SHANGHAI (Sept. 23, 1:35 p.m. ET) — American and European plastics firms are stepping up their investments in medical manufacturing in China, as that country undertakes a major expansion of its health-care system.
The investments are driven both by global medical-device makers becoming more comfortable with stamping “Made in China” on exports and by China's domestic market, including Chinese government plans to spend US$120 billion to provide basic medical insurance to most of the country by 2020.
Before the program started in 2008, 60 percent of Chinese people did not have medical insurance, according to the U.S. government's China Business Information Center.
“We are very bullish on health care in China,” said Larry Johnson, marketing director of health care for American compounder PolyOne, at an interview at the recent Medtec China show in Shanghai.
“The big investment they are making will provide health care to all citizens and drive the creation of an OEM industry over here,” said Johnson. “We see it as probably the fastest-growing medical market in the world.”
The new investments include German molder Gerresheimer Regensburg GmbH expanding its Dongguan, Guangdong, plant, and building a second factory in the county, and French thermoformer Top Clean Packaging Group doubling the size of its East China factory.
Both companies opened those facilities about five years ago, and said time spent getting customers comfortable with China-based medical manufacturing is now paying off in sizable new orders.
Beyond those investments, many foreign companies interviewed at Medtec China, held Sept. 7-8 in Shanghai, said they were making smaller investments.
U.S. injection molder GW Plastics, for example, said it continues to make incremental investments in its Dongguan factory, where 60 percent of its business is health-care related, and has quadrupled its size there since opening in 2006.
“Health care is where the growth is in China, and we are focused on it,” said Ben Bouchard, vice president of international business and managing director of China with Bethel, Vt.-based GW Plastics Inc. “ “The health care industry is risk averse [but] the health care customers are becoming more comfortable with the capabilities of Chinese-made products.”
The company continues to plan for a second China facility, possibly in the Shanghai-Suzhou corridor, Bouchard said: “We're finding more opportunities in South China than we thought.”
The main driver for growth in Gerresheimer's China medical business is global customers looking for lower cost manufacturing, said Stephane Pianigiani, managing director of Gerresheimer Medical Plastics Systems Dongguan Co. Ltd.
It's a point echoed by Singapore-based injection molder Racer Technology Pte. Ltd.
“I am personally seeing a lot of European companies that had [in the past] stayed away from China for medical products,” said Clement Lim, general manager of the company's Suzhou, Jiangsu province, factory. “But they are having a lot of cost pressures” and are looking at China, he said.
The company has a five-year plan to convert its China factory to medical manufacturing, after the facility received the health-care related ISO 13485 certification last year.
The Asia-focused company also has factories in Singapore, Malaysia and Indonesia.
“Medical as an industry has been growing very fast for the whole group for the last three years,” Lim said.
Challenges in China medical manufacturing
While there is a lot of bullishness on health-care manufacturing in China, medical is of course not immune from the general difficulties facing manufacturing there.
Protecting product designs and intellectual property remains a major challenge, according to several companies at Medtec, and needs to be improved if Chinese companies want a larger role in the global health-care industry.
“Intellectual property will be a key for them to grow even faster than they are,” Johnson said. “I think it's also important for their global expansion.”
The dramatic rise in wages is forcing changes, as well, although for medical those added costs are less of a problem than for other industries.
Pianigiani said labor costs are still six times higher in Gerresheimer's Czech Republic plant than in China, although he said getting productivity gains to match the 20 percent year-on-year labor cost increases in China is not easy.
It means more automation, not to replace people but to boost productivity, said Thomas Opielowski, vice president-international for U.S. molder UPG Inc., and president of Suzhou-based UPG China.
“If we increase the output and quality we get the same effect [as reducing headcount],” he said. “I'd rather increase the productivity.”
The Oak Brook, Ill.-based company still sees a lot of potential in China's medical device industry.
Unlike Mexico, which he said lost its electronics manufacturing to China as costs rose south of the Rio Grande River, the growing domestic market in China is making up the difference as China's costs rise.
“That's very different than Mexico,” Opielowski said.
Global medical firms are only at the beginning stages in China and emerging markets, he said.
“Medical took a long time to finally look at low-cost regions,” he said. “Some companies in medical are just scraping the surface.”
Opielowski said UPG, which just opened its fourth facility in Suzhou in August, may build another facility somewhere in Asia within the next two years.
The markets for the Western plastics firms are beginning to change as well, from an almost complete reliance on export business and multinational customers to beginning to look at local medical device makers.
“We're just entering into business relationships with mainland Chinese and Taiwanese customers,” said Jerry Chung, a business development executive for Asia the Hong Kong office of American molder Nypro Inc., which is headquartered in Clinton, Mass.
Those firms have done a lot of exporting to other emerging markets, but are now more interested in developed economies, and are coming to Nypro and other companies with experience in Western market regulatory requirements, he said.
The Chinese government health care spending has potential for foreign firms, although in some cases additional developments are needed, executives said.
Ronny Debaere, global market development manager for France's Top Clean Packaging, said a lack of clear regulations on medical packaging impedes market growth, even with the Chinese government spending.
“It is going to be an opportunity if the legislation concerning packaging will follow,” he said.
Many plastics processors and material suppliers at the show said they were making investments, including:
* Minnesota Rubber and Plastics said it doubled the size of its 30,000 square foot silicone rubber molding facility in Suzhou. The Minneapolis-based firm has thermoplastic molding in the United States.
* PolyOne said its Shanghai color and additives manufacturing facility recently received ISO 13485 certification, and claimed it is the first North American or European masterbatch factory in China to receive that. Two other PolyOne facilities for other markets in China already have that certification.
The Avon Lake, Ohio-based company earlier this year opened a polymer distribution warehouse in Shanghai focused on the medical market, and has expanded its range of medical materials available in Asia, including radiopaque and catheter materials through its NEU Specialty Materials subsidiary non-phthalate and non DEHP vinyl formulas in its Geon HC series, and colorants tailored to both Eastman Tritan and Dow polymers.
* Tubing extruder Tekni-Plex Inc. added a co-extrusion line at its Suzhou factory this year, allowing more complex products to be made there. The company works with both international and domestic Chinese firms, said Russell Hubbard, vice president of international for the King of Prussia, Pa.-based firm.
* Material supplier Clariant International Ltd. is adding people and making unspecified productivity enhancements at medically-oriented facilities in Singapore, the United States and Sweden. It was at Medtec with its new line of Mevopur nucleants for reducing cycle times in pharmaceutical packaging, along with grades of antimicrobial masterbatches.
* Compounder RTP Co. in Winona, Minn., said it was plans to open technical center in Shenzhen, China, next year.
Next week's Plastics News China eWeekly will include Part II of this story, looking in more detail at the quality concerns in China's supply chain that Western plastics firms say give them an advantage.