Chinese Decorative Coatings Market

Growth prospects   

The Chinese market for decorative coatings, excluding
non-architectural products such as industrial varnishes, marine
paint and other industrially applied coatings, has been growing
by around 10% annually and was estimated to be worth Euro1.3
billion a year, with an annual per capita consumption of just
less than 1 liter of paint. This compares to around 10 liters
per capita consumption in Europe and a market of around Euro11
billion, and 11 liters per capita consumption in the US and a
market of around Euro5.8 billion. The dramatic growth in the
Chinese decorative coatings market has been driven by a number
of different factors, including:   
    * Liberalization of the housing market - home ownership has
been increasing by around 30% a year and about 59% of urban
residents in China now own their own homes.
    * Spectacular growth in the Chinese economy and the
resulting increases in living standard. Since 1978, when Deng
Xiaoping first set China on a path of economic reform, its GDP
has grown by an average of 9.5% a year.
    * Boom in the construction and building markets - the Chinese
government expects the construction and building sectors to grow
at 7% a year, ranging from 15%-20% rates in the big cities and
in East China and down to much less in West China.
    * Shift away from traditional decorative materials, such as
tiling on the outside of buildings, towards the use of decorative
coatings.
    * Changing nature of Chinese society, with more young, urban
couples moving into their own apartments, and the growing
expectation that buildings will be re-painted on a more frequent
basis.
    With volume growth expected to continue at 10% a year, before
slowing down to 6%-7% around 2008, the Chinese decorative
coatings market is likely to overtake Europe within 10 years and
the US over a slightly longer period of time. Over the next ten
year period the European market is likely to shrink in volume
terms by 1% per year, whilst volume growth in the US will remain
stable.

A fragmented market

At present, the decorative coatings market is unusually
fragmented, with over 7 000 manufacturers operating in China.
The situation in China contrasts sharply with Europe, and even
India, where the top 3-4 manufacturers have between 60%-80% of
the market, whereas in China the leading 5 decorative coatings
manufacturers only have a 25% market share - this makes the
Chinese market ripe for consolidation.
    In addition to conventional business pressures,
consolidation in the Chinese market is also being driven by WTO
membership. Domestic producers know that WTO membership will
lead to an increase in the volume of imported decorative coatings
and the entrance of new foreign competitors. To survive in this
increasingly competitive environment many domestic
manufacturers will look to partner with, or be acquired by,
strong local or foreign manufacturers.  
    The expected result of this consolidation is that the bigger
players in the Chinese decorative coatings market will enjoy
above industry-norm growth rates, developing into clearer
market leaders at the expense of the medium sized decorative
coatings manufacturers. Smaller, local manufacturers are likely
to remain, creating a situation similar to that of India in which
there are a number of bigger players in a structured sector, and
a range of smaller players in an unstructured and locally
specific sector.

Fifteen shades of red, or white?

Until recently the conventional practice in China was to apply
one coat, if at all, of white paint to the interior of a house
or an apartment and then not repaint it again for a number of
years. There was no practice of changing the colors every 2-3
years, or applying different colors, as is common in the West.
This practice has, however, started slowly to change as young,
wealthy and urban Chinese have begun to be more adventurous in
the use of colors. They started by abandoning white for pastel
and off-white shades, before now moving gradually towards
stronger, deeper colors.
    The same trend is also evident in the decoration and
redecoration of building facades as architects and designers
seek to compliment the architectural design of their buildings
through the use of increasingly complex color schemes.

Do-it or buy-it-yourself?

The Chinese consumer also differs from the Western consumer
because they have not adopted the concept of do-it-yourself. As
the wages of manual workers, many of whom are immigrants from
rural areas, are comparatively low, most people who can afford
to buy a new apartment or house in China can also afford to pay
somebody to paint it. To meet this demand, it is very common for
freelance contractors to wait outside the paint shop or in the
street for potential customers.
    In addition, unlike their western counterparts, Chinese
consumers do not consider do-it-yourself to be a leisure pursuit.
So whereas a western consumer who can afford to have their house
painted may chose to do the work themselves, this is much less
likely to happen in China.
    Therefore, for both financial and cultural reasons, the
Chinese decorative coatings consumer is best characterized as
buy-it-yourself, rather than do-it-yourself.

Shopping for paint the Chinese way

The impact of Chinese culture goes beyond the issue of whether
they do-it or buy-it-themselves to the way in which they shop
for paint. Although it is changing, Chinese consumers and
professionals are used to being sold poor quality goods which
are not supported by credible guarantees. Furthermore, they are
faced with choosing from paint colors, products and brands, the
numbers of which are increasing at a startling rate.
    To address these challenges, Chinese consumers have learnt
to examine goods very closely, to barter fiercely and shop around
for the best deal possible. As a result, Chinese consumers often
visit newly opened western DIY stores to consult the staff, read
the literature and examine the prices, before buying their goods
at cheaper local retailers, the so-called "show room"
phenomenon.
    The process by which Chinese consumers select the color and
brand of decorative paints are a key issue for both retailers
and manufacturers. Large retailers are, for example, responding
to the "show room" phenomenon by offering credit facilities to
customers. To promote the features and benefits of their brands
and products manufacturers are also working hard to ensure that
sufficient information is made available to Chinese consumers,
in an easily digestible format, both in-stores and elsewhere.

The brand is not king

Given the infrequency of purchases of decorative paint, and the
bewildering number of choices facing Chinese consumers today
when compared to just a decade ago, knowledge and familiarity
with decorative coatings brands and products is relatively low.
It is not surprising, therefore, that the Chinese are amongst
the least brand loyal consumers in the world, and a key
influencing factor in the purchasing choices of Chinese
consumers is the awareness of, and trust in, manufacturing
companies. As t