CHENGDU, CHINA -- China's plastic pipe industry saw its smallest growth last year in five years, hit by slowdowns in government infrastructure spending and real estate, along with a more difficult economic environment, according to new figures from a Chinese trade group.
Of course a slowdown in China may not mean the same as it would elsewhere: in this case, it meant pipe production only increased 10 percent last year, to 11 million metric tons.
Pipe makers in many countries would happily accept that, but for China that 1 million metric ton increase in production was actually the smallest jump since at least 2008, and much less than 2011's 1.6 million ton increase or 2010's 2.6 million ton jump.
“In terms of the development of this industry, the speed is slowing down but it is still increasing,” said Wang Zhan Jie, secretary general of the Beijing-based China Plastics Piping Association, which released the figures at its annual conference June 6-7 in Chengdu.
This year has seen a modest improvement from 2012, as municipal government spending on infrastructure projects has lifted demand and injected a bit more strength into the industry's situation, he said.
Preliminary data shows plastic pipe production in China is up between 10 and 15 percent in the first half of the year, and that's likely to continue in the 2nd half of the year, he said. About 60 percent of China's pipe goes into the construction sector, he said.
While growth has slowed from its breakneck pace of 2010 and 2011, the effects are not being felt equally within the pipe sector.
Larger companies seem to be faring much better, while smaller firms are having a harder time getting resources to upgrade and stay competitive, according to several CPPA board members and executives interviewed at the conference.
“Although the big economic picture is not very good, for the good quality, very big companies, they are doing well,” said Hei Xianguo, general manager of sales for Hong Yue Plastic Group Co. Ltd., a pipe maker based in Qinhuangdao, Hebei province, and a CPPA board member. “But the smaller companies have problems.”
Hei said his firm, for example, saw revenues grow 25 percent in the first half of the year.
The company, which has annual sales of 1.3 billion Chinese yuan ($209.6 million), makes specialized pipe products and has benefited from the Chinese government limits on real estate speculation.
Previously, property owners would not spend on higher-quality piping and materials if they bought homes as an investment, but as the Chinese government has tried to limit real estate speculation, more people are living in the houses they own and want to spend on higher quality products, he said.
Hei attributes Hong Yue's growth partly to two strategic actions it took shortly after the 2008 financial crisis: focusing on key market segments like real estate and expanding its distribution network to 1,300 locations throughout the country.
China's plastics pipe industry has seen average annual production growth of 25.7 percent between 2008 and 2012, from 4.6 million metric tons in 2008 to 11 million tons in 2012.
However, the industry remains still remains plagued by very severe overcapacity, said CPPA Chairman Chen Li Hui, who is also general manager at Fujian Aton Advanced Materials Technology Co. Ltd.
The larger companies are generally doing better, expanding their production and distribution networks throughout the country, while the smaller firms face more difficulties, he said.
Even with the current slower growth, underlying demand from China's development is still projected to drive demand, industry officials said.
Urbanization is a big factor. Between 15 and 20 million people are moving to cities each year in China, pushing the country's urbanization rate from 47.5 percent in 2010 to an estimated 51.5 percent in 2015.
That means significantly more spending on infrastructure. In 2010, the country had 350,000 kilometers of natural gas pipeline, but that will grow to 600,000 km. next year, according to figures from the Technology Development and Promotion Center of the House and Urbanization Department presented at the conference.
Infrastructure is also being improved in rural areas. China will spend an estimated 22 billion yuan ($3.5 billion) this year to build treatment plants to improve water quality for 30 million people in rural areas, with spending on pipe accounting for 60 percent of that, according to the China Water Conservation and Water Supply Institute.