China is the world's fastest-growing economy, has the biggest population, is the largest exporter of fast-moving consumer goods (FMCG), is the cheapest manufacturing centre and is the largest recipient of foreign direct investment. In order to support China's industrial growth, the country is developing the world's largest packaging industry.

At the end of 2003, China had 38,000 packaging manufacturing plants, employing more than three million people, and contributed 2 per cent to gross domestic product (GDP). The country is the single largest importer of raw materials for packaging, including significant shipments of paper, pulp, recovered paper, roundwood chip, aluminium, polymer resins and other materials. Before the end of the decade, China's gross packaging product output is forecast to increase by around 80 per cent in value terms.

According to China Packaging Technology Association (CPTA), the central supervisory and support authority for the industry, China has 34,578 packaging enterprises, of which more than 9,000 are involved in the production of plastic packaging. Although there are more companies operating in the plastics sector than in any other packaging sector, in volume terms plastic packaging output is less than half that of paper-based packaging, which accounted for over half of all packaging output in 2003.

In 2002, China produced a total of 14.1 million tonnes of plastic products, representing an increase of almost 14 per cent on 2001. By product type, output of plastic films was 3.07 million tonnes, up 11 per cent on 2001; foam 0.67 million tonnes, 7 per cent; plastic packaging containers 0.51 million tonnes, up 24 per cent; plastic sheets 0.82 million tonnes, up 19 per cent; and plastic filament and wovens 1.59 million tonnes, up 10 per cent. Out of China's overall plastic production capacity, packaging materials accounted for approximately 18 per cent of the total in 2002, and was actually the fastest-growing sector in the plastic processing industry during the year.

The market for plastic packaging

China's paper industry dominated the packaging sector in 2003, when considered by packaging material volume consumption, accounting for 52 per cent of all packaging consumed ahead of glass (17 per cent), plastic (23 per cent) and metal (less than 8 per cent). The reliance on paper-based packaging is entirely due to the historical combination of domestic material availability versus foreign currency expenditure required to import alternative materials, coupled with need to prioritise the needs of other industries for the same materials (plastic sheeting for agriculture, or aluminium for building and construction).

Plastic packaging has experienced continuous growth since 1995. Since the introduction of the tenth five-year plan, growth rates across all forms of plastic packaging have consistently led GDP growth by around 3 per cent annually.

In 2003, demand for plastic packaging containers reached 2.25 million tonnes, while demand for film (of all types) reached 6.4 million tonnes. Demand for containers and films are forecast to reach to 5.44 million tonnes and 11.92 million tonnes respectively by 2008. However, it must be noted that China's agricultural sector will requisition more than 55 per cent of film production on an ongoing year basis.

Production

Production of key plastic packaging materials hit 4.07 million tonnes in 2002, a rise of 12.4 per cent compared to 3.62 million tonnes in 2001. The major substrate film materials used in China's composite flexible packaging sector include PET, BOPP, polyethylene, cast polypropylene (CPP), aluminium and vacuum-metallised PET (VMPET) and CPP (VMCPP). Production of these materials is sufficient to meet domestic demand, allowing some excess for exports.

Plastic packaging machinery

China's packaging machinery sector since 2000 has experienced growth in excess of 10 per cent annually, offering opportunities for both domestic manufacturers and overseas equipment vendors.

A key reason behind the $2.94 billion investment in plastic manufacturing equipment in China during 2003 stems from the recognition - since the end of the ninth five-year plan - that in certain applications, plastic offers a more cost-efficient packaging option than other materials. Additionally, liberalisation of industry as a whole has resulted in the emergence of many very small operations being established at very low cost, involved in the production of a single line in extremely high quantities.

More than 91 per cent of the plastic packaging equipment installed base is imported - however, with the heavy reliance on reverse engineering, many of the more basic equipment functions will be produced domestically. High-tech complex foreign equipment that is hard to replicate will continue to be in demand.

China has a healthy domestic plastic equipment manufacturing sector with more than 600 companies producing extrusion, blow moulding and injection equipment with a total production value in 2003 of $1.43 billion, which represented actual sales of $1.50 billion. However, it is a reflection of the state-managed system with the emphasis on 'production' versus 'profit', that sales of $1.50 billion only returned profits of $164 million.

Conclusion

China is a market that cannot be easily ignored by material suppliers, converters, equipment and consumables vendors. It is a market that contains both opportunities and dangers, particularly for foreign companies approaching the market with a collection of preconceived notions about industry structures and decision-making processes. In addition, it is also important to understand how the size of the market is calculated, and also what the notion of 'profit' is as understood by Chinese companies. It needs to be stressed, for instance, that when considering packaging 'value' in the context of Chinese data, official figures do not represent commercial reality, rather they are a 'transfer' (or subsidised price) between related entities.

Many of the structures and systems in China are a legacy of the Maoist era. Although a rapid transition is occurring across the entire social and industrial fabric of China, many legacy systems are still in place. Most of these are alien to western corporate business culture - in order to explain the dynamics of the industry it is often necessary to place them in a cultural context.

Nevertheless, it is clear that the Chinese market offers significant potential for both plastic packaging companies and machinery suppliers. The Chinese Government, however, will continue to represent the main source of funding for expansion of the packaging industry.

Article Selected from <Plastic Packaging in China> by Mr Rav Lally