy officer of Ningbo Haitian Co. (Ningbo, China). “After an extended New Year break, buying activity returned in March and we are now at 80% of the peak level of 2008,” said Franz, who has also noticed a fall-off in production at many multinationals in China. “In a recession, it’s easier to lay off people and cut back on production in China than in a home market in Europe.”

Haitian debuted an all-new “low-cost” injection molding machines series at Chinaplas dubbed the Tianjian Pluto Series. The 860 to 5300-kN machines are designed and manufactured at a dedicated facility in Wuxi, China, operated by subsidiary company Wuxi Haitian Machinery Co. Explained Franz, “Our standard machines were improving year by year and actually getting too sophisticated for standard applications in the Chinese market. We decided to go back to basics with this new ‘simple and solid’ machine line.”

In China, there is a burgeoning need for quality products that are relatively low-tech. “One billion Chinese do not have TVs or refrigerators,” mentioned Franz. The Tianjian Series is targeted at such applications where quality is required, but not necessarily high machine performance.

Echoing Haitian’s sentiments, Taiwan’s Fu Chun Shin (Tainan) reported that orders in January and February of this year were at just 20% of the level of 2008. However, “During March through May, we returned to a level of 70%,” said John Hsieh, planning department manager. “Outside China, Africa is doing quite well because it’s not as integrated into the global economy.”

Packaging progress

Netstal China Ltd. (Shanghai), is also “quite happy” with recent business in China. General Manager Andreas Nydegger said his company is gaining market share in the higher cavitation market for 72- and 92-cavity PET preform molding systems, albeit a smaller market there than lower cavitation units. “The key to success in the China market is (supplying) machines that are easy to set up and maintain. Chinese processors are not quite ready for the cavitations of 144 and even 192 that we are seeing in North America,” said Nydegger. He added that Chinese processors are showing an increased appreciation for the benefits of reliability, less material usage, and faster cycle times, which he said plays well to his company’s machines’ strengths. Although a typical Netstal rigid packaging system costs four times more than 15 Chinese machines, production efficiency is better by a factor of six to seven and ROI is around one year, he claimed.

Packaging production efficiency will be a key component of revisions that are to be made to China’s packaging legislation. Observers say this change will push industry consolidation and demand for energy efficient machinery.

Hosokawa Alpine (Augsburg, Germany) Divisional Manager Christopher Tarrant says orders for blown-film extrusion lines such as the ones his company makes were put on hold in China for around six months but now seem to be gaining momentum. “It will take some time to see if this continues, but a lot of projects that were shelved last year are restarting,” stated Tarrant. In particular, petrochemical joint ventures need flexible plastic packaging for their production, he said. Increased fertilizer production in China coupled with a tendency to switch from woven sacks to polyethylene ones is also boosting demand.

Chinese processors naturally are also looking to reduce their resin costs by reducing material use, which should drive a shift to greater use of linear low density polyethylene (LLDPE) for flexible packaging. One thing standing in the way of downgauging, however, is that China continues to manhandle bags rather than use automated handling. “They are handled roughly and 120 µm or 140 µm bags wouldn’t be able to handle such treatment,” noted Tarrant. Currently the standard in the country is 160 µm. “China needs to revisit its logistics system before downgauging to gauges of advanced countries,” adds Tarrant.

Brückner (Siegsdorf, Germany), meanwhile, has received orders for seven bi-oriented polypropylene (BOPP) and polyethylene terephthalate (BOPET) lines in China so far this year, and officials there reason it is benefiting from the availability of financing and a relatively strong local economy. “At present, processor margins are slim but their operating rates are high so cash flow is good,” noted Phillip Chen, managing director of Brückner Far East (Hong Kong). As Chinese processors invest in the more cost-effective lines, older lines will have to be shut down or be devoted to niche products, according to Chen.

“We expect to sign a few deals after the Chinaplas show,” says Peter Oswald, managing director of tenter equipment manufacturer DMT Guangzhou Machinery. The two latest BOPP projects in Asia for the manufacturer are at processors Paoyan (Taipei) and Zhejiang Yiwu YiMei Film Industry (Yiwu, Zhejiang Province). Both lines are equipped with DMT’s TDO inlet sprocket drive that reduces the chain load and results in higher uptime with lower energy and oil consumption.

YiMei just installed its second line from DMT rated at 450m/second. “Higher output is the key requirement in the industry on account of its commodity nature, but there is some interest in specialty lines,” said Oswald. Zhejiang Hangbao Group Co., for example, operates a 5-layer high-barrier line from Oswald’s firm. There’s also a need for flexibility to switch from commodity to specialty products using the same line. For example, Fujian Quanzhou Lichang Plastic Co., switched from BOPP film extrusion to production of synthetic PP paper (filled with CaCO3) when the market had a previous downturn.

Jürgen Rehkopf, GM for the Asian-Pacific headquarters in Singapore of extruder manufacturer Reifenhaüser (Troisdorf, Germany) was surprised how busy Chinaplas turned out to be, saying, “We has solid talks on technology and will see what comes out of them…. The ones that didn’t survive the crisis are not our customers. Now the larger players are benefiting from less competition.”  Rehkopf says that in times of crisis, processors with the most efficient machinery can gain some advantage. “We’ve had five contracts signed in Southeast Asia and China this year. There is demand for machines but definitely a hurdle in terms of getting finance because most money is going into large projects.

Reifenhaüser’s Rehkopf also noted a lot of international visitors from countries such as Morocco, Thailand, Mexico, Chile, and Pakistan. “They want to see how close the Chinese machine builders are getting to us in terms of performance, and at what price,” said Rehkopf. “We’re still ahead, but we need to keep an eye on the Chinese competition.”

During a downturn, processors become price sensitive and Chinese machines are seen as attractive in developing countries,” said Stanley Chu, chairman of Chinaplas organizer Adsale Exhibition Services (Hong Kong). “We saw buying delegations from Jordan, Brazil, Egypt, Turkey, and Russia.” In fact, 16.4% of Chinaplas’ 69,000-odd visitors were from overseas.

Mark Lueddecke, executive VP of extrusion blowmolding machine manufacturer Shunde Kautex Plastics Technology Co., notes that during tough economic times, many of its users were choosing to retrofit or upgrade their machinery rather than buy new machines. He estimates that 30% of China’s blowmolders and moldmakers have disappeared “But when business picks up they will reappear,” he predicted.

Germany’s Kautex has seen its Chinese subsidiary transform from an 80% reliance on export sales in 2007 to an 80% reliance on the local market in 2008. “Domestic processors are returning to us after having tried local machines,” said Lueddecke. “Minimizing energy consumption is high on the agenda in China.” Kautex has improved the energy efficiency of its Chinese machines by generating more friction in the screw and barrel (for faster plasticizing), using Bosch Rexroth hydraulics to gain cycle improvements, and downsizing the hydraulic motor and combining it with accumulators. “Our machines use 20–25% less energy than Chinese machines and you can do away with labor-intensive flash removal,” said Lueddecke.

If you build it …

As mentioned, China’s $586 billion stimulus package is seen as most benefiting the infrastructure and construction sectors, with 25% of the funds dedicated to reconstruction of quake-devastated Sichuan Province. A further 37.5% is earmarked for construction of roads, railways, airports, irrigation, and other basic infrastructure nationwide.

Hu Wei, VP wire and cable at polyethylene supplier Borouge (Singapore), said his company started seeing the positive effects of the stimulus in the second quarter. “We’re seeing genuine demand for water, gas, and sewage pipe HDPE grades, as well as high-voltage power cable XLPE grades. In terms of sales, we’re already back where we were before the crisis hit,” he said. Borouge is adding 540,000 tons/yr of HDPE capacity at Ruwais, Abu Dhabi, by May 2010 to respond to growing demand in infrastructure markets, while 350,000 tons/yr of LDPE capacity will be on stream around 2013.

Automotive market growth? Indeed

The global economic crisis might not necessarily be a bad thing for China’s growing automotive sector. Firstly, the Chinese government has reduced the sales tax from 10% to 5% on cars with engines smaller than 1.6 liters. This has boosted sales at a time when other countries’ markets are experiencing severe downturns. Secondly, a government initiative to reduce the number of major automakers from 14 to 10 bodes well for increased adoption of plastics.

Explained Hermann Althoff, group VP, engineering plastics Asia Pacific at plastics supplier BASF (Ludwigshafen, Germany), “Average polyamide usage in Chinese vehicles is currently only 5–6 kg compared with 20 kg in Europe. This is because the market is very fragmented and with lower per-vehicle production volumes, it often makes sense to use metals.” However, the government’s consolidation initiative combined with efforts on the part of Chinese automakers to reduce the number of models they offer and focus on best sellers will most likely see the equation tilt in favor of plastics.

Recent examples of successful adoption of the company’s Ultramid polyamide 66 include a PA intake manifold for the Jianghuai Automobile Co. Refine multi-purpose vehicle (MPV) that reduced manifold weight by 40% and improved horsepower by 3%, and a lower bumper stiffener that prevents pedestrians from getting pulled under the car during collisions in the Shanghai GM Regal.
BASF also unveiled a new Ultradur PBT grade at Chinaplas that enables direct metalizing of automobile headlamp bezels. “The grade does not cause fogging because it does not use a demolding agent, despite the fact that it realizes a highly smooth surface suited to metalizing,” said Althoff. Conventional PBT grades require surface pretreatment prior to metalizing.

Future prospects

Moving forward, one issue China confronts is an over-reliance on exports. For example, it accounts for 67% of global shoe production but whereas the U.S. buys 8.7 pairs per capita per year, Chinese consumers on average only buy 1.8 pairs annually. “One more extra pair per year would be 1.3 billion more pairs,” noted Adsale’s Chu. “But people are afraid to consume. They are worried about healthcare, housing and education,” he said. “The government plans to provide low-cost housing and improve healthcare so that they will become consumers.”

China is also, belatedly, paying more attention to its environmental problems. China as the ‘World’s Workshop’ is no longer something to be proud of if it comes through sacrificing the environment, energy consumption, and material waste, noted one observer. “Stricter environmental regulations will almost certainly push up production costs unless production is more efficient,” said Adsale’s Chu. “China will be driven by the need to save energy and reduce production costs. This in turn realizes the need to prioritize quality and high tech equipment." [email protected]

Sign up for the PlasticsToday NewsFeed newsletter.

You May Also Like