PN China Blog - English

Resin giant misses forecasts with sharp decline

Tue, 31 Jan 2012 16:35:19 -0500

Shenma Industry Co. Ltd., a publicly listed subsidiary of China's largest nylon 6/6 resin producer Shenma Group Co. Ltd., released disappointing preliminary earnings the day after the Chinese New Year holiday.

The Pingdingshan-based company reported a 45 percent decline in its 2011 net profit (25 million yuan or US$4 million) compared to 2010, on operating revenue of 15.3 billion yuan (US$3 billion).

The results are significantly different from the 60 percent growth in 2011 net profit that Shenma had forecast back in October.

Shenma cited a major decline in the fourth quarter caused by "changes in the domestic and international economic environment."

Shenma must have seen a decline larger than 100 percent in the fourth quarter, in order to drag the full year results down to negative 45 percent from positive 60 percent during the first three quarters.

Analysts questioned the possibility of that scenario, noting that even though nylon 6/6 prices dropped in the fourth quarter, feedstock prices also fell. Other nylon 6/6 makers have posted four-quarter decline in the range of 15-30 percent, according to the Daily Economic News.

Tycoons back re-elected Taiwan president

Wed, 25 Jan 2012 10:09:15 -0500

President Ma Ying-jeou's victory to win a second four-year term in office was achieved with strong support from the business community that's heavily invested in the Chinese mainland, including high-profile executives from Hon Hai Precision (Foxconn) and Formosa Plastics Group.

Terry Gou, chairman of Hon Hai, the world's biggest contract electronics manufacturer, toured Taiwan before the election to endorse Ma. It was the first time Gou campaigned for a candidate, according to the Financial Times.Gou gave his Taiwanese employees in China 'election holidays' and chartered flights for them to return to Taiwan to cast their ballot.

Wang Wen-Yun, chief executive of the Formosa Plastics Group, also spoke in public to support Ma's cross-strait policies that focus on peace, stability and economic development.

Taiwan's export-led economy is heavily dependent on trade with the mainland.

What's more important is Taiwanese businesses' direct investment in mainland China. During 2011, Taiwan's authorities approved US$13.1 billion of direct investment in the mainland, a historic high and 7 percent higher than 2010, Xinhua reported. Electronics, computers, and chemicals/materials are among the most popular sectors.

Soft market leaves PVC maker in red

Tue, 17 Jan 2012 10:39:25 -0500

PVC resin prices in China have been on a "vicious" decline -- below manufacturing cost -- since Sept. 2011, according to Jinlu Group, which expects to post a 90 million to-120 million yuan (US$14.3 million to $19 million) loss for fiscal year 2011.

Feedstock and electricity prices have been on a continuous rise, making it difficult to break even, Jinlu said in a Jan. 17 filing.

The company recorded 81.4 million yuan (US$13 million) in profit for 2010.

High-end and low-end smartphones

Mon, 16 Jan 2012 09:05:38 -0500

When Apple's flagship store in Beijing canceled the launch of iPhone 4S last Friday morning, some angry customers (many reportedly scalpers) who had being waiting overnight in freezing weather threw eggs at the store. That's how popular the iPhones are in China.

Interestingly enough, a Chinese brand meanwhile is rapidly expanding its sales of cheap smartphones in the U.S., so far in a segment that brands like Apple don't appear to focus on.

Despite its current market position of a low-cost product brand, at the Las Vegas Consumer Electronics Show last week, Shenzhen-based Huawei launched what it said was the world's thinnest smartphone. The company told media that it aims to become one of the top three global mobile phone brands by 2015. According to data compiled by NPD Group for the Wall Street Journal, Huawei ranked the seventh of the top 10 smartphones sold to U.S. customers in the third quarter of 2011.

NPD also found that more than half of the Huawei smartphones sold in the U.S. were purchased by consumers with household income of $35,000 or less. That income segment accounts for a quarter of smartphone buyers, the WSJ report said.

Apparently the Chinese brand is taking the lower-income American consumers -- some in households that have no Internet access -- online through affordable smartphones.

The WSJ report said many American consumers can't get their heads around the brand name "Huawei", and some refer to it as "Hawaii."

If Huawei is serious about expanding its presence in the Western market, maybe it could slightly revise its brand name to HW. Just like how its rival LG renamed itself from Lucky-Goldstar back in 1995.

How big is your year-end bonus?

Thu, 22 Dec 2011 17:44:25 -0500

Nothing says more about China's booming auto market than the generous bonus given by the FAW-Volkswagen Automotive Co. The joint venture carmaker awarded its employees with a bonus that equals to 27 months of salary. On top of that, employees also received double salary for eight months this year.

The news broke in the online community with an internal PowerPoint file posted by an anonymous user. Other online users said that employees who logged full attendance this year could have received up to 63 months of salary.

The Legal Evening News then contacted FAW-VW and confirmed that the file was authentic and the facts were true.

I used to think that type of pay structure - annual total income equally many times of base salary - only happens in the financial sector. Boy, I was wrong.

The trend of pay increases in the past five years is phenomenal. In 2007, FAW-VW gave employees double-salary for two months of the whole year. That number has since been on the rise steadily - five months in 2008, six months in 2009, seven months in 2010, and eight months in 2011.

In an attempt to play it down, FAW-VW explained to the Legal Evening News that base monthly salary only accounts for about a third of the total take-home monthly income. The year-end bonus is 27 months of base monthly salary, not 27 months of total monthly income. The source added that a "normal employee" (meaning non-managerial?) has 3,000 yuan of monthly base salary.

It's ambiguous whether the double pay is included in the "take-home monthly income" the source referred to. If it is, a "normal employee" would have taken home 189,000 yuan (US$29,814) in 2011. That is equivalent to about $39,752 (pre-tax, assuming 25 percent tax rate) in the U.S.

If the double pay is NOT included in the "take-home monthly income," a "normal employee" would have taken home 261,000 yuan (US$41,141) this year. That is equivalent to about US$54,854 (pre-tax, assuming 25 percent tax rate) in the U.S.

Keep in mind, also, that the FAW-VW workers are located in cities like Changchun and Chengdu, where living expenses are relatively low.

Is my calculation correct? If the average Chinese worker at an auto plant makes that much, no wonder many Chinese consumers are now able to afford soaring property prices, overseas vacations and education, and luxury goods.

Now, if you didn't get a fat bonus like that, perhaps it'd be smart to think about how to get into a business that serves China's new middle class and wealthy groups.

Japan's Ajinomoto uses fully recycled PET bottles

Tue, 20 Dec 2011 16:43:53 -0500

Japan's beverage manufacturer Ajinomoto General Foods (AGF) has unveiled a new plastic bottle that's made from 100 percent recycled PET, and will start to expand its use to all of its main products starting in February, Japanese media reported. The company expects to consume 4,500 metric tons of recycled PET in the new bottles annually.

According to the Nikkei Business Publications, PET Refine Technology Co., a subsidiary of Toyo Seikan Group, supplies the bottles to AGF. The company uses its chemical recycling technology.

AGF said the chemically recycled PET costs about the same as virgin PET. Toyo Seikan said it managed to reduce production costs through equipment improvements.

The Nikkei report said the Japanese industry previously had two players that carried out bottle-to-bottle PET recycling -- PET Reserve and Teijin Fiber. However, due to raw material shortages caused by waste bottle exports to China, PET Reserve filed bankruptcy in 2008 and Teijin suspended the recycling business.

PET Refine Technology took over PET Reverse and continued to develop the market, the report said. It supplied 19,500 tons of recycled PET resin to beverage manufacturers in 2010.

AGF is a joint venture of Ajinomoto Co. Inc. and Kraft Foods Inc.

Bioresin maker receives equity investment

Tue, 13 Dec 2011 16:38:14 -0500

China's leading bioresin maker Wuhan Huali Environmental Technology Co. Ltd. has secured a US$30 million equity investment from the Standard Chartered Bank (SCB), which is aimed to help the company launched an IPO in the United States.

Huali said in a statement that it plans to expand capacity and make acquisitions with the funding. An executive from SCB told the Chinese press that the investment, to be followed with another $20 million, is aimed to help Huali launch an IPO in the U.S.

Zhang said he originally planned for an IPO in the U.S. this year. However, due to the recent wave of accounting scandals of U.S-listed Chinese stocks, coupled with the gloomy economic prospect of many global markets, Huali adjusted its timing.

SCB carried out meticulous due diligence before making the decision to invest in Huali, Zhang added, with industry research and evaluation by Nexant Inc. and financial due diligence by Ernst & Young.

The company's annual sales have been growing at a rate of 80 percent yearly for the past four years, said founder and chairnman Zhang Xianbing. He expects to see 400 million yuan (US$62.8 million) in sales and 60 million yuan (US$9.4 million) in profit this year, compared to 40 million yuan (US$6.3 million) in 2010 profit.

Huali reports current capacity of 40,000 metric tons. Its PSM biodegradable resin products are certified by the major international standards, including EN13432 and ASTM D6400. The company said it's also a member of the ASTM D20 international technical committee.

Huali had attracted other investments in its 11-year history, including a US$5 million venture capital investment from a Hong Kong-based fund in 2004 and US$13.5 million combined from DT Capital Partners and Draper Fisher Jurvetson.

Apple turns to new materials

Tue, 06 Dec 2011 15:54:26 -0500

Despite Apple's preference for metal housings for its lightweight notebooks, capacity and cost constraints are pushing the company to switch to alternative materials such as plastic.

According to a recent report from Taiwan's DigiTimes, the ultrabook laptop's traditional aluminum unibody chassis is time-consuming to manufacture. One CNC machine can only produce eight pieces per day.

Catcher Technology, the world's largest unibody chassis maker and Apple's main supplier, was ordered in October by Chinese regulators to shutdown part of its facility in Suzhou, due to complaints about possible pollution from the plant. Even though the plant resumed full production by the end of October, capacity shortages seem to remain an issue.

DigiTimes quoted unnamed industry sources revealing Apple's plans to make three different versions of ultrabook - the high-end version continuing to use the all-metal enclosure, a mid-level model adopting a new design that's plastic in the inside and metal on the outside, and the low-end version featuring enclosures made of fiberglass and plastic.

It is reported that an all-metal enclosure costs $40-80, while the plastic-incorporated new designs cost only $20-30.

Huntsman's China strategy

Tue, 22 Nov 2011 16:03:10 -0500

In an interview published Nov. 21 by the Wall Street Journal, Republican presidential candidate and former U.S. ambassador to China Jon Huntsman Jr. stated his position on a number of China affairs, noting that political realities need to be considered when looking at trade issues.

He recommended letting the currency issue "take care of itself" and not wasting years on trying to impose tariffs:

"There are certain things that could make the situation really bad for this country at a time when we can least afford it. I say the currency issue's going to take care of itself. ... The renminbi has appreciated 30% in the last several years. It will continue to at a rate of maybe 5% to 8%. Because China is driven by its own interests to revalue the renminbi based upon market realities, they will arrive at a point in the years to come where they'll have more of a market-based currency. Whether we tell them to do it or not, they will arrive at that point. You certainly don't impose tariffs. As a former trade ambassador, I'm not sure how you do it through the World Trade Organization. There's no provision that allows one to do it through the WTO. It's unprecedented. And then what happens? The Chinese will then take the case to the WTO. Two years are wasted on nonsense. And you've blown through bandwidth that otherwise should've been used on intellectual-property protection, expanding market access for financial services and insurance, and working on regional security issues."

He also called for the U.S. manufacturing sector to prepare itself to be able to attract investment that's going to leave a slowing-down China.

"I think the investment dollar that always just lands in China is going to be looking for an alternative. This country would be absolutely nuts if we didn't position ourselves to be that alternative. It's not going to happen overnight, but we can start taking the steps to manufacture here."

It's interesting to see readers' response to the article. As of this moment, the article on WSJ's U.S. main site has only six comments, including five with Chinese surnames. The same article on WSJ's bilingual China site so far has 24 comments, many praising Huntsman's deep understanding of the U.S.-China relationship but also pointing out that that his position on China issues will fail to earn him popularity among U.S. voters.

On the other hand, Huntsman has called China's young generation on the Internet "allies and constituencies within China." In a debate with Mitt Romney earlier this month, Huntsman said:

"There are 500 million internet users in China. And 80 million bloggers. And they are bringing about change, the likes of which is gonna take China down. While we have an opportunity to go up and win back our economic manufacturing muscles. That's all I wanna do as president."

A few of WSJ readers referred to this passage of speech in their comments, warning about his goal to "take China down."

When a U.S presidential candidate receives such response from the Chinese public - mostly from the online community since that's where opinions can be freely expressed, does it mean better or less chances of winning the election? Or maybe there is no correlation at all.

Coke China stops using PVC labels

Wed, 16 Nov 2011 15:50:00 -0500

Starting last month, Coca-Cola the global beverage giant has stopped using PVC labels on the bottles of all its products in China, a move that defines its leading position in the sustainability movement in that nation.

The company explained that while PVC complies with the safety regulations on beverage labeling, it may cause harm to the environment if it's improperly recycled, according to a China Daily story.

The story was ambiguous about what sort of harm PVC labels cause in the environment. But plastics recyclers in the U.S. have been lobbying for Coke and other food and beverage companies to stop using PVC labels on PET bottles because the materials are not compatible in the same recycling stream.

The China Business Times, which broke the news among Chinese-language media from an environmental innovation show last week in Guangzhou, added a comment itself that PVC is considered potentially toxic and could leak cancer-causing chemicals. While that statement is debatable, media messages are making consumers in China increasingly cautious about product and packaging materials.

Coca-Cola is the first beverage company in China that has completely ceased the use of PVC labels on all products, said China Business Times. Labels are now made of OPP (oriented polypropylene) and other types of materials.

Also on the sustainability front, the company started last year using super lightweight bottles for its Chinese water brand Ice Dew, which can save 6,200 tons of PET annually based on 1 billion bottles of annual sales.

As well, it now sells products in plant-based bottles in Shanghai and Taiwan, after a high-profile launch of the plant bottles at the Shanghai World Expo last May.

Waste plastics smugglers sentenced in China

Thu, 03 Nov 2011 17:05:23 -0500

Two people were recently convicted at a regional court in China of smuggling waste plastics into the country. One faces 13 years of jail time and 15 million yuan (US$2.4 million) of fine, and the other 10 years in prison and 5 million yuan (US$790,000) of fine.

The two - one Chinese native, the other born in Vietnam but immigrated to China through marriage - smuggled a total of 19,893 metric tons of waste plastics from Vietnam into China's Guangxi autonomous region from January 2009 through April 2010, according to China News Service.

The plastics scrap was purchased in Vietnam, smuggled through a river on the border, and then transferred to other regions in China. The well-organized crime evaded at least 20 million yuan (US$3.2 million) in tariffs.

Five other accomplices were also sentenced to prison time of three years or longer, as well as fines.

SPI pitches for NPE2012 at IPF

Tue, 01 Nov 2011 16:20:33 -0500

The Society of the Plastics Industry Inc. believes that NPE 2012 can avoid a repeat of the last show in 2009, when several big Japanese machinery firms threatened to pull out of the event during the worst of the global financial crisis, my colleague Steve Toloken reported from Tokyo.

Here is what he wrote:

Those companies ultimately stayed in NPE, after Washington-based SPI cut the fees that companies pay to exhibit. SPI President Bill Carteaux and Gene Sanders, senior vice president of trade shows and conferences, hosted about 90 Japanese plastics industry officials at a reception in Tokyo during the International Plastic Fair in late October, to thank them and make a pitch for their continued participation in NPE.

Carteaux told Plastics News that "at the current time, all of the [Japanese] majors are in, no one [is] on the fence."

"Our Japanese participation is great," he said. "We have all the majors that were there in 2009 plus some additional. We are thrilled with the support from them."

"That said, we continue to work the market and believe we will continue to build the Japanese presence with some new comers," he said.

Carteaux also told the Japanese crowd that he believed the new location for NPE, in Orlando, will attract more participants from Central and South America, a market he said is "extremely important" to the Japanese. One-third of NPE attendees come from outside the United States, he said.

Toloken also sent me a copy of the script of Carteaux's speech at the reception. I noticed a few graphs that I thought worth sharing with some sentences highlighted:

Contrary to everything you may read in the press, the United States plastics market continues to do well. We continue to see growth in many markets...unless of course you are in housing. Trust me, I don't believe everything the press says about Japan; please don't believe everything you read about the US.
1. Overall US plastic shipments were up to $341 billion in 2010. We are now the 2nd largest manufacturing sector in the country.
2. A favorable exchange rate, and reduced rates for natural gas due to all of the new shale deposits that have been found bode very well for our exports. For the first half of the year exports were up 11% over 2010, which was a very strong year. We had a trade surplus as an industry of over $17 billion last year. China continues to be our third largest export market behind Canada and Mexico.
3. Plastic product production is back up to almost 90% of 2007 levels, before the recession. Our broad base of manufacturers is still very bullish on the future.
Overall, there is a resurgence of manufacturing in the United States for a whole host of reasons, not the least are rising global energy costs and labor in China. ...
Reshoring of products is happening at an increasing rate and major companies are making announcements that they are either building new plants or bringing assembly lines back to the States.

Private capital helps firms fund projects

Thu, 20 Oct 2011 17:52:17 -0500

As China's banks continue to tighten lending, and the gray market for credit -- which takes spare cash from households and businesses and lends to small business at relatively high rates -- stumbles, formal sources of private capital have become highly sought after by entrepreneurs.

At a capital matchmaking event in Ningbo, Zhejiang province, last month, a few plastics-related projects managed to attract investment, according to the Ningbo Evening News. A local angel investor offered 5 million yuan (US$780,000) to fund a LED automotive headlamp project. Two institutions decided to jointly invest a total of 44.5 million yuan (US$7 million) in a project that aims to develop energy-saving control systems and servos for injection machines.

Robot maker Ningbo Well-Lih Robots Technology Co. received 21.5 million yuan (US$3.4 million yuan) of investment from Cybernaut (China) Investment to develop high-speed, high-precision, full-servo robots.

An executive from Cybernaut said he chose Well-Lih not only because industrial robots can replace increasingly expensive labor in China and improve product quality, but also because Well-Lih's existing customers include some large firms.

Well-Lih said it had contacted a handful of investors before the event. Cybernaut stood out with its offerings beyond capital -- value-added services such as business planning and talent management.

Well-Lih revealed ambitious plans at Chinaplas to add three assembly plants across China and triple capacity in the next five years (see our archived coverage). Like many other domestic equipment manufacturers, it's essential for Well-Lih to improve its products, rather than replying solely on capacity expansion for growth.

Coke eyes Central China for R&D

Thu, 06 Oct 2011 15:20:07 -0500

A Coca-Cola China executive said last week that the company is interested in setting up R&D for plant-based bottles in Central China, taking advantage of the local agricultural resources.

During a sustainability forum at the Expo Central China 2011, Coca-Cola Greater China vice president Bai Changbo told the audience that the company is developing plant-based bottles and encourages more companies to use agricultural waste to replace some of the current feedstock - such as corn - for bio-based packaging materials.

Considering the high R&D cost at the earlier stages, he was quoted by the Taiyuan Evening News, "If the six central provinces can provide preferential polices and support, we are willing to give it a few tries in this region."

The central six provinces include Shanxi, Jiangxi, Hubei, Hunan, Henan and Anhui.

China's National Development and Reform Commission (NDRC) announced last year announced a specific outline to build this region into a base of grain, energy and machinery production, aiming to boost per capita GDP up to 36,000 yuan ($5,295) by 2015.