By Lauren Hilgers
SHANGHAI (Feb. 3, 7 p.m. ET) — As the tremors of the financial crisis continue to shake factories throughout China, the future looks rocky for plastics manufacturers in the country. Exports are down and domestic consumption is slowing. Some companies, however, are looking to find a silver lining in China’s economic stimulus plan.
As part of the plan, which the Chinese government released in November, 4 trillion yuan ($586 billion) will be spent to expand domestic demand in 10 areas. These areas include the acceleration of housing construction; increased infrastructure development such as railways; further supporting ecological and environment-friendly construction; and raising the income of urban and rural residents.
The need for an added boost to China’s economy seems clear. After clocking 11.9 percent growth in 2007, China slowed to 10.1 percent in the second quarter of 2008 and down to 9 percent during the third quarter. In November, for the first time in seven years, the country saw a year-on-year drop in exports, down 2.2 percent compared with November 2007. Those slowdowns resonate in the country’s plastics industry, particularly those focused on exports.
“The U.S. economic crisis is having a [negative] effect on demand in many of the industries we supply for the export markets,” said a spokeswoman with Bayer MaterialScience LLC’s office in Shanghai. “In those sectors that are driven by local consumption demand, the prospects remain healthy.”
BMS sees opportunities in a number of areas that will benefit from the stimulus package, particularly when it comes to infrastructure development. For example, China is planning to invest nearly $300 billion to improve and accelerate development of its railway infrastructure. The network will be extended from around 78,000 miles that it currently covers to nearly 100,000 miles by 2010.
“We are keen to support the market,” Volker Mirgel, senior vice president of BMS Coatings, Adhesives, Specialties [CAS] business unit for the Asia-Pacific region, said in a statement. The company’s materials portfolio combined with its local production put it in a good position to help develop China’s rail industry, he added.
Mirgel referred primarily to the company’s series of waterborne coatings and adhesives, but BMS also is looking for opportunities for its polyurethane materials. PU could be used to provide seating cushions for passengers. Durable engineering plastics could also be of use in helping to lighten trains and improve their energy efficiency.
Some evidence points to weaker domestic demand in China. The country’s imports fell 17.9 percent in November, for example, with analysts citing both falling oil prices and flagging consumer and business demand.
DuPont Co. sees opportunities in the stimulus package’s emphasis on railway spending, particularly for its Zytel nylon and Hytrel thermoplastic elastomer, which are used in rail infrastructure projects, said Doug Muzyka, president of DuPont Greater China Holding Co. Ltd.
He said it’s tough right now to predict what will happen with the Chinese economy, but said the stimulus package has helped boost confidence.
“What we see is a measure of hope, at least, among our customer base that these will be beneficial to them and indirectly beneficial to us,” he said Dec. 10 at the InnoAsia 2008 conference in Hong Kong.
Muzyka said another of Beijing’s attempts to boost the economy, the reinstatement of some value-added tax refunds, has helped some export-dependent customers, although overall the company’s business in China has suffered in the slowdown.
“We’re not immune to it in the plastics business,” he said. “We had record revenues through the first half of [2008], a moderate slowdown in the third quarter and … a really harsh change in October and November.”
“We’ll work on it one quarter at a time,” he said.
Other companies are looking to different aspects of the plan. The money going into rural infrastructure also will impact the pharmaceutical industry, pointed out James Ji, project manager at Shanghai Haishun Packaging Material Co. Ltd. “There could be opportunities for pharmaceutical packaging companies there,” he said.
Other opportunities might be found in environmental protection projects and in helping to rebuild earthquake-damaged sections of Sichuan, all priorities of the stimulus package.
“These sectors are very relevant and important to our businesses,” said a BMS spokeswoman. “Any government stimulus efforts in these sectors will benefit not just us, but our entire industry.”
Plastics News Asia bureau chief Steve Toloken contributed to this report.