(May 14, 2007) — Two of China's three biggest injection press makers, Haitian International Holdings Ltd. and Cosmos Machinery Enterprises Ltd., filed their financial reports recently, and they offer a pretty fair snapshot of the good and the bad in China's plastics economy.
Both reported healthy sales and income growth in their machinery businesses of at least 19 percent last year.
Both said customer orders were strong and the mainland's economy continued to flourish.
So you would think they would be breaking out the champagne (or the mao-tai). But Hong Kong-based Cosmos, at least, isn't.
China's No. 3 maker of presses offers some potentially sobering caveats, and the best it could manage to say in its April 25 report to the Hong Kong Stock Exchange is that it is “cautiously optimistic” about the future.
Since China's overall economy keeps growing at 11 percent a year, apparently rebuffing all attempts to slow it down, why the caution?
First, the mainland market continues to have an oversupply of plastic injection molding machines, particularly among general-purpose machines, Cosmos said.
Sales in plastic injection presses were only “satisfactory,” the firm said, while it saw much stronger growth in rubber injection, sheet metal and plastic extruders. It described those markets as “remarkable” and its “new impetus for growth.”
Chinese plastics companies, it wrote, continue to face significant pressure from rising labor rates and raw material prices, along with uncertainty in what will happen in the U.S. market.
Its machinery sales last year hit HK$685 million (US$87.6 million), up 19 percent, but profits were up only 14 percent, as it said it spent money to develop new technology.
Cosmos has recently unveiled moves into higher-value markets, opening a joint venture plant in China with Japan's Ube Machinery Corp. in plastics and a technology partnership with rubber equipment maker REP International SA.
Haitian, China's largest press maker and the biggest in the world in number of machines, is more bullish. It drops the caution and says it is “optimistic” about the year ahead.
The company released its 2006 results in Hong Kong a few weeks earlier, and noted sales rose 23 percent, to 3.175 billion yuan (US$412 million), profit rose 39 percent and margins improved.
It sees itself well-positioned to capitalize on an expected 10 percent a year growth through 2010 in China's injection press market.
Now, I see these strong growth figures all the time and wonder, how long can that continue? China's got a slew of serious financial problems, from massive bad loans to overcapacity to potential bubbles in real estate and stocks.
Of course, some have been predicting for years that China's economy was about to overheat, and have been wrong. It's over my pay grade to answer that question, but judging by reports from two of the biggest in the plastics sector, if there is a bubble, it hasn't burst yet.
Toloken is a Plastics News correspondent based in Hong Kong.