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.

The Chinese plastics industry

China is one of the largest manufacturers of synthetic resins in the world. With the rapid economic growth, the use of synthetic resin has become more common, with most production directed at the rapidly expanding construction and automobile industries, rather than packaging applications. In 2002, annual production capacity of the five largest synthetic resins was valued at RMB13.944 million (e1.29 million).

During the current five-year plan, China has implemented plans to install three new petrochemical refineries, including crackers, which will not come fully on-stream until 2010. In the first nine months of 2003, production of:

• Plastic resin and copolymer reached 11.65 million tonnes, an increase of 17 per cent;
• PVC resin was 3.04 million tonnes, an increase of 20 per cent;
• PE resin was 3.02 million tonnes, up 18 per cent;
• PP resin was 3.10 million tonnes, up 15 per cent;
• Plastic additives was 0.77 million tonnes, up 15 per cent.
  

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.

As a petrochemical product, the availability of imported resin for packaging has been constrained by other calls on foreign currency expenditure. In a command economy emerging from more than 30 years of isolation, priority for foreign currency expenditure is given to essential imports. While packaging, as an industry, is regarded as a priority sector, a key factor in state planning consideration has been whether the product can be adequately produced using an alternative material.

As such, the plastic packaging industry has grown from a relatively low base. However since 2001, the advantages of lightweighting and the introduction of new film technology (multi-layer, breathable etc.) has allowed China's plastic packaging industry to leapfrog film technologies. Furthermore, high-volume plastic package converting can be performed by relatively small production facilities, thus opening up the industry to small and medium-sized enterprises. The plastic sector will continue to experience steady growth well beyond 2008 as China upgrades and gradually replaces glass and metal with plastic.

Driven by demand from the food and beverage end-use industries, the plastic packaging product sector is experiencing average annual growth levels of well in excess of 10 per cent. This is to be expected. Unlike the paper sector, China's 9,336 plastic packaging converters have come from a low production base, require more sophisticated production technology, and compete for feedstock with 'priority industries' in building/construction, household products etc. These factors contrive to both accelerate and constrain sectoral growth.

Output growth in China's plastic packaging product sector has stabilised after a major national investment programme was initiated in 1995/96. Government-sourced investment in equipping the domestic plastic packaging sector for 2000 was US$2.05 billion (e1.57 billion). The introduction of the tenth five-year plan (2000-05) heralded a sharp spike in investment to $2.36 billion, a 13.3 per cent increase over 2000 spending levels. Thereafter annual spending growth on plastic packaging equipment stabilised in the 11 per cent range and will continue to increase at these levels until beyond 2008. 

From 2000-03 China's total equipment investment was more than $10 billion. By the end of 2008 China has budgeted to be spending more than $30 billion on its plastics industry.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. 

BOPET and BOPP have become a key focus of investment in China. World consumption of BOPP films reached three million tonnes in 2002, and is expected to hit 5.7 million tonnes by 2010, with China to consume one million tonnes of the material. BOPP films are widely used as substrates for multiple packaging materials. By 2003, China had an installed base of 120 BOPP production lines with a gross production capacity of one million tonnes. In the case of biaxially oriented polyester (BOPET) film, meanwhile, China has an installed base of 30 production lines with production capacity in excess of one million tonnes.

n addition, China has the capacity to produce diversified packaging film, such as BOPS sheets, CPP film, three-layer, five-layer and seven-layer co-extruded films, vacuum aluminium-plated films and other composite films, high-barrier PVdC casing films and coated films.

Beverage containers and various hollow containers of diversified, foamed plastics, extrusion web, extruded foamed sheets and vacuum forming plastic products are also produced on a wide-scale basis.
PET

As a result of the rapid expansion of the soft drinks market, annual consumption of PET polyester bottles has grown by 18 per cent during the past five years, ranking first in terms of growth amongst all plastic packing materials. Production of hot-fill PET bottles grew at a particularly fast rate, with annual growth exceeding 50 per cent. With the PET polyester bottle now being used to bottle beers, another potentially vast area for development has opened up. On the basis of beer output of over 20 million tonnes in 2000, China's beer industry may need 25-30 billion beer bottles (including recycled containers). Even if the switch from glass etc. to PET is partial, the prospects for this market are very positive.

In addition to raw resin, China imported $1.2 billion worth of recycled PET in 2002. 

China has only two listed PET polyester bottle companies, Zijiang Enterprise and Zhuhai Zhongfu. Both were created as a result of SOE (state-owned enterprise) restructuring and occupy 20 per cent and 30-40 per cent respectively of the domestic PET bottle market.Zijiang Enterprise has developed rapidly in recent years, and the number of sub-companies it either controls or in which it holds equity has increased from seven in 1998 to 15 in 2003. Its products are sold in regional markets in Shanghai, Wuhan, Zhengzhou, Tianjin, Changchun, Kunshan and Chengdu.

The company introduced a hot-fill PET production line on a trial basis in 2000, capable of producing 120 million units a year. Into 2001, the company expanded its activities with the opening of new factories in Shanghai, Guangzhou, Chengdu and Beijing, bringing its total production capacity to 485 million tonnes.

Zhuhai Zhongfu 

Zhuhai Zhongfu was responsible for the launch of China's first PET beer bottle project in 1999, and was the first Chinese PET bottle producer to be an approved supplier by both Coca-Cola and Pepsi Cola. The company has succeeded developing sales channels beyond traditional SOE customers,and dominates PET bottle supply in Shenzhen, Kunshan, Nanjing, Chengdu, Tianjin, Beijing and North-East China. It now plans to create a number of hot-fill PET bottling companies, selling to customers in Tianjin, Haikou, Zhengzhou, Wuhan and Shenyang.

Styrene (PS, EPS)

Due to environmental concerns, the sale and use of disposable EPS (polyfoam) food containers, known in China as 'white-waste', were banned at the end of 2000. The State Economic and Trade Commission (SETC) issued a notice calling for an urgent halt to the production of polyfoam containers. All enterprises operating in China, including foreign, Hong Kong, Macau and Taiwan-funded enterprises, now face penalties.

Production of PS and EPS has continued for use as cushioning material in transport packaging. Even with the food ban in place, in 2003 China consumed 13.44 million tonnes of PS.

BOP/BOPET

In the biaxally-oriented materials sector, BOPP claims the largest share, ahead of BOPET films in second, with demand for BOPET films rising rapidly since 2002. Production capacity of BOPET reached 200,000 tonnes in 2003, up from 100,000 tonnes in 2002 and 80,000 tonnes in 2001. By 2005, demand for BOPET in the country will hit 200,000 tonnes, as new projects come on-stream.

In August 2002, Shanghai Zidong commissioned the country's largest BOPET project with a 13,800 tonne production capacity. Other companies involved in BOPET production include Jiangyin Zhongda Materials Ltd, Shandong Xinlike Ltd, Yizheng Chemical Fiber Film Plant, Tianjin Wanhua, Wenzhou Cangnan Jintian Group, Foshan DuPont-Acer Ltd and Shaoxing Xiangyu Green Packaging Ltd.

Overall production capacity from these companies was expected to reach 50-60,000 tonnes by the final quarter of 2004. Further projects to be commissioned by the end of 2005 include Heilongjiang Daqing, Zhejiang Grand Southeast and Jiangyin Shenda.

BOPA

Biaxially-oriented polyamide (BOPA) film has seen rapid growth internationally. Year-on-year demand growth for BOPA films is currently in the range of 15-20 per cent in Japan, and 8-10 per cent in Europe and the US. Global consumption of BOPA films currently amounts to 110,000-130,000 tonnes. 

The high-barrier and puncture resistance properties of BOPA make it an attractive investment for the Chinese packaging sector. BOPA films are widely used in retort pouch, vacuum refrigeration packages, fresh meat packaging, cheese packaging, and flavoured food containers and covers. Applications for BOPA film have expanded in recent years, and are set to make further advances in line with the growth in composite food packaging in China.

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.

Overall production volume of three major leading domestic products - injection, extrusion and blow moulding machines - totalled to 50,009 units in 2003, with injection moulding machinery accounting for 76 per cent of output; extrusion machinery for 20 per cent; and blow moulding machinery for 4 per cent. China's leading producers of injection moulding equipment include Ningbo Haitian, Chen Hsong, Century Win, Guangdong Heng Li and Dong Hua Machinery.

During the same year, China also exported locally made plastic machinery valued at $312 million, up 31 per cent on 2002 levels. In recent years, Chinese exports of plastic packaging machinery have grown rapidly. Until 1998, export sales were of the order of $50 million. However, in 1998, exports exceeded $100 million for the first time, and amounted to $238 million into 2001.

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.

This article contains research from the report The Future of Packaging in China. For further information, please contact:

Mr Rav Lally
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