China's enormous market abounds with opportunities, and everyone wants a piece of it. As the world's No. 2 destination for foreign investment, China offers foreign investors — including those in plastics — a vast horizon for development.
But in the plastics machinery market, both Chinese and foreign-invested plants in China are more interested in opportunities outside China.
It seems to matter little whether they are spinoffs from former state-owned research agencies and factories, or private companies founded by key engineers trained in joint ventures, or family enterprises that started with very low-end products. The reality is they are emerging in the global market, as noted at recent international plastics trade shows.
During my recent trip to the Applas show in Beijing, I heard this same theme over and over: Selling at home is not as sweet as exporting, not just yet.
Two recycling equipment makers based in Zhangjiagang said they export solely to Southeast Asia and the Middle East. Cheng Haibin, general manager of Zhangjiagang Zhongsu Machinery Co. Ltd., said, “We don't want to sell in China. Recycling equipment is easy to copy. Then there will be an endless price drop. It's just a vicious circle.”
The PET bottle recycling lines and polyethylene/polypropylene film recycling lines Zhongsu makes can be found in catalogs of many firms that primarily make extruders and auxiliary equipment. But Zhangjiagang Yongshun Degradable Plastics and Rubber Machinery Co. Ltd. remains confident.
“Many come to ask for a price quote. They all want to get a bucket of gold from recycling, before the regulations become stricter,” sales manager Zhu Jun said.
Heated competition at the low end of the market is pushing the entire plastics industry in China, from materials to machinery to processors. All types of firms are struggling to make a profit.
The city of Ningbo houses more than 100 injection press makers, which make nearly 40,000 machines a year. While China still imports more than 12,000 presses annually, the low-end market suffers from overcapacity.
To move the machines out of warehouse, machine loans have become common. Once one supplier offers long-term payment options, processors all demand it.
“We used to like mainland customers the best, because they always brought cash to buy machines,” said Lin Fuquan, manager of Victor Taichung Machinery Works Co. Ltd. “Now it's all changed, sometimes even to zero down payment.”
Despite low-priced machines, some processors cannot compete. “Many small factories go bankrupt,” Lin said.
Zhu's firm, with annual sales of 2 million yuan ($253,000), does not have a global sales force. The four-person “overseas sales” staff relies on trading agencies for exports. “We are happy with this way. At least we always get the money, and the margin is not bad,” he said.
Even the Taiwanese, regarded as suppliers of midprice and high-end machines and claiming to do well without offering financing, are making efforts to expand exports, especially when the Chinese market shrank in late 2004 and the first half of 2005. “We have had to work hard on exports since 2004,” said Li Zhiquan of Union Plastic Machinery Co. Ltd. “We don't want to leave all eggs in one basket.”
For some, it is an issue of survival. For others, it is diversifying and risk management. Still others see it as simply a fatter margin.
As the leader, with more than half of the midprice and high-end market for compounding extruders, Coperion Keya (Nanjing) Machinery Co. Ltd. does not like the return in China. “Developing export is our focus,” Beijing manager Liu Hongtao said. “Why? Profit of an exported line is 10 times of that of a locally sold one. Why not? We can work less and make more money.”
The company plans to double export sales to 120 million yuan ($15 million) this year and grow to 220 million yuan ($28 million) in 2007. This year, exports will exceed 50 percent of total sales for the first time, and hit 70 percent next year.
“Certainly, the Chinese market has lots of potential,” Liu said.
What he means is, I think, that Chinese companies will seek higher profit elsewhere, while grabbing or retaining market share in China and waiting for that potential to be released.
Isn't that the strategy of many Westerners?
Great minds think alike.
Sun is an Akron-based staff reporter and Asia specialist for Plastics News.