Jiao

Ten years ago, China was the forth largest producer of plastic products in the world. Today, China is second only to the United States. This new ranking comes after a year-over-year increase in production of 12.9 percent in 2005, with output of plastic products totaling 22 million tonnes in 2004. This compares with a global rate of growth of 3 percent during the same time period.

According to China’s Light Industry Information Center, there were more than 700 plastics companies in China with sales exceeding 100 million yuan in 2004, and more than 24 companies with sales exceeding 1 billion yuan.

Total production value and export values increased 25.8 percent and 30 percent, equaling 501.1 billion yuan and 140.1 billion yuan, respectively. China’s plastics industry is still fragmented in nature. Increases in production and export values show no signs of slowing down this year.

Global customers driving growth and technology advances

A key driver of China’s plastic industry growth has been the number of multinational corporations that are entering the market and utilize plastic products in their business. These companies, which specialize in industries such as automobiles, children’s toys, electric appliances, packaging and information technology, will continue to fuel demand in China’s plastics industry.

New products that incorporate new technology and processes have vastly improved China’s plastics industry capabilities. Ten years ago, Chinese plastic companies only had the ability to produce the simplest products. Today, many large private and joint venture companies use advanced technology, including hot runner systems, gas-assist injection processes and insert-molding. A few companies have begun to use MuCell technology. In addition, reaction-molding technology is in the process of being tested in China. Among mold manufactures, the precision of molds has improved from 5 microns to 2 microns and will soon reach 1 micron. Most mold companies now have the ability to use 2D/3D software to design and analyze molds.

Although China is a leading IT equipment manufacturer in the world, most precision components are still imported from abroad. Foreign companies that specialize in precision injection molding, especially those from Europe and America, still have a strong competitive advantage over the majority of low-end Chinese plastics component companies. This year, more and more American companies, such as United Plastic Group, have invested in new companies in China. These investments are driven by the need to provide high-quality components to their clients in China directly, as well as to export to new clients. In both cases, plastics components manufacturers are taking advantage of opportunities in China to manufacturer cheaper and to shorten lead-times.

Injection-molded plastic parts from China offer significant cost advantages over Asian and Western competitors. Compared to Europe and the United States, the average price of injection plastic parts in China is 40 percent to 60 percent cheaper. In Asia, Chinese parts are approximately 30 percent cheaper than Japan and 10 percent to 20 percent cheaper than those found in Singapore, Taiwan and Hong Kong. As a result, private companies in China are the leaders in both quantity and sales among injection-molding companies. Recent investment by U.S. and European companies, transferring new technology and processes and better management, has further solidified China’s position as the leader in this plastics sector.

Balance of trade

China’s imports of plastic parts include high quality, high precision engineering parts such as plastic gears used in IT and medical instruments. In terms of production equipment, China also imports high life and precision injection molds, multicavity bottle molds and some precision mold spare parts like hot runner and gas-assist components. Exports are generally low-value products such as packaging and film. Because of the rise in anti-dumping cases involving low-value products made in China, especially shoes and daily-use commodities, it is estimated that the production of these types of products will decrease. On the other hand, the increasing number of foreign plastic companies coming to China, coupled with improvements in Chinese technology and process, will precipitate rising exports of high quality and high value products.

The story of Hi-P, a Singapore plastic company with manufacturing based in China, illustrates the growth of China’s injection molding industry. Hi-P started its injection molding and mold manufacture business in the 1990s with only US$200,000 (1.65 million yuan). It has now grown to become a huge company with annual sales of more than US$185 million (1.5 billion yuan). The company does tool building, injection molding, stamping and assembly. It also has been able to secure large top-tier clients such as Kodak, Braun and Bird Communication. These clients have cooperated with Hi-P to provide advanced technology and processes in injection molding and mold building.

While in many areas, Chinese plastics companies are the most cost effective in the world, they still cannot compete with Western and Japanese competitors in the areas of management expertise, project operation, mold building technology and logistics. Due to limitations in resin technology and production, most high quality, engineering resins are imported. The high raw material cost has adversely affected Chinese supplier’s competitiveness, but prices should drop as most large resin suppliers have set up, or plan to set up, their own facilities in China. These manufacturing and distribution centers will cut down unit prices and improve efficiency of the supply chain for Chinese companies.

High-quality injection machines and accessories can either be imported from foreign companies or sourced locally from Chinese manufacturers. Many foreign companies build core components in their home factories and have joint venture partners in China to build accessories and handle assembly. These types of arrangements improve lead times and reduce costs. In fact, joint venture relationships have been an indispensable factor in the growth of many of China’s largest molding companies.

In 2005, China’s output of molds (including stamping tools, die casting molds, etc.) was 61 billion yuan, representing a 15 percent increase over 2004. With global output totaling 557 billion yuan, China ranks as the third largest mold producer, behind the United States and Japan. China’s export value of molds was 6.08 billion yuan in 2005. Imports equaled $16.77 billion yuan, driven by high quality and complex molds, such as those used in multicavitation, multimaterial and multicolor molds. Other significant contributors to China’s mold imports include precision, long life and big stamping tools used for the production of automobile components. These imports largely come from Japan, South Korea and Taiwan.

Compared with foreign molds, China mold’s design life is shorter. For example, the design life for one China-made silicon-steel plate stamping tools is about 600,000 parts, while comparable foreign tooling has achieved 5 million parts. Mold steel quality and heat treatment processes are the main reasons for the difference.

In the low-cost mold sector for commodities (plastic chairs, tables, utensil etc), China has extensive manufacturing experience. As the requirement for these parts are much lower than those for electric and machine components, low labor and material costs work to China’s competitive advantage. Additionally, most of China’s exports of molds are in these sectors.

As China’s plastic and mold industry is still very fragmented, the competition is fierce. Manufacturers of general plastic parts and low-cost molds generally have 20-30 percent of production capacity free. Most smaller, private companies (with fewer than 30 employees) have as much as 60 percent of capacity unutilized.

China is quickly becoming a leading manufacturing center for plastics and molds. Increasing numbers of global companies, such as HP and Dell, are relocating their manufacturing centers from South Asia and Taiwan to China. Combined with the rising demand from auto and auto component companies, who are expanding capacity in China, the demand for plastic parts and molds will continue to grow at a fast rate.

Majesty Jiao is a senior sourcing engineer in Alaris Consulting’s Shanghai office, and Jim Horrigan is a senior director based in Alaris’ headquarters in Oakbrook Terrace, Illinois. The company helps manufacturers and distributors improve the effectiveness of their supply chains.