China remains a global plastics industry driver

Guangzhou, China — For all the challenges in China's manufacturing sector, from slowing global growth hurting exports to rising production costs within the country, it remains the world's largest market for plastics and a significant driver for industry growth.

China, for example, will account for more than half of the total global increase in demand for polyethylene, the workhorse of polymer markets, through 2021, according to a January study from consulting firm IHS Markit.

The economic slowdown has had an impact, of course: Germany, the largest foreign supplier of plastics and rubber machinery to China, saw its exports drop 4 percent in 2016, on top of a 19 percent drop in 2015.

But China remains Germany's second-largest plastics machinery export market, after the United States, and the upgrading going on within the country's manufacturers and plastics industry has foreign suppliers scouting for opportunities.

German machinery maker KraussMaffei Group, for ​ example, said it's "in a position" for double-digit annual sales growth in the country for several years, said Xiaojun Cui, CEO of KraussMaffei China.

KM was bought last year by Beijing-based China National Chemical Corp., and KM executives at Chinaplas said being part of ChemChina gives them access to state-owned companies that would have been harder to sell to before.

As well, demands for higher quality in the country create opportunities for the German supplier, Cui said.

"The rising middle class in China is asking for more sophisticated, good quality products [and] this requires better machines to produce," Cui said. "Companies are competing on productivity. So, the introduction of the right automation solution can help our customers achieve better results."

Germany's VDMA plastics machinery trade group put on its second annual conference on Industry 4.0 technologies for the Chinese market at Chinaplas, held May 16-19 in Guangzhou.

Toni Bernards, CEO for German extrusion equipment maker Battenfeld-Cincinnati Group's operations in China, said Chinese firms are interested in how Industry 4.0 technology can improve their productivity, but they are less clear on specific benefits than companies in Europe or North America.

"[Chinese companies] want to have it, but I believe at the moment they are not yet clear what is all behind industry 4.0," he said.

China's government-led program for industrial upgrading, called "Made in China 2025," calls for tripling the use of industrial robots to 150 per 10,000 workers by 2020, from 49 now.

By comparison, the world average is 69 per 10,000 workers, while the United States has 176 robots per 10,000 employees, according to the Frankfurt, Germany-based International Federation of Robotics.

KraussMaffei CEO Frank Stieler said Chinese processors are very interested in more automation, but need help understanding how to make best use of such technology.

"The number of customers we can talk to in China about the topic is smaller," he said. "However, the demand and the pressure here in China is very high, because of the shortage of labor and the shortage of qualified labor.

"The demand is very high, but the level of understanding to actually access the technology is not yet there," he said.

Chinese medical injection molder Mehow Innovation Ltd. may be a poster child for the industrial upgrading that China envisions for itself.

The privately held Shenzhen-based firm said much greater use of automation has helped it more than triple its sales in the last five years, while its employee headcount has only gone from 600 to 1,000.

The firm started a 100-person R&D department three years ago, and is investing in a new plant in Malaysia full of 22 expensive new German-made molding machines, as its global customers want it to diversify production outside China as a hedge against risk.

"I will say a couple of reasons [for the boost in productivity]," said Feng Yuan, director of business development, in an interview in Mehow's booth at Chinaplas. "The first one is automation and technology."

He said the company is also making much more use of expensive high-cavity molds, boosting a single machine's production capacity several times.

"One week's customer demand used to take us one week, now it's only two days," he said. "So we have actual capacity to make parts for other customers."

There are significant challenges as parts of China's manufacturing sector slow down, however.

Large Hong Kong-based machinery maker and plastics processor Cosmos Machinery Enterprises Ltd. saw 2016 sales drop 8.5 percent to $281.4 million, and profit slid 14 percent, as economic growth "experienced a notable slowdown" in China.

The company closed one plastics processing plant and streamlined factories, reducing its headcount from 4,400 to 3,600, as customers struggled with higher production costs, the fluctuating Chinese currency and problems getting financing.

Difficulties are not limited to Chinese firms. The Beijing-based American Chamber in China said in an April report that 2017 would be "one of the most challenging years in decades for U.S. companies in China" because of the economic slowdown, a tougher investment environment in China for foreign firms and political transitions in both countries.

But others in the plastics supply chain noted continued increases in demand.

Battenfeld-Cincinnati said order intake in its China factory, in the city of Foshan, was up 35 percent last year, on top of a 20 percent sales increase in 2015.

Bernards cited a number of factors, including large infrastructure spending plans in the government's latest Five Year Plan, a push to replace dirty coal heating with cleaner gas heating which is requiring new pipes, and a push for more quality in general, which favors the higher-priced equipment.

"For the pipe production, since two years, there is a tendency in Chinese companies needing really, really more high quality," he said.

He said pipe makers are investing heavily in western China, in Xinjiang and Sichuan provinces.

"That's a huge driver," he said. "A lot of companies buying a lot of machines, No. 1, and they also are spreading their facilities."