A lot of industrial companies look at the exploding Chinese market with envy and wonder how they can get their piece of the action. But talking to some of the foreign plastics processors exhibiting at the country's largest trade show, the Canton Fair, was a reminder that cracking China is easier said than done.
The Canton Fair — a three-week-long, twice-a-year manufacturing mega-show in Guangzhou — has opened some of its booth space in recent years to non-Chinese firms. Officially, fair organizers said they wanted to promote foreign firms getting into the China market. The decision also had the political undertone of trying to reduce the country's sizable trade surplus.
A number of foreign plastics firms, mainly from other parts of Asia, jumped in and exhibited at the expensive fair. But the reality is that very few of them I talked with had any real interest in China's overcrowded and price-competitive domestic market.
Take Malaysian PVC sheet extruder Wangsaga Industries Sdn. Bhd. Steven Tan, a salesman in the 400-employee firm's export department, was blunt when asked if Wangsaga was interested in China's market: “Not a chance.”
His company can't compete with China's price, he said. Instead, it came to the Canton Fair to sell to the worldwide audience of buyers who attend, focusing particularly on South America, South Asia and the Middle East. Wangsaga's business is pretty decent, he said. The firm invested about $1 million last year to boost capacity to meet rising demand.
Turkish household products injection molder Fatih Plastik Sanayi Ve Ticaret Ltd. STI told a similar story of not seeing China's market as having much potential for it.
Chinese firms are willing to take a contract for a 2-3 percent profit margin, something Fatih will not do, said Mehmet Ozer, a foreign trade specialist for the Kayseri, Turkey,-based firm. Fatih has 14 Chinese-made injection molding machines and 100 employees.
Like several other plastic firms I spoke with at the fair, which ran Oct. 15-25, Fatih was at the fair to find buyers from elsewhere. Ozer said business is pretty good, with solid export markets in the Middle East, whose buyers attend the Canton Fair in droves.
There are of course plastics processors doing well selling in China, particularly larger ones and those with a technology advantage.
Swiss plastic pipe maker Georg Fischer AG recently said China is now its largest single market and growing. Small Korean auto parts molder TTC Co. Ltd., a fair exhibitor, said China is more than half of its business. TTC's polyurethane shock absorber buffers are popular there, and sales have been growing 20 percent a year, said Jonathan Lee, head of international marketing. (Lee did note that TTC has problems with local Chinese firms copying its products.)
Canton Fair organizers point out that China is the world's largest market for automobiles, mobile phones, shoes and kitchenware; it is No. 2 in sporting goods and No. 3 in cosmetics. Sales of consumer goods reached $1.84 trillion in 2009, up 15 percent from 2008. Show officials predicted in an enthusiastic news release aimed at foreign firms that the next decade will be the “golden 10 years” for imported goods in China.
But Chinese consumers still don't spend much money, for a variety of reasons, so domestic consumption is less of a driver of the economy. Until that changes, China could remain a tough consumer market.
The country's domestic consumption/gross domestic product ratio is only about 36 percent, compared with about 70 percent in the United States and more than 50 percent in Europe and Japan.
For all the talk about China's market — and the potential is real, judging from the cars and computers and other things my friends here in Guangzhou buy — it still has growing pains ahead as a consumer market.
Steve Toloken is Plastics News' Guangzhou, China-based Asia bureau chief.
