The changing Chinese packaging industry is Australia’s opportunity.
The Chinese paper packaging products sector is in a state
of change.
Until a few years ago China was a net importer of packaging material.
It is now a net exporter in a range of packaging product grades such as liner boards, where in recent years the volume of the exports has almost doubled.
In other areas, such as SBS liquid packaging products, China is still a significant importer, but beginning to export reasonable volumes of some SBS grades with greenfield production plants coming online in the not too distant future.
While the old world industry regions such as Europe and North America are in stagnation and there are no installations of new plants, China is expanding.
Growing internal demand is marching along at nine per cent and new equipment is being installed to meet the changing needs of the Chinese local market.
The future impact on Australia is that China is quickly becoming the most important packaging market in the world and therefore will most likely be the source of a wide range of paper packaging products.
In the last two years China has surpassed Japan as the second biggest paper packaging market, in manufacturing, consumption and export. It only trails behind North America which is a shrinking market.
The trajectory of packaging is clearly following global economic patterns which also saw China overtake Japan as the second biggest economy in the world early last year. The logical future for Australia is that so much more of our nation’s packaging requirements will likely come from China.
There is a general perception that products made in China are somehow either inferior in quality or manufactured with scant regard to environmental standards that we would take as the norm in western countries.
The case of the pulp and paper industry is a classic case in point where the Chinese industry has been characterised as one with old equipment and poor standards.
The truth is that the Chinese industry is in a period of volume and ecological transition that has been occurring over the past decade or even less.
The Chinese economic growth period really began in earnest at the turn of the century. China was given a massive kick along by the International Olympic Committee announcement in July 2001.
At that single point in time the Chinese government made the commitment that China would need to have world standard business organisations by the time the 2008 Beijing Olympics came around.
Up until that date the pulp and paper industry in China was the archetypal developing country industry model, one that was based on cheap labour and where it was relatively easy to set up business partnerships.
The goal of western firms setting up operations in China was that the products would be cheap and for the global export markets.
Companies were not generally worried about the quality of the products coming from China at that time, so long as they worked and were cheap.
If customers wanted quality products they would have to pay more from existing European or North American manufacturers. It was how western companies could have their cake and eat it.
There was an interesting development about two years after the Olympics in China. The government made the announcement that the future focus would be on the internal demand of the Chinese economy and there would no longer a single-minded attention to exports.
China would not be the cheap factory of the west, and hand in hand with this was the need to make industry cleaner, profitable and more efficient.
The Chinese government has been putting in place a number of strategies to deal with an industry in transition.
One of the most controversial is the forced closure of what the government terms “backward” capacity.
Effectively the government aims to compel aggressively the closure of old, polluting and inefficient paper making operations in both regional and city regions.
In the current set of targets the government aims to shut down about six million tons of backward capacity over the next couple of years.
The point that should not be missed is that, at the same time, the demand for Chinese paper is growing at around four million tonnes per year.
So, in order to satisfy the growth imperative and at the same time replace the polluting backward capacity, the Chinese industry needs to install about 15 million tonnes of capacity over the next few years.
Manufacturers of paper making equipment, almost all in Europe, are rubbing their hands together with joy.
Australian customers who had traditionally sourced paper packaging products from Europe and North America now see Chinese manufacturers as an alternative for supplies. The speed of shipping, product quality and environmental values are at levels suitable for a sophisticated market like Australia.
