The single largest acquisition of a Chinese company by a foreign firm in Chinese history is likely to be pulled off by the world's largest beverage company. Coca-Cola Co. is offering to buy the China Huiyuan Juice Group, for $2.5 billion, about three times the current value of the firm based on its Hong Kong-listed share price.

Regulatory approval pending, Coke will buy all the outstanding shares, bonds and options of Huiyuan and take the company private. The French food company Groupe Danone owns about 23 percent of Huiyuan and American private equity firm Warburg Pincus 6.8 percent.

It's worth noting that Danone's journey in the Chinese beverage market has been marked with dozens of lawsuits with its Chinese partner Wahaha. Danone may still be trying to cope with the denial ruling by a Swedish arbitration tribunal in July.

Beijing-based Huiyuan said it dominates the pure juice market in China with 46 percent of market share. In addition to pure juice, the company also makes diluted juice, fruit vinegar, bottled water, nectar, etc. Huiyuan's packaging solutions include 1-liter and 1.5-liter PET bottles. The company told Chinese press earlier this year that it runs 15 PET aseptic cold-filling lines. And I found from the company Web site that Huiyuan makes PET bottles in-house with Sipa blow molding equipment.

It looks like that Huiyuan, with more than 30 factories nationwide, is stronger in northern China than the southern regions. But the company currently is setting up production in Guangdong province.

It's also interesting that Huiyuan's listed entity doesn't represent Huiyuan's entire portofolio. The concentrated juice business, for example, is directly owned by Huiyuan Beijing.

Links:

www.coca-cola.com

www.huiyuan.com.cn/en

www.danone.com
Courtesy of Huiyuan

The economic slowdown in the U.S. is weighing on China. Wenzhou, Zhejiang, one of the busiest export bases in China, reported a surge of contract breaches since last year.
Beijing-based China Export & Credit Insurance Corp. (Sinosure) told Digital Business Time that the dollar value of contract breach cases filed with the agency's Wenzhou branch reached $8.79 million in the period from March 2007 to February 2008. That's a 639 percent increase over the previous year. American buyers account for 75 percent of the total.

A very common trick buyers use is decline of shipment, Sinosure said. Consumer products are more likely to encounter failure of payment than other categories.

The new trend is definitely shaking the image of export businesses.

In the meantime, Chinese exporters also suffer from the depreciating dollar. Measured in U.S. dollars, Wenzhou's exports of footwear to the U.S. grew a mere 0.3 percent in the first half, but when converted to Chinese yuan, exports are shrinking.

These problems are not unique to Wenzhou. Rather, the entire export-led Chinese economy is facing challenges.

Will China be able to weather the storm this time? As we say, don't put all your eggs in the same basket. Although no other single country will demand as many goods as the U.S. did [and still does] in any time soon [perhaps China or India will catch up one day], there are still under-tapped markets for the Chinese to explore. And don't forget about China's domestic market. I wouldn't call it under-tapped, but it certainly presents potential, especially on the higher end.

Like in many other developing countries, waste scavengers play an essential part in China's recycling industry. In fact, they are called "Kings of waste" in China. However, we all know they don't look as glamorous as their nickname implies. In fact, in the plastics boomtown of Ningbo in China's Zhejiang province, scavengers may be asked to live only in designated areas.

The city is considering a bill aimed to better mange the recycling industry, Modern Jin News reported. One clause suggests local jurisdictions make migrant waste scavengers "live in the same areas when applicable."

The concern is that these migrant scrap collectors set up collection points without permission, which can harm the city's image, as well as causing traffic and community safety problems. And, the truth is, there are so many of them! Ningbo alone has 32,000 people involved in the recycling sector. Ningbo's neighboring city Yuyao is believed to be China's largest distribution center of plastic resin, both virgin and regrind.

I don't think the city government can just order people to live in certain areas. But local communities may voluntarily intervene by limiting real estate rentals. Some already are doing it.

As sketchy as the bill is, it reveals many thought-provoking issues: Which government agencies and departments should be responsible of regulating the recycling industry? What are the practical ways of controlling migrant waste collectors? How can municipalities prevent pollution from recycled materials?

No one has the answers yet. Some cities tried to encourage waste scavengers to pass tests and get certificates, but that did not work out.

Cixi, another city in the industrial province Zhejiang, has recently passed a plan to set up a recycling base with sufficient infrastructure, such as sewage treatment plants. The complex will be 41 acres.

A good start, I say, both the attention and the actions.

As China finishes its first spacewalk, here is my rundown of plastic products used in the spaceship Shenzhou-7 and during the spacewalk:

1. Face panel of astronaut's helmet
Professor Shen Changyu, director of China's National Rubber and Plastic Mold Engineering Research Center and president of the Zhengzhou University, led a team to develop the injection molded panel. The unspecified plastic material has excellent UV and radiation-blocking properties in extremely low and high temperatures. [Source: Dahe Online]

2. Polyurethane foam used for temperature control
The China Aviation Technology Group's Division Five, Institutes 501 was in charge of the material development and application. The foam is used on the walls and bulkheads of the spaceship as well as around pipes. The usage of this material has increased 50 percent between Shenzhen-1 and Shenzhen-7. [Source: Xinhua]

3. Coatings
Tianjin Beacon Coatings Industry Development Co. supplied more than 50 grades of coatings, including a variety of colors and functions. The white coating on the exterior of the spacecraft uses more than ten types of materials and went through hundreds of processing procedures, including forming resin. [Source: People's Daily]

4. Multitandem valves of spacesuits
The valves included parts made of specialty plastics and stainless steel. Adhesive researchers at China Aviation Group's Division Seven, Institutes 703 treated the part surface, increased the bonding area, and used extreme-temperature-resistant adhesives. [Source: China Aviation News]

I suppose that plastic can also be found in many panels, instruments, interior as well as the packaging used for food and other purposes in the spaceship.

I'm not sure how many companies are bringing production back for pure patriotic reasons. That's a wonderful cause, especially if the move is financially sound. But most business people make those decisions exclusively through business considerations. The maximization of profits within legal boundaries -- isn't that what capitalism is about? By the way, when the Chinese finally got to embrace market economy and capitalism, they pushed the limits too much. That's why toxic products are getting out of their hands. What a shame.

Back to the topic of "winning work back to the U.S.," I would like to ask you to define "work." What exactly do average Americans want back? Jobs? Robots will take over the repetitive laborer jobs. Profits? Multinational corporations' profits come back to the headquarters anyway, and the margin will be lower because of higher costs. Taxes? Yes. Pollution? No. Morale? Yes.

I do believe some work should be on its way back. For instance, I use Calphalon cookware. The made-in-China ones are affordable, but they are not as good as the old American-made ones. I'd love to pay more and get better American-made pots and pans. That's right. The American consumers never asked the big corporations to move production overseas and ship back cheap goods. The real drive of this wave of globalization was the endless pursuit of bigger margins, not to pull third-world countries out of poverty.

It is time for the U.S. to rebuild its manufacturing excellence and competitive advantages. Middle class consumers around the world are happy to pay for good quality products like Swiss watches, English teapots, Belgium chocolates, German cars, French perfume, and Japanese robots. Neither China nor India is able to replicate these products to a comparable level. What are America's best manufactured products that are globally recognized and nontransferable? Perhaps this is where we should start to bring work back, and make it stay.

China's Ministry of Commerce and the China Customs just announced separately that China will continue to impose anti-dumping charges on PVC powder imported from the United States, South Korea, Russia, Japan and Taiwan. A five-year term will take effect on September 29, 2008, when the previous five-year term will end.

The duty rates will remain the same, which means, with the exception of Formosa Plastics Co. USA (11 percent), all other U.S. exporters will be subject to 83 percent anti-dumping duties.

For further details, email me and get a copy of the Ministry of Commerce's official document in Chinese.

My managing editor Don Loepp's blog posting "Bringing work back to America" reminded me of my experience covering the International Housewares Show in Chicago in the spring.

The show guide suggested a new record of international exhibitors, but since I was the only Plastics News reporter there, I decided to make the domestic U.S. market and industry my priorities. So, I went after the American companies that have kept manufacturing in the States. At their booths, I had to say upfront that, despite my Asian face and accent, I work for Plastics News, serve the U.S. plastics industry and would like to write about how businesses can survive and thrive by staying in this country. You bet some of them didn't manage to disguise their confusion and suspicion. But as conversations went on, they trusted me and appreciated my effort.

The trend story I put together from that show, "Firms find U.S. market favorable", features at least one example of bringing outsourced plastic tooling and molding work back to America. Designer Philip Seldon got burned by a dishonest Chinese vendor and switched to a custom molder in the Midwest.

Is that concrete evidence that plastic manufacturing is flowing back to America?

In my opinion, this type of individual business failure doesn't mark the trend. Many more Western companies have had better luck for good reasons such as strict due diligence.

There could be so many different reasons for a company to move manufacturing (or outsourced work) back from overseas. To name just a few: 1) bad experience with vendors, partners, suppliers, local government, employees in China, 2) updated product portfolio and pursuit of short lead-time or customization, 3) good utilization of automation, 4) overheated competition from improving Chinese competitors, and 5) finding the made-in-USA label sells really well in China. I don't rule out legit reasons like being fed up with pollution and tainted food in China.

The overall rising costs in China, from wages to taxes and to utilities, are definitely in the spotlight. But does it make sense to pull work in China all the way back to America? To some extent. American businesses may have realized through the years, from observing work transfer first to Mexico and then to Asia, that no country will be low-cost forever. They may have decided to jump out of the business that depends heavily on cost and invest in real value-added products, things that the Chinese can't copycat in an economical way.

I guess silence must be contagious: Not a single English-speaking reader has yet shared his/her view of Chinese plastic companies. As an ancient Chinese ode goes, "I was given a papaya, and I give back a beautiful gem." In other words, I was really expecting some feedback that I can share with and inspire Chinese readers.

Let me share my two cents, though.

Companies that manufacture plastic products in China include three types: foreign-invested, state-owned, and privately owned. But it's really not that clear-cut or rigid. A big chunk of the foreign investment comes from Hong Kong and Taiwanese business people. Many state-owned enterprises are being privatized. Smart private business owners make their companies "foreign" by, for instance, listing a relative or friend who has foreign citizenship as the foreign investor. The "foreign" title used to bring tax and other benefits, and it still helps with brand building. Meantime, foreign joint ventures are increasingly bought out by one of the parties involved, and becoming either wholly foreign-owned or locally owned.

Foreign-invested companies still dominate China's export-led manufacturing. But the real determinant force of China's future plastics industry, I believe, is the privately owned domestic Chinese companies (I'm going to shorthand it as PODC) and the entrepreneurs behind them. It's a big, diverse group we are talking about, ranging from the very state-of-art facilities to the down-to-the-earth workshops.

Compared to their American counterparts, on the macro level, PODC firms' competitive advantages include: 1) relatively easy credit from official and underground sources, 2) a driven, affordable, and highly trainable workforce, and 3) relatively cheap infrastructure and lax regulations.

All three points are double-edged swords, though. With easy credit and an inefficient financial system, risky investments are made. Factories come on stream fast and go out of business just as quickly. Workers are used to being told to execute tasks, lacking innovative capabilities. Cheap infrastructure and loose law enforcement encourage the abuse of the environment, workers' rights, etc.

You may wonder why I haven't mentioned the low cost. Let's face it. Materials cost more or less the same everywhere. Labor cost is lower in China than in the U.S., but wages are rising faster than business owners would like. Especially at senior management and executive levels, the Chinese pay is not far behind the American pay. Utilities and pollution-related costs are lower, but they, too, will have to catch up soon.

The only way China can overcome its limits in natural resources and maintain industrial growth is through the optimized use of its human capital. A country that doesn't lack entrepreneurship, China needs to overhaul the business system to foster better ethics, mutual trust, long-term vision, fairness, transparency and regulatory enforcement (such as protection of intellectual property). It's the lack of all the above that smother innovative spirits and sustainable growth.

Now it's your turn to share your take on the advantages and disadvantages of Chinese companies in the global market. Also, feel free to rebut the Chinese views about U.S. companies.

Tell me if I'm not alone: I wonder why the Chinese readers didn't mention the transfer of manufacturing from the U.S. to China. My guess is that they don't really think about it. Mainstream Chinese media doesn't cover it that much. And when it does, the media mentions it as a macro-economic trend of capital seeking profits in the global setting, without the micro-economic, human-interest details about workers being laid off, families losing income and failing to pay mortgages.

What do you think?

Feedback from Chinese reader Neo Huang:

I worked on a project at my company's U.S. branch factory in March. I'm here to share some reflections:

1) Americans like to plan everything. So the testing I was going to had been scheduled two weeks ahead of time. But when I arrived, I was told that not all approvals were in place. It took two days of hard work to walk through the process. And the process will be just as confusing next time. Complicated protocols essentially are a form of bureaucracy. They were made to control risk and regulate procedures. However, they naturally become more complicated over time, just like computer programs in the movie Matrix. If we set risk control aside, American companies can not compete with Chinese private firms on execution and speed.

2) On the flip side, the maintenance of machinery in the U.S. is far better than in China. Forty-year-old machines still look like new. ... They base everything on facts and numbers. Even experts would not make assumptions without data. The Chinese don't have this type of mentality and communication means.

3) Most U.S. workers have been working in the same field for decades. They have rich experience and excellent skills. I didn't spend enough time with them to compare their innovative capability with young workers in China.

Chinese plastics firms are already global leaders in some areas including cost, efficiency and scale. They need to make a real effort in innovation and management. It may take 10 years to perfect management and 20-50 years to develop the innovative spirit and capabilities.

More from Chinese reader Mr. Li You of Nanjing Wellplas Platics Co. Ltd.:

In my personal view, there are two types of plastics manufacturing. One is pure plastic products such as basins and hangers, and the other type is plastic parts and components that go into more complex and value-added products. China obviously has advantages in the first type of products, which feature steady supply, large demand and sensitivity to price points.

I can give you some examples: a 90-metric-ton, second-tier brand injection press costs only 70,000 yuan (US$10,200); in the Yangtze River delta, the monthly salary for injection press operators is 1,000-1,500 yuan (US$150 to US$220), 2,000-4,000 yuan (US$290 to US$590) for injection technicians, 3,000 yuan (US$440) for a mold technician, and just 5,000 yuan (US$730) for a mold technician with ten years of experience. Isn't that far less than even unemployment benefits in the U.S.? That's why made-in-China products are so cheap.

However, the U.S. has a tremendous advantage in the second type of plastic products, leveraging other leading manufacturing sectors and industries. In this category, quality, delivery time and communication are highly valued, as well as local services like product design, drawing and prototyping. The Chinese plastics industry doesn't have these leveraging opportunities from domestic manufacturing sectors such as medical, aviation, biochemical, etc. Since Chinese firms can't even get in the door to supply these industries, they miss all the opportunities of growing with them.

I also would like to take the auto industry as an example. Twenty years ago, when Shanghai Automotive Industry Corp. started a joint venture with Volkswagen, making Santana-branded sedans, less than 3 percent of the parts and components were supplied by domestic Chinese manufacturers. Twenty years have passed. Today, China's fast-expanding automakers are bringing mold and plastics suppliers up to speed. That illustrates how different industries support and enhance each other.

I believe that eventually China will become a leading player in the plastics industry, but definitely not through making low-value-added products like basins and hangers. The best technologies always apply first in military supplies, medical, precision systems, etc. As these sectors develop in China, the Chinese plastics industry will eventually enter the high-end markets.

The present American plastics industry, perhaps, is the future of the Chinese plastics industry.

Your international business consultant probably has already told you that the key to foreign market entry is to know the competition. And you sure have read quite a few Westerner-authored business books about China or India, wherever your place of interest is.

But do you know what's missing? Sun Tzu, an ancient Chinese strategist, said in The Art of War:"Know yourself, and know the enemy." Understanding your own strengths and shortcomings is the first and the foremost. You may be amused:"Of course I know myself!" Not necessarily. In this globalized economy, the definition is given in relative terms and specific contexts.

All I'm trying to say is that different perspectives can help us locate ourselves and our competitors in the global market.

So, in the Chinese-language China blog, I asked readers: 1) What do you think are U.S. plastics firms' advantages and disadvantages; 2) What are the things North American companies do that are admired by Chinese manufacturers? 3) Do you think Chinese firms can eventually dominate in all areas of plastics product manufacturing? And if so, how long will that process take?

Here are some bullet points I translated from readers' responses:

There is no longer a technological divide between Chinese and American manufacturers. Chinese companies can have the most advanced, state-of-art equipment and technologies. But overall, the American plastics industry is more developed, with more mature technologies and management and higher-quality workers. After all, they've been in the race longer than the Chinese have.

To be continued.

Lou Zhongping, a 43-year-old businessman from Zhejiang province, manufactures a quarter of the world's beverage straws at his 400-employee factory, but he is not that proud. In fact, he says, "If I were given another chance, I would stay sway from this business."

A feature story from the 21st Century Business Herald described the hardship Lou is going through.

Lou's straws sell by the metric ton, which breaks down to be about 0.008 yuan (US$0.001) per straw. Of that price, half had being going into resin cost, but now that percentage has risen even higher because resin prices went up more than 30 percent since last summer. Lou's factory uses 30 metric tons of polypropylene every day.

To cut costs and improve efficiency, he modified the 60 extrusion lines and implemented a heat-recycling system. But that's just not adequate to maintain margin.

In order to minimize negative impact of the inflating yuan, Lou only approves contracts with cycles shorter than a month-and-a-half.

Lou also is determined to diversify risk and limit large clients. "We can't let a single client take up more than 3 percent of our entire sales." It's easier to raise prices with smaller clients.

Thanks to the dragging U.S. economy, Lou's U.S. sales have shrunk by a third. Lou decided to switch his focus to the domestic market. The Beijing Olympics gave the market a lift, he said. Beverage straws were used to make a handle/holder for small national flags.

"The largest market is right here in China," Lou concluded with a relatively upbeat spirit.

Nevada-incorporated Airdex International Inc. is touting the "world's lightest pallets" in China and the Asia-Pacific region. The company made headlines in mainstream Chinese media, presenting a pallet model that weighs just 3.5 kilograms (7.7 pounds) but can hold up to nearly 5 metric tons (11,023 pounds).

Together with its Singaporean partner Broadway Industrial, Aidex has produced about 100 million such pallets in factories in Shanghai, Suzhou and Shenzhen for electronics makers like Hewlett-Packard and Toshiba.

By manufacturing in China, the company hopes its light pallets can replace the 12- to 25-kilogram wooden and plastic pallets currently in use by Chinese air freight companies.

If Shanghai ships out 100,000 Airdex pallets to Europe instead of wooden pallets, the company claims, emission of CO2 will be cut by at least 730,000 kilograms.

What materials are the world's lightest pallets made of? I found the answer from Airdex's Web site: expanded polystyrene (EPS) in the inside and high-impact polystyrene (HIPS) on the outside.

Airdex has manufacturing facilities in the U.S., China and Malaysia.

Despite slowing car sales, China's auto suppliers are maintaining decent growth and making new investment.

The auto supply industry increased its sales by 32 percent to 368 billion yuan and profits by 37 percent to 25 billion yuan in the first five months of this year, according to the National Bureau of Statistics. The rates are lower than last year, but still strong.

In the meantime, investment is still flowing into the auto parts and components industry.

State-owned Dongfeng Motor Group Co. plans to build a large-scale production base for recycling parts. The company is putting in 200 million yuan and hopes to start production in three years. The base is expected to annually recycle 50,000 used vehicles, reprocess 100,000 metric tons of materials, and manufacture 100,000 sets of parts and components using recycled materials.

China's Huaxia Times reported that more than 3 million vehicles end up in junk yards every year. Chinese authorities expect the auto industry to recycle 90 percent of all automobiles and at least 80 percent of the materials by 2012. The effort will help protect the environment and better use resources, industry insiders said in the report. But obviously, recycling will also be an effective way to reduce costs or at least offset rising production expenses in China.

Another expansion plan came from Taiwan Lian Chen Metal Manufacturing Works Co. Ltd., which is investing US$25 million to move its automotive mold center from its headquarters to Qingdao, a coastal city in Northern China. Having been in business for 55 years, Lian Chen is believed to be a major supplier to Ford. According to The Peninsula News, the project will be completed by 2009 and is expected to achieve 1.2 billion yuan in sales in the first year. The company said that the center will mainly supply five clients, including Beijing Benz-DaimlerChrysler Automotive Co. Ltd. and BMW's joint venture in Shenyang.

While Dongfeng's project illustrates the importance of recycling and cost-reduction in China, Lian Chen's plan unveils great potential of higher-end auto parts in China.

After a couple of years writing stories about China's growth rate slowing down, today I'm here with a real "decline" story.

China's export of processed plastic products dipped 1.4 percent in the first half of 2008, according to latest data from the China Customs.

The Customs noted a few important factors in play: the cutback of export tax rebate last summer, rising resin and logistics cost, rising wages and stricter labor laws, the strengthening Yuan, etc.

The agency also stressed that the economic downturn in the U.S. has directly impacted demand for Chinese manufactured goods. To support the claim, China exported $2.17 billion worth of plastics products to the U.S. in the first six months, 7.9 percent down from a year ago.

But demand from the European Union has been stable for Chinese exporters, with a 0.9 percent increase to $1.44 billion. Japan's imports from China actually climbed 7 percent, but the sheer volume $810 million is far less than the U.S.

Obviously those who export processed plastic products from China include foreign-invested companies, privately owned firms and state-owned enterprises. SMEs suffer the most from the slowdown, with a 15 percent drop. Foreign firms' export total decreased just 1.2 percent decline, while Chinese private companies managed to expand their export by 8.8 percent.

Foreign ownership still owns the lion's share of China's plastic export. But if the trend reflected in the first half of this year continues, we may see in the future that domestic private companies will take over the top position, which I truly believe, will contribute to a healthier structure of the Chinese economy.

Sales of new passenger vehicles in China are indeed growing at a slower, still double-digit, pace now, but the rapid expansion of consumer base in the past decades has established a sizable auto aftermarket that offers opportunities to part and service providers.

Shanghai-based consultancy Technomic Asia is clearly going after the trend with its new report "A Strategic Assessment of China’s Light Passenger Vehicle Aftermarket, Fourth Edition."

The company pointed out that:

Parts and service in China's light passenger vehicle market reached an estimated US$27 billion in 2007;

The number of light passenger vehicle cars has expanded to more than 32 million units, with middle-aged vehicles (4-9 years old) reaching a 41 percent share;

The parts and service market is expected to expand at 19 percent per year through 2012.

More information is available at www.technomicasia.com/auto.

Another good source of information on Asian auto markets is the Automotive Resources Asia Ltd., a Bangkok-based division of J.D. Power and Associates with offices in Shanghai and Beijing. I found their "Asian Vehicle Sales" section useful. It's open to the public, but you do need to sign up for free.

China's third-largest domestic automaker, Dongfeng Motor Group Co., managed to beef up sales by 28 percent in the first half of 2008, and more importantly, increased its net profit by 27 percent.

Dongfeng may get even more momentum with hybrid and electric models in the works. The company told the South China Morning Post that it's investing 33 billion yuan on the development project. Part of the fund will be provided by Dongfeng's joint-venture partners Honda, Nissan and Peugeot.

While Dongfeng still doesn't have a clear timeline, privately-owned Chery Automobile Co. Ltd. is already introducing a hybrid model to the market this month. Another domestic automaker, ChangAn Auto Co. Ltd., also is commercializing a hybrid sedan, according to China Quality News. BYD Auto Co. Ltd. is leveraging its lead in the battery business and preparing to commercialize two electric models in the second half of 2009. Geely Automobile Holdings Ltd. is scheduling a 2010 debut for an electric model.

High-mileage and low-emission models are definitely what China needs. Gas prices are still being subsidized, but that won't last forever. Commuters stuck on jammed highways every day will appreciate a hybrid or electric ride.

Note that Chery's hybrid model is selling for 100,000 yuan (about $14,629).

Western and Japanese automakers are not taking active positions in the ongoing hybrid/electric car race in China. Although many of them have hybrid models already, they are not localizing them for the Chinese market. Maybe they are too busy dealing with the North American market. But if they lose out in this round, they'll be offering a golden opportunity for Chinese domestic automakers -- still struggling with exporting to such developed markets as the U.S. -- to claim bigger share in their home market.

Certainly China's auto slowdown is not anywhere near as drastic as the U.S. market's nosedive.

Measured by year-to-date sales, the market still grew 16.7 percent in the first seven months, according to the China Automotive Industry Association. Commercial vehicles grew 18.8 percent, slightly better than passenger cars at 15.8 percent.

But given that more than 100 companies manufacture finished vehicles in China, plus imported cars, competition is fierce. Therefore, the overall market shift may take a bigger toll on some car makers than others.

Ford's affiliated firm, Mazda Motor Corp.. has cut its sales forecast in the country for the fiscal year ending March 2009 from 110,000 to below 60,000. The Wall Street Journal quoted Mazda as saying that a delay of sales network expansion is one of the reasons.

Toyota's Shanghai joint venture FAW Toyota Motor Co. remains positive about reaching its 420,000-unit sales goal in China in 2008. That's according to Shanghai Securities. With another joint-venture factory in Guangzhou, Toyota expected to sell 700,000 cars in China this year. But the Japanese maker scaled back its global sales target last month.

I'm not just alluding to the across-the-board decline in sales for General Motors (20.3 percent), Ford (26.5 percent), and Chrysler (34.5 percent) in the U.S. in August -- and in fact, count in Honda (down 7.3 percent) and Toyota (9.4 percent).

What also raised a red flag in my head was the Chinese auto market's performance. According to portal site Sina.com, China's National Passenger Vehicle Information Exchange Association pointed out that August is the first month of the year when car sales in China fell compared to a year ago. Year-ago comparisons are the usual measure of success or failure. But industry insiders argue that the Olympics pretty much froze auto sales in Beijing.

The China Automotive Industry Association hasn't announced official data for August sales yet. But it noted that passenger car sales dropped on a month-to-month comparison basis for five consecutive months from March through July. That's a record in Chinese auto history, according to the China Securities News.

The Shanghai auto industry saw its "production value" decline 18 percent in July, and "dragged [down] the overall industry output growth in Shanghai by 2.4 percent," the municipal government commented with disappointment.

Analysts at CBI (Shanghai) Ltd. said auto suppliers are bound to face a domino effect. Resin markets are expected to reflect the changes as well.