At least one in every 10 plastic processors in China lost money in 2015. Chances are, more companies will fall into the red this year.
That's according to Chinese industry official Cai Daying, director of the China National Light Industry Information Center (CNLIIC). He spoke at a recent conference in Shenzhen.
The agency monitors the business performance of all Chinese plastics processors that meet the government census minimum threshold — 20 million yuan ($3 million) in annual sales. Based on that criterion, CNLIIC tracked down 14,763 companies in 2015, of which 1,687 didn't break even. That's about 11.4 percent.
The industry as a whole reached sales of 2.15 trillion yuan ($325 billion) with a total profit of 130 billion yuan ($19.6 billion), indicating an average profit margin of about 6 percent.
Businesses continue to face challenges this year, as the industry goes through the painful process of reducing overcapacity. Cai said sectors with severe overcapacity, such as biaxially oriented polypropylene and PET film, pipe and profiles, are unlikely to see major improvement this year. Other factors, such as expensive credit and rising labor costs, are also limiting the industry's growth.
China's export of plastic products basically stayed flat in 2015 at $61 billion, with 1 percent year-over-year growth. Cai cautioned that trade friction with the Americas and Southeast Asia have caused significant headwind for the export sector.
He recommended that Chinese processors look for new growth opportunities through a host of initiatives: supply-side reform, boosting R&D, building industry clusters, material replacement, the Internet of Things, and the “One Belt, One Road” initiative.
For individual companies, the future will hinge on their capability to formulate business plans that can ride with and take advantage of the macroeconomic initiatives. Everyone in China seems to be aware of and talking about the issues. But until they really figure it out and make it happen, more companies are likely to struggle to make a profit.