Worries in the Plastics Processing Industry  

Looking back, 2001 was a mixture of good news and trouble in China's plastics processing industry. First the good news: amid dramatically slower growth worldwide, China's high-value plastics processing enterprises achieved a high growth in four indicators: output, sales revenue, before-tax profit and total profit. On the downside, there were worrisome problems. The growth of some major performance indicators was slower than in the same period of 2010, with decelerating profit growth being the most dramatic. More companies suffered losses than in the previous year, and in particular, small and middle scale enterprises operated at very low rates, with some simply shutting down.
   The total output of up-scale plastic enterprises was 54.74 million tons in 2011, increasing 22.35% over the same period of 2010, according to estimates by the National Bureau of Statistics. The core operating revenue of these enterprises increased 27.73% year on year to RMB1 398.77 billion in the first eleven months of 2011. In the same period, their total profit grew 29.32% YoY to RMB73.83 billion; the total losses of those enterprises that suffered losses increased 43.65% YoY to RMB4.351 billion; and the size of the work force declined.
   According to some Chinese insiders, the domestic plastics processing industry is currently facing "both internal problems and external storms." The main outside storms include the slowing development of the world economy, significantly increased economic and political risks, and setbacks in China's international trade. All of these greatly impacted China's export of plastic articles. One particularly alarming statistical finding from CPPIA (China Plastics Processing Industry Association) is that China's export of plastic articles in 2011 dropped 10.77% from 2010, to 13.047 million tons.
   The depressed market situation was particularly evident in Taizhou, which is often called "the plastic town." Mr. Cheng from Zhejiang Taizhou Plastic Industry Association said that together, the worldwide recession and the appreciation of China's currency caused both the output and export of Taizhou's plastic products to drop 20% in 2011. The decline was even worse than at the onset of the financial crisis in 2008 and 2009.
   Due a moderately tight national monetary policy and stringent regulation of the homebuilding industry, the plastics processing industry faced cash flow difficulties and shrinking market demand. In China, the scale of individual plastics processing enterprises is generally small, and the government's tighter credit policy hampered small firms' cash flow to the extent that they had to struggle just to avoid shutting down. The consumption of plastic pipe material and plastic profile dropped sharply due to new government controls on housing sales. For those who kept going, higher labor costs and frequent changes of the RMB exchange rate squeezed profit margins.
   It was a year of misfortune in Guangdong province, China's biggest producer of plastic articles. Fu An, president of Guangdong Plastic Industry Association, commented that high cost was the main thing squeezing profits. One cost factor was the increased government-mandated expenditures for environmental protection. Another factor was that costs of raw materials stayed at high for a long term. Also, rent for land and factories increased, and labor costs rose. In another area of regulation, the product safety policies of many nations continually raise the requirements for saleable items.