China's heated economy grew 11.1 percent in the first quarter and topped 10 percent annual growth in four consecutive years. While the expanding surplus of current accounts concerns the government and economists, the domestic market unarguably demonstrates rapid development and attracts global manufacturers.
That's triggering a tide of export-oriented Chinese companies steering toward domestic sales.
Nearly half of the Chinese exhibitors at the recent Plast-Ex show in Toronto, mostly mold and machinery makers, plan to extend the value chain and mold plastic parts and products.
Chinese mold makers have been very successful in fostering overseas growth. With ease of adaptability, good quality and reasonable economics of shipment, made-in-China molds are shipped to North America and Europe, where local plastics processors strive to optimize cost structure while maintaining the jobs.
But the real key is the low price. Many Chinese toolmakers recall how a few years ago their first U.S. clients happily accepted the quote with little negotiation and freighted the molds by air. The buyers hurrahed big savings, and the suppliers welcomed fat margins.
Tooling shops mushroomed in China, especially in Guangdong and Zhejiang provinces. Many came into existence purely for exports. Good news for procurement personnel in the States, as fierce competition amongst Chinese firms pushes the margin down.
“At any trade show around the world, you'll see Chinese mold companies. The competition is overwhelming,” Tony Zhang of Shenzhen-based DC-Mould said. He, like any Chinese exporter, also fears the instability associated with the revaluation of Chinese currency.
That justifies Zhang's move to diversify the investment by molding cell phone parts for original equipment manufacturers in China. The margin of the molding business is not necessarily higher than tooling, he said, but the domestic market offers a lot of potential to grow.
Machinery producers share the same thought, illustrated by companies like extruder maker Shanghai Weiheng Rubber & Plastics Machinery Co. Ltd., which has started making PVC sheet for the domestic packaging market.
China's plastics processing industry reported 25 percent growth in 2006 over the previous year. Profits rose more than 30 percent, according to the National Bureau of Statistics of China.
Meantime, the 2006 growth rate of exported plastic products fell to 23 percent from 30 percent in 2005. Imports grew 17 percent. China's domestic market is absorbing much of the plastic industry's fast-increasing output.
Since global business has long gone beyond national boundaries, maybe the prosperity of the Chinese market also signals important opportunities to multinational companies that may or may not have entered the molding business in China.
Sun is an Akron, Ohio-based Plastics News staff reporter and Asia specialist.