China’s stimulus plan may aid plastics industry

As part of the plan, which the Chinese government released in November, 4 trillion yuan will be spent to expand domestic demand in 10 areas. These areas include the acceleration of housing and construction; increased infrastructure development such as railway, further supporting ecological and environmental-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% growth in 2007, China slowed to 10.1% in the second quarter of 2008 and down to 9% 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% when compared to November 2007. These slowdowns resonate in the country’s plastics industry, particularly those focused on exports.

“The US economic crisis is having a knock-on effect on demand in many of the industries we supply for the export markets,” said a spokeswoman with Bayer MaterialScience’s office in Shanghai. “In those sectors that are driven by local consumption demand, the prospects remain healthy.”

Bayer MaterialScience is seeing opportunities arise from a number of areas that will benefit from the stimulus package, particularly when it comes to infrastructure development. For example, China is planning to improve and accelerate the development of its railway infrastructure with nearly US$300bn (2.06 trillion yuan) in investment. The country’s railway network will be extended from the around 125,500 km that it currently covers to nearly 161,000 km by 2010.

“We are keen to support the market,” said Volker Mirgel, senior vice president of Bayer Material Science Coatings, Adhesives, Specialties (CAS) business unit in Asia Pacific, in a statement. He said the company’s combination of its materials portfolio and local production put it in a good position to help develop China’s rail industry.”

Mirgel referred primarily to the company’s series of waterborne coatings and adhesives, but BMS is also looking for opportunities to use its polyurethane materials. PU could be used to provide seating cushions for passengers. Durable engineering plastics could also be of use in helping lighten trains and improve their energy efficiency.

Some evidence points to weaker domestic demand in China. The country’s imports fell 17.9% in November, for example, with analysts citing both falling oil prices and flagging consumer and business demand.

DuPont 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.

He said it’s tough to predict the Chinese economy at the moment but argued that 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 told Plastics News at the InnoAsia 2008 conference in Hong Kong on 10 December.

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 the year, a moderate slowdown in the third quarter and we’ve seen a really harsh change in October and November.”

“We’ll work on it one quarter at a time,” he said. “Our hope is it will rebound early [but] the probability that anything will happen between now and Chinese New Year is small.”

Other companies are looking to different aspects of the plan. The money going into rural infrastructure will also impact the pharmaceutical industry, pointed out James Ji, project manager at Shanghai Haishun Packaging Material. “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 province, all priorities of the stimulus package.

“These sectors are very relevant and important to our businesses,” said a Bayer MaterialScience 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.

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