For decades, plastic manufacturers have been focused on China's eastern coast. Access to international manufacturers, cheap labor and shipping lanes made the seaside cities of Shanghai and Guangzhou an obvious choice. Now, due to a combination of rising labor costs, a booming domestic market and government incentive programs, manufacturers and plastics companies are starting to expand their scope and make their way into China's interior.
The growth story in China's western cities is compelling, said Juergen Heise, head of Clariant International Ltd.'s BU Masterbatches for Greater China unit. “Clearly you see production for local demand in western China,” he said. “It's a hot topic with our customers.”
Cities such as Chongqing and Chengdu are now among the fastest growing in China. During the past few years, Chongqing has attracted major manufacturers from Ford to Foxconn. BASF SE recently gained approval for a 881 million-pound-per-year methylene diphenyl diisocyanate plant in the city. Bayer MaterialScience AG is planning to open a color compounding design center.
In addition to the attraction of a strong domestic market and a supply of labor that's cheaper than on China's east coast, the new influx of manufacturers has been encouraged by government programs intended to ease the wealth gap between China's east coast and its inland cities.
Sudjali Halim, Dow Chemical Co.'s senior plastics marketing manager for Asia-Pacific, said the government policies have encouraged Dow to pay more attention to options in China's interior cities. “We haven't decided on what city to put more attention,” Halim said. “West China is a different type of environment. It will take some time [to decide]. Certainly places like Chengdu and Chongqing seem to give you a lot of promise.”
Likewise, Heise believes the shift inland will happen slowly and carefully. Companies targeting the domestic market are starting to consider moving to access the market. Other companies are considering western cities as an alternative as labor prices go up in eastern China.
“We're seeing add-ons, companies that have manufacturing in Shenzhen opening another hub in Chongqing,” Heise said. The impact on Clariant, however, is still small. “So far we're not seeing a real effect,” he said.
Heise also questions whether Chongqing actually counts as western: “I look at the map and it looks more like central China to me.”
Ulrich Berlage, the managing director of Akro Engineering Plastics (Suzhou) Co. Ltd., has seen business start to move off of China's eastern coast to inland cities. The first office Akro opened was in Shanghai, followed by Guangzhou and Beijing. Next, the firm moved to Changchun and Chongqing.
“Normally, if there is an automotive market in that city, we open an office,” Berlage said. Sixty percent of its business in China is in automotive. The other 40 percent goes into electronics and consumer goods. “Chongqing is already a very good market for us; Chengdu is coming next,” Berlage said.
Akro recently opened a home office in Chengdu, an easy way to test the market. “If they have sales, we'll expand,” Berlage said.
Despite the move toward western China, Akro continues to locate manufacturing around the eastern city of Suzhou. Last year, the company opened a new plant in Suzhou, adding 13 million to 15 million pounds of capacity. The new plant is only a few hours away from Akro's first facility in China, opened in 2005. It is talent that has kept the manufacturing close to home.
“We started in [Tongli, China] and we have the skilled workers there,” Berlage said. “So we tried to stay in the same place.” Not only has it gotten more difficult to find new workers, he said, keeping the old ones can also be a challenge. “So much depends on finding good people.”