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Export orders of plastics products are increasingly shifting from China to Vietnam due to rising production costs in China, according to the Vietnamese newspaper Tuoi Tre (the Youth). When I saw the report during Chinaplas, I decided to go speak with Vietnamese exhibitors at the largest plastics fair in Asia. To my surprise, among the 2,600-plus exhibitors at Chinaplas 2012, only one came from Vietnam - European Plastic Joint Stock Co. The materials supplier is based in Hanoi and operates a factory in Duy Tien, Hanan province. Nguyen Anh Tuan, regional sales supervisor, said he is seeing the trend rising in his country. "Many companies from Taiwan and mainland China are investing to set up production in Vietnam for more competitive labor costs." The number of plastic orders received by Vietnamese processors has increased sharply since the beginning of this year, and most of plastic exporters are already booked until August, the Tuoi Tre report quoted the Vietnam Plastic Association (VPA) as saying. VPA said Chinese plastic products' prices are comparable to Vietnamese ones' while the Vietnamese plastic products' quality is considered higher. However, the Chinese exporters I spoke with at Chinaplas disagreed with that. They believe the cost in Vietnam is lower, but the quality of Chinese products is better. Lawrence Chang, Asia Pacific sales director of DuPont Performance Polymers, shared with me his observation in an interview at Chinaplas. He said plastics processors are building capacity in lower cost regions such as Vietnam and Indonesia, but they are retaining their China factories. Vietnam's plastics export reached $360 million in the first quarter, 25.6 percent higher than a year ago, VPA said.
Guangdong Shunwei Precision Plastics Co. Ltd. received an approval for its IPO application from Chinese authorities back in January, but now the business media seem to be giving the firm closer scrutiny. Some are questioning the integrity of Shunwei's financial results. Shunwei claims to be China's largest manufacturer of plastic blades used in air conditioners with a 27 percent market share, according to the IPO filing. It sold 61.6 million units of blades in 2010. Various analysts and media have pointed out risks associated with the business, including its heavy dependency on its five top customers, the plateau of its market share, the phase-out of government subsidies for home appliances, and the education level of its employees (measured by percentage of those who have an associate degree or higher.) But the International Business Daily, which is affiliated with China's Ministry of Commerce, has taken the scrutiny to a new level. In a series of two reports, the newspaper revealed what it called "mysterious and questionable points" from Shunwei's financials. For example, the company claimed its main raw material, acrylonitrile-styrene copolymer, saw a 2.3 percent price increase during the first half of 2011. However, with little change in the product folio, the percentage of resin cost against total cost increased 10 percentage points. That would only make sense if the company managed to bring down other costs. However, that's not the case. Total costs show a 4+ percent increase during the same period. The reports also questioned inconsistent profit margin numbers and the mismatch of claimed sales revenue and cash flow. Even the expected revenues for the projects that Shunwei is trying to raise funds for seem to be overestimated by a great extent, based on its track record. It looks like the company hasn't responded to these media inquiries and reports.
A recent report on the China Petroleum and Chemical Industry Federation website released some fresh stats of the PP market and industry in China, the world's largest net importer of PP resin. I'm summarizing the information into bullet points:
- Total number of PP resin producers: 80+
- Total PP capacity by end of 2011: 12.7 million metric tons
- Actual production in 2011: 9.17 million metric tons (9.8 million tons, according to another source the China Market Research Report)
- Domestic PP consumption in 2011: 13.9 million metric tons
- PP consumption average annual growth rate 2002-2010: 10.7 percent (vs. 6 percent world average)
- China's PP self-sufficiency rate: 60 percent
The report said China's PP imports grew from 2.2 million tons in 2002 to 4.8 million tons in 2010. While the nation is expected to continue to import large quantities of PP, it is worth noting that China is planning more than 20 coal-based PP and methanol-based PP projects, with a total annual capacity of 6 million to 10 million metric tons. Zhejiang, Guangdong and Shanghai are the leading regions of PP production, representing respectively 15 percent, 11 percent and 8 percent of the nationwide total.
The Vietnam Plastics Association has announced that the nation's 2012 plastics exports are expected to grow 25 percent to 28 percent from last year to $1.7 billion, according to a China Ministry of Commerce press digest of the Thoi Bao Kinh Te Vietnam (Vietnam Economic Times). VPA members also reported that they are booked through the end of the second quarter, and prices on average have risen 10 percent over a year ago, the press digest said. Japan, the U.S. and Germany currently are the major export destinations for Vietnamese plastics manufacturers. In the meantime, demand from the Southeast Asia region is expanding rapidly and is estimated to reach around US$100 billion.
Shenma Industry Co. Ltd., a publicly listed subsidiary of China's largest nylon 6/6 resin producer Shenma Group Co. Ltd., released disappointing preliminary earnings the day after the Chinese New Year holiday. The Pingdingshan-based company reported a 45 percent decline in its 2011 net profit (25 million yuan or US$4 million) compared to 2010, on operating revenue of 15.3 billion yuan (US$3 billion). The results are significantly different from the 60 percent growth in 2011 net profit that Shenma had forecast back in October. Shenma cited a major decline in the fourth quarter caused by "changes in the domestic and international economic environment." Shenma must have seen a decline larger than 100 percent in the fourth quarter, in order to drag the full year results down to negative 45 percent from positive 60 percent during the first three quarters. Analysts questioned the possibility of that scenario, noting that even though nylon 6/6 prices dropped in the fourth quarter, feedstock prices also fell. Other nylon 6/6 makers have posted four-quarter decline in the range of 15-30 percent, according to the Daily Economic News.
President Ma Ying-jeou's victory to win a second four-year term in office was achieved with strong support from the business community that's heavily invested in the Chinese mainland, including high-profile executives from Hon Hai Precision (Foxconn) and Formosa Plastics Group. Terry Gou, chairman of Hon Hai, the world's biggest contract electronics manufacturer, toured Taiwan before the election to endorse Ma. It was the first time Gou campaigned for a candidate, according to the Financial Times.Gou gave his Taiwanese employees in China 'election holidays' and chartered flights for them to return to Taiwan to cast their ballot. Wang Wen-Yun, chief executive of the Formosa Plastics Group, also spoke in public to support Ma's cross-strait policies that focus on peace, stability and economic development. Taiwan's export-led economy is heavily dependent on trade with the mainland. What's more important is Taiwanese businesses' direct investment in mainland China. During 2011, Taiwan's authorities approved US$13.1 billion of direct investment in the mainland, a historic high and 7 percent higher than 2010, Xinhua reported. Electronics, computers, and chemicals/materials are among the most popular sectors.
PVC resin prices in China have been on a "vicious" decline -- below manufacturing cost -- since Sept. 2011, according to Jinlu Group, which expects to post a 90 million to-120 million yuan (US$14.3 million to $19 million) loss for fiscal year 2011. Feedstock and electricity prices have been on a continuous rise, making it difficult to break even, Jinlu said in a Jan. 17 filing. The company recorded 81.4 million yuan (US$13 million) in profit for 2010.
When Apple's flagship store in Beijing canceled the
launch of iPhone 4S last Friday morning, some angry customers (many reportedly
scalpers) who had being waiting overnight in freezing weather threw eggs at the
store. That's how popular the iPhones are in China.
Interestingly enough, a Chinese brand meanwhile is
rapidly expanding its sales of cheap smartphones in the U.S., so far in a segment
that brands like Apple don't appear to focus on.
Despite its current market position of a low-cost product
brand, at the Las Vegas Consumer Electronics Show last week, Shenzhen-based
Huawei launched what it said was the world's thinnest smartphone. The company
told media that it aims to become one of the top three global mobile phone
brands by 2015. According to data compiled by NPD Group for the Wall Street
Journal,
Huawei ranked the seventh of the top 10 smartphones sold to U.S. customers in
the third quarter of 2011.
NPD also found that more than half of the Huawei
smartphones sold in the U.S. were purchased by consumers with household income
of $35,000 or less. That income segment accounts for a quarter of smartphone
buyers, the WSJ report said.
Apparently the Chinese brand is taking the lower-income
American consumers -- some in households that have no Internet access -- online
through affordable smartphones.
The WSJ report said many American consumers can't get
their heads around the brand name "Huawei", and some refer to it as "Hawaii."
If Huawei is serious about expanding its presence in
the Western market, maybe it could slightly revise its brand name to HW. Just
like how its rival LG renamed itself from Lucky-Goldstar back in 1995.
Out of the 521 stories we brought to you on www.plasticsnews.com/china (English) in 2011, the 10 most-clicked stories are:
1. PolyOne launches new products at Chinaplas
2. Bioserie unveils bioplastic iPhone 4 covers 3. Solutia buying touch-screen film assets in Taiwan 4. Chen Hsong licenses Mitsubishi's two-platen technology 5. Book weighs plastics controversy 6. Jabil building new factory in Shenzhen 7. Jinhui to further expand lithium-ion battery film capacity 8. Polyolefin demand growing quickly in India 9. Asia-Pacific drives growth in film and sheet 10. L.K. Technology receives investment
Nothing says more about China's booming auto market than the generous bonus given by the FAW-Volkswagen Automotive Co. The joint venture carmaker awarded its employees with a bonus that equals to 27 months of salary. On top of that, employees also received double salary for eight months this year. The news broke in the online community with an internal PowerPoint file posted by an anonymous user. Other online users said that employees who logged full attendance this year could have received up to 63 months of salary.
The Legal Evening News then contacted FAW-VW and confirmed that the file was authentic and the facts were true. I used to think that type of pay structure - annual total income equally many times of base salary - only happens in the financial sector. Boy, I was wrong. The trend of pay increases in the past five years is phenomenal. In 2007, FAW-VW gave employees double-salary for two months of the whole year. That number has since been on the rise steadily - five months in 2008, six months in 2009, seven months in 2010, and eight months in 2011. In an attempt to play it down, FAW-VW explained to the Legal Evening News that base monthly salary only accounts for about a third of the total take-home monthly income. The year-end bonus is 27 months of base monthly salary, not 27 months of total monthly income. The source added that a "normal employee" (meaning non-managerial?) has 3,000 yuan of monthly base salary. It's ambiguous whether the double pay is included in the "take-home monthly income" the source referred to. If it is, a "normal employee" would have taken home 189,000 yuan (US$29,814) in 2011. That is equivalent to about $39,752 (pre-tax, assuming 25 percent tax rate) in the U.S. If the double pay is NOT included in the "take-home monthly income," a "normal employee" would have taken home 261,000 yuan (US$41,141) this year. That is equivalent to about US$54,854 (pre-tax, assuming 25 percent tax rate) in the U.S. Keep in mind, also, that the FAW-VW workers are located in cities like Changchun and Chengdu, where living expenses are relatively low. Is my calculation correct? If the average Chinese worker at an auto plant makes that much, no wonder many Chinese consumers are now able to afford soaring property prices, overseas vacations and education, and luxury goods. Now, if you didn't get a fat bonus like that, perhaps it'd be smart to think about how to get into a business that serves China's new middle class and wealthy groups.
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Since the launch of our Plastics News China eWeekly newsletter and related Web site in June 2005, I've been receiving e-mails and phone calls from readers who would like to discuss news events and industry trends with me. This blog is to provide a platform to facilitate such communication. I invite you to come here often, read about the latest happenings and discuss them with me as well as with industry friends all across the globe. I welcome your comments and opinions.