Though tempered in recent weeks by Chinese government austerity measures, strong demand on the Chinese mainland, particularly eastern China, continues to drive growth at Chen Hsong Group, a Hong Kong-based injection molding machinery maker.
The publicly listed firm - which operates in 60 countries - is investing HK$200 million (about US$32 million) in a pair of mainland plants to boost production capacity by about 50 percent overall. Phase two of an expansion at its 138-acre industrial park in Shenzhen began operating in February, tailored toward large-tonnage presses.
The investment there included installation of the largest foundry of its type in Asia, with the capacity to process nearly 100 million pounds of metals. The site is home to six Chen Hsong companies and about 1,600 employees.
The group, which employs more than 3,000 overall, plans to complete construction of a 645,000-square-foot assembly plant in Ningbo on China's eastern coast by the end of the year, according to Stephen Chung, executive director and group strategy director. That is several months later than planned, as the project has been delayed by shortages of concrete, steel and electricity. The new plant will replace a pair of smaller plants in Ningbo, where Chen Hsong makes two lines of machines - its E-series economy machines and its larger presses, which Chung described as anything upward of 550 tons. The largest model it currently makes is 3,740 tons.
Change has been a watchword at Chen Hsong lately. On April 1, Chiang Lai Yuen, 38-year-old daughter of company founder and Chairman Chiang Chen, became the group's chief executive officer, which Chung said made her the youngest CEO of any company listed on the Hong Kong Stock Exchange. The 18-year veteran of the company was educated at Wellesley College in Massachusetts.
Her 81-year-old father founded the company in 1958.
The firm last year sold its minority stake in the Krupp-Chen joint venture that makes blow molding machines, and sold its position in the Chen Gao joint venture that makes die-casting machines. Then, late last year, the firm paid HK$199 million (US$25.5 million) to acquire the remaining 49 percent stake in its Foshan Shunde Chen De Plastics Machinery joint venture that it did not already own. Chen De - run by Lai Yuen's brother, Chi-Kin Chiang - makes injection presses in Shunde, mostly for local consumption. Those machines tend to cost 10-15 percent less than the Chen Hsong-branded presses.
Chen Hsong continues to operate its Battenfeld Chen Extrusion Systems joint venture in Shunde, as well as a venture with an Italian firm that makes hydraulic motors.
Four years ago the group completed moving all its production out of Hong Kong - where it used to make nearly half its machines - and focused production on the mainland and in Taiwan. A 16-year-old, wholly owned Taiwanese subsidiary, Asian Plastic Machinery Co. Ltd., makes Chen Hsong's most sophisticated presses. Those machines, plus some from its Ningbo plant, typically are the ones it exports to Europe and North America. But sales in those markets make up a small part of Chen Hsong's overall business.
In fiscal 2004, sales in the Americas, Europe and other countries (excluding the Middle East, Africa and Asia) rose 4 percent to just HK$50 million (US$6.4 million), compared with total company sales of HK$1.63 billion (US$209.5 million). The company reported a net profit of HK$214 million (US$27.4 million) in 2004, up 41 percent from 2003.
The group opened its first direct sales office in North America, in suburban Toronto, four years ago, and sees larger-tonnage presses as its best sales prospects in that market. But don't expect the Canadian operation - headed by Managing Director Rick Horrocks - to start making presses any time soon.
``We have no plans to manufacture in North America,'' Chiang Lai Yuen said in a July 1 interview at Chinaplas in Shanghai. ``We don't see North America as an ideal place for injection machine manufacture.'' She described China as a ``world factory,'' but added that the company is in the very preliminary stages of exploring machine assembly or manufacturing possibilities in Europe or South America. Chen Hsong also has its eyes trained closely on the massive Indian market.
``We see India as having huge potential,'' she said. With a new political party now in power there, Chiang said Chen Hsong is ``carefully observing'' the country's progress and changes.
Chung added that, while India certainly offers tremendous opportunities, ``it's just not happening'' there yet. ``India is at least five to 10 years behind China.''
In announcing its annual results July 12, Chen Hsong noted that the first half of its fiscal 2004 - April through September 2003 - saw demand depressed by the outbreak of the highly infectious SARS virus, which it said significantly affected worldwide consumer spending and travel. And although the Greater China market rebounded strongly in the second half, skyrocketing steel and iron prices affected the group's manufacturing costs.
Still, Chen Hsong's sales in mainland China for the year jumped 26 percent, with sales in the booming eastern region of the country leaping 50 percent, to 300 million Chinese renminbi (US$36.3 million). Sales to Hong Kong-based customers fell 20 percent, while turnover in Taiwan essentially was flat.
Chung said business was slow after the Chinese New Year ended in early February, but demand shot up in mid-March and ran at a breakneck pace for the next two months. Chen Hsong drained its inventory of machines and experienced a shortage of presses. Demand in March and April jumped 50-60 percent over the corresponding months a year ago, he said.
That demand perhaps was indicative of a general overheating of the Chinese economy, which had many worried.
``Yes, we're concerned,'' Chiang said in early July, but then she noted that ``the government will make adjustments.'' And it has done just that by tightening bank credit and liquidity. While the situation remains fluid, many international economists seem to think China may have avoided a crisis.
Meanwhile, Chen Hsong is busy tweaking its product mix and continues to strive to make technological advances that it believes will make it a serious player on the world stage.
The company has been granted a Chinese patent and said international patents are pending on a circular platen design it introduced more than a year ago that it claims improves stress distribution, lengthens platen life and reduces damage to molds. It now offers an energy-saving device on its full range of large-tonnage presses - a major selling point in an energy-starved market such as China. In certain parts of eastern China, scheduled blackouts sometimes occur three days a week.
The group introduced the first micro-injection press in Greater China, for making ultrasmall components such as hearing-aid parts. It developed internally a networked shop-floor management system called iChen. It has rolled out a 48-cavity PET preform system, its largest yet, and is developing 56- and 72-cavity versions.
Chen Hsong lists a number of factors that could affect this year's business, ranging from the impact of the Chinese government's austerity measures and continued high iron and steel prices to rising U.S. interest rates. Yet, the group remains upbeat, projecting double-digit growth in sales and profit in fiscal 2005.