China's plastic product exports are expected to drop roughly 20 percent this year, with the steepest declines to the U.S., Europe and Japan, but companies that focus on the country's domestic market seem to be faring better.
At least that was the projection of several economic analysts speaking at a recent plastics conference in China.
Overall, the country's plastics sector still projects growth of at least 15 percent for the year, a figure that would be met with cheers anywhere else. But within China's industry, where 20 percent-plus annual growth has been the norm, there's a mix of both optimism and consternation.
The pessimism is centered among exporters, traditionally one of the main engines of China's plastics processing sector.
Exports to the traditional markets of the U.S., Western Europe and Japan plummeted more than 30 percent in the first seven months of this year as Europe's debt crisis, Japan's natural disasters and a sluggish economy in the U.S. took a toll, according to figures from Chinese state-owned resin maker Sinopec's Economics & Development Research Institute in Beijing.
That drop was partially offset, however, by plastic product exports holding steady to other parts of Asia and to other emerging markets, with Beijing-based Sinopec projecting that exports will be down about 20 percent for the year, to about 12 million tons of products.
“We see great risk in investment and exports,” said Shu Zhaoxia, deputy chief engineer in the Sinopec economics unit, speaking at the China Plastic Industry Development International Forum, held Nov. 7-8 in Yuyao.
Still, to put this year's drop in perspective, plastic product exports remain at historically high levels. Sinopec projects the exports will recover next year to more than 13 million tons, which would be the second-highest level on record.
To cope with the downturn, Shu said China's economic policy will focus on stability by responding to bankruptcies hitting small and medium-sized firms, and striking a balance between boosting growth and fighting inflation. But finding new sources of growth could be a challenge, she said.
“The reform of state-owned enterprises, real estate and high exports, which drove growth before, cannot drive growth now. Things like the low-carbon economy are not strong enough to push the new phase of growth,” she said.
Sinopec's projections for plastics exports were matched by other, less-formal estimates at the conference, which was organized by the China Petroleum and Chemical Industry Federation and consulting firm IHS Inc. of Englewood, Colo.
For example, a survey of 40 plastics processors done by sc199.com, an online Chinese business platform, found that export-oriented firms were reporting a drop of 10-20 percent in their production, while domestic factories were seeing production increase “to a limited extent.”
And Paul Pang, the China managing director for Houston-based consulting firm CMAI Inc., said exports have been down as much as 60 percent in some plastics sectors in recent months because of weakness in North America and Europe.
Those exports did not pick up much in September, traditionally a time when December holiday orders are filled, he said, with coastal regions like the Zhejiang province faring the worst.
But processors tuned to the domestic market, such as those in central or northern China, “are probably OK,” Pang said. “They are not doing great, but OK.”
Challenges, several analysts said, are low profit margins and excess capacity among plastics processors. They have an average profit rate of 4.9 percent, below the 5.45 percent average for the country's other 17 light-industrial sectors, said Guo Yongxin, vice director of China's National Light Industry Information Center, who blamed excess capacity and a lack of innovation.
“There are too many small and medium-sized enterprises in the sector,” Guo said. “There [are] no distinctive differences or product innovations. This leads to low profits.”
Eventually, it will lead to mergers and consolidation, he predicts: “We see a transformation in the sector in the next five years.”
Still, the analysts said there are positive factors.
China's economy is still projected to grow 9 percent this year, and industrialization in China's interior provinces is expected to fuel demand, with Sinopec saying interior provinces are seeing growth of 11-13 percent, even as coastal regions slow down.
“There is a lot of potential for an increase in consumption,” said Shu, adding that Chinese use of plastic on a per-capita basis is now at about the level of South Korea in 1990. “In the next five years, demand will remain on an upward trend, but the increase will be more stable.”
And Pang said CMAI projects China is likely to have a soft landing as its economy slows, with only a 25 percent chance of the “hard landing” some have feared.
Nonetheless, there was plenty of nervousness about the state of the global economy.
“Developed countries are trapped by new problems after three years, because the stimulus
packages did not work as planned,” said Shu. “Developing countries will have to control inflation, and the growth rate has slowed for all countries.”