Alan Leung in late June became GE Advanced Materials' president of plastics for Greater China. His responsibilities cover mainland China, Hong Kong and Taiwan, but China is where GEAM is focusing much of its attention these days.
Leung will oversee a multimillion-dollar expansion that will add eight new compounding extrusion lines in Nansha, in southern China. Leung spoke Sept. 20 with Beijing-based freelance reporter Alysha Webb about doing business in China.
Q: Can you give us more details about your expansion plans in China? What do you plan to make in Nansha? What industries will you be selling to?
Leung: We are doubling our capacity in Nansha. We are compounding the full line of GE plastics materials there.
We are the biggest manufacturer of [polycarbonate resin] in the world, so we are more heavily based in PC-type products. They will be sold to a couple of business segments:
* The business equipment segment - that's printers, desktop computers, laptops and the like. We provide the plastic casing and some of the internal parts.
* Telecommunications. All the mobile phones used today could have been made using our raw materials.
* The automotive segment.
Another area that is a good prospect is the building and construction industry. We provide plastics for a lot of the piping. Plastics rooftop is one of our new applications, and we also make a lot of the plastics that go inside a house.
Q: The first three segments are seeing a slowdown in China right now - does that worry you?
Leung: We are focusing on production in China that could be related to the local market, but we are also re-exporting business. We have good customer and application bases that will balance each other out. Overall, we still see healthy growth for plastics.
Q: Which end market has the most growth potential for GE materials in Greater China, or elsewhere in Asia? Will electronics continue to dominate?
Leung: We think all of the above areas that I mentioned will show growth. Automakers are adding new capacity. On the construction side, we have the Beijing Olympics in 2008, the 2010 Shanghai Expo, and the Asian Games in Guangzhou. Those will need buildings and stadiums. Also, the rising Chinese income will boost demand for consumer products. And China continues to win as a manufacturing base.
Q: Is China really a low-cost manufacturing base? Sure, the labor is cheap. But aren't the logistics costs very high, and don't you need to import some raw materials?
Leung: The labor component is not as big as people think in plastics. Taiwan contract manufacturers are upgrading into one-stop shopping here. In the United States, a company can place a product with these [Taiwanese] firms; they can do the original design and manufacturing. They have upgraded from just doing molding to design and [research and development].
Initially we came to take advantage of low-cost labor. Now we see China still has an advantage in terms of land availability and the availability of workers. China may not be the cheapest place in terms of labor, but there is plenty of high-quality labor.
Q: Which types of plastics materials have had the greatest penetration into the China market so far, and which of the lesser-used materials have the most growth potential?
Leung: China is like any country. They all started out with a lower-end product, like polyolefins. Like in the flower industry - they all used polyethylene for flowers in the old days. The old corded telephone is an upgrade from a plastic flower. As you upgrade your applications into more-demanding applications, that usually requires more heat and impact requirements.
Q: So what has the greatest penetration?
Leung: For pure volume, it is still the polyolefins and polystyrenes. They will always have a higher proportion, but that is the case around the world. That is why we call them commodity materials.
Q: Please characterize the supply/demand situation for the key thermoplastic engineering resins in China now. We understand that many engineering thermoplastics are in short supply and command a price premium, beyond shipping and delivery, over the prices paid for the exact same materials in other world markets. How severe is this, and when can processors in China expect relief?
Leung: China is an emerging country for production of plastics. In reality, China is still importing a lot of engineered plastics. There are not that many local manufacturing sites around China just yet.
Q: Are you concerned that the influx of production from other North American resin makers and compounders will lower the value of GE's products?
Leung: We welcome competition. It creates innovation. ... We want to invest in technology and people, and in creating new products, in some cases specifically for the Chinese market.
Q: What are the prospects of GE adding a major resin plant - making either polycarbonate or ABS - in Asia in the near future?
Leung: Adding a major resin plant is always a possibility. We are exploring our options all the time. China is definitely one of the countries we evaluate.
Q: Are there concerns that rising raw materials costs in Asia could impact this market in the same way that high benzene feedstock prices have hurt margins in North America?
Leung: Feedstock prices are ... out of our control.
Q: Does that mean your margins are getting squeezed in Asia?
Leung: I think the answer would be yes.
Q: In the future, will new products be unveiled in certain regions first, or will there be global launches? If it's done region by region, where would China or Asia fall in the pecking order?
Leung: Being a global company we will launch global products, but there are always situations that warrant regional and local products. The key is to satisfy customers.
Q: How will R&D efforts be split between North America, Asia and Europe? Will each region have a separate focus?
Leung: We expect synergies between the three locations. We have R&D centers in the United States, India, Shanghai and a newly opened one in Munich. We expect really complementary efforts.
Q: GE has invested heavily in its new Shanghai technical center. Please share some of the firm's views of the current state of China's industrial design skills, and elaborate on how GE plans to educate and work with such designers in the future.
Leung: Look at Chinese companies. Their initial target is the China domestic market. Many now aspire to be global, for example [appliance maker] Haier. They want to become global players. They have to make sure their design and service will be a global standard.
Q: But what is the design skill level?
Leung: They have been in certain segments for a long time. For example, the next generation of telephones could be from China.
But in other areas, like automotive, they are very new. I don't expect China to come up with a world-scale Ferrari in the next few years. Look at Japan and [South] Korea: It took them 20 years to get to where they are today. So we have to be careful when we talk about how advanced they can be. It depends on the industry and application.