'New normal' in China may have upside for overseas machinery firms

GUANGZHOU, CHINA — What's being called the “new normal” for China's economy — a period of slower, more moderate economic growth — may not be a bad thing for the plastics machinery industry. For some higher-priced foreign machine makers, it could be a good development.

At least that's the argument put forward by a number of industry executives at the recent Chinaplas trade fair.

To be sure, signs of a slowdown were evident: Germany, which has the largest market share of plastics machinery in China among foreign countries, said its exports dropped 5.5 percent last year.

And China's largest local injection machine maker, Haitian International Holdings Ltd., said its domestic sales only rose 1.9 percent last year.

But walk the halls of the huge Chinaplas, which ran May 20-23 in Guangzhou, and you hear repeatedly that the slowdown doesn't mean so much because China remains the world's largest market, and the slower growth is prompting more focus on automation and higher-end equipment, where the overseas firms say they're strongest.

“The clear perspective on the long run is China will be a growing market for us not only for our exports but also for our production here in China,” said Thorsten Kühmann, managing director of the German trade group VDMA's plastics and rubber machinery committee. “China remains to be the biggest export market for German suppliers of plastics and rubber machines.

“The exports of German plastics and rubber machines to China were down by 5 percent last year, in 2014,” he said. “Is this really a drama for our industry? Clearly, no, it's no drama.”

Germany last year exported 809.3 million euros ($889 million) worth of plastics and rubber machines to China in 2014, down from 855.9 euros million in 2013. But 2014 was still the second highest export figure in the past five years for German firms.

“Although the international media often comments critically on the declining market dynamics, we view this ‘new normal' positively,” said Gero Willmeroth, sales and service president at Engel Machinery (Shanghai). “The markets have reached a certain maturity. Quality is increasingly coming into focus.”

U.S. machinery maker Milacron LLC, which announced a $10 million investment in new hot runner manufacturing capacity in China at the show, similarly said its hot runner business is growing faster than the market in China because of increasing demands for efficiency.

“Our hot runner business is growing even faster because we are replacing cold runner systems,” said John Gallagher, chief operating officer. “As the Chinese economy continues to advance, as automation advances, the efficiency of hot runner systems is much better than cold runner systems.”

In its filing to U.S. regulators in April for an initial public offering, Milacron noted that China's plastics equipment market, estimated at $7.6 billion in 2012, was “by far” the world's largest, and was projected to grow 8 percent a year through 2017.

China's plastics equipment market grew from 49 billion Chinese yuan ($8 billion) in 2013 to 56.3 billion yuan ($9.15 billion) last year, according to figures from Haitian.

Haitian's Chief Strategy Officer Helmar Franz said its sales only rose 1.9 percent last year in China, which it attributed partly to companies shifting some investment out of the country, particularly Japanese, South Korean and Taiwanese customers.

“These [companies] have a lot of the processing market in China [and] recognizing the increasing cost position, they would move their factories to countries like Vietnam, Thailand, Indonesia,” Franz said.

Some of those same companies would now be ordering Haitian equipment for factories in those other countries, helping to drive Haitian's exports in 2014 up 13 percent, and pushing its overall sales up 5 percent, he said.

“The same customer, the same machine, last year was domestic business, now is export,” Franz said. “We say there is an overall growth in these difficult times of 5 percent, which I think is spectacular and remarkable.”