More plastics competition coming from China to US

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It would not surprise most people to learn that imports of plastics from China into the United States have been increasing. After all, why should plastics be different than other goods, almost all of which seem to come increasingly from China? For those involved in the plastics industry, however, both the magnitude of the increase and the reasons underlying it are worthy of attention.

Even more than 10 years after China joined the WTO, the country’s exports continue to build momentum in key sectors. From 2010 through 2012, for example, the value of Chinese polymers of propylene in primary forms imported into the United States increased from approximately $2.4 million to $13.6 million — more than 200 percent. Similarly, imports of polyamides in primary form grew from approximately $7.6 million to $22 million — an increase of approximately 190 percent in those three years. While the growth rates for these particular products are on the high end, increases are the rule for plastics.

Chinese plastics with import values increasing by, for example, more 50 percent from 2010 through 2012 include: polymers of vinyl chloride; polymers of vinyl acetate; amino resins, phenolic resins, and polyurethanes; silicones in primary form; cellulose and chemical derivatives; and tubes, pipes, and hose fittings. There are more than 10 additional tariff classifications where the value of Chinese imports increased by more than 20 percent in the same period.

China’s increased exports can be explained in large part with reference to the country’s industrial planning apparatus. Elite agencies in Beijing continue to issue industrial policies calling for development of particular industries and products, and lower levels of government are tasked with making sure that the goals are met. Careers hang in the balance — an official responsible for a jurisdiction not meeting the central government’s economic targets has little hope for promotion.

China’s 12th Five Year Plan covers 2011 through 2015. While this industrial policy covers the entire Chinese economy and is thus general in nature, the Chinese authorities have adopted a handful of industry-specific plans providing more detailed instructions for industries of particular importance. The directions contained in these plans, and the incentives available to companies following these directions, can explain much of the growth in China’s plastics sector.

One example of a relevant industrial policy is the Light Industry 12th Five Year Development Plan, which calls on the Chinese government to help plastic producers upgrade and renovate their production lines. The plan pays special attention to particular products – agricultural films, environmentally-friendly plastic packaging, pipes, and degradable products, among others – and offers tax incentives and cash payments for companies following the plan. It also calls for government-funded mergers and acquisitions to fold weaker companies into larger ones and create more competitive entities.

Another relevant policy, the Petrochemical and Chemical Industry 12th Five Year Development Plan, calls for the further development of engineering plastics and makes a “priority” the development of degradable plastics, special plastic alloys, and environmentally-friendly plastic additives. Companies following these directives are to benefit from government support in the form of cash payments, tax relief, access to land, and other preferences.

Chinese statistics show that the country’s plastics industry grew by approximately 20 percent in 2011, about 10 percent in 2012, and another 8 percent in the first half of 2013. Considering the various support provisions discussed above and the fact that we are only halfway through the 12th five year period, it is reasonable to assume that the plastics industry in North America is not yet feeling the full effects of the Government of China’s current plans for its plastics industry. In just two short years we should expect to see leaner, more efficient companies in China producing more high-quality plastics, at which time the Chinese government’s industrial planning apparatus will reassess the state of its plastics industry and issue new policies. This will mean increased competition for U.S. companies in the plastics sector in not only the Chinese market but also markets where China exports plastic goods, including the United States.

Chris Cloutier and Lingna Yan are Washington-based members of the International Trade Group at King & Spalding LLP.