Coatings World - October 2016

The Chinese Economy – Impact on the Chinese Coating Market

• Low public and external debt
•Improvement in macro-prudential
management
CHINA PERCEIVED WEAKNESSES
• Ageing population
• Difficult business environment, lack
of transparency
• High corporate debt
• High inequality, low share of private
consumption to GDP regarding the
economic performance
• Competitiveness erosion
• Key sectors with overcapacities espe-
cially steel and solar
• Continued geopolitical tensions with
key countries in the region
• Increasing market orientation
Most economists believe that in or-
der to create a long term sustainable and
stabilized economy that China needs to
back away from depending so much on its
exports. In other words, develop a thriv-
ing internal market. This is indeed a two
edge sword since China’s Export growth
has been a major component supporting
China’s rapid economic expansion over the
past few decades. In the last 2 years, China’s
exports have declined due to weaker global
demand but even so, China’s proportion of
global exports rose to 13. 8 percent in 2015
from 12. 3 percent in 2014. China’s ma-
jor exports are: mechanical and electrical
products ( 41 percent of total exports), high
tech products ( 20 percent), labor-intensive
industries like clothing, textiles, footwear,
furniture, plastic products and ceramic ( 16
percent), motors and generators ( 5 percent)
and integrated circuits ( 5 percent). China’s
main export partners are the United States
( 18 percent of total exports), Hong Kong
( 15 percent), the European Union ( 16 per-
cent, of which Germany, the UK and the
Netherlands account for 3 percent each),
ASEAN countries ( 12 percent, of which
Vietnam accounts for 3 percent), Japan ( 6
percent), South Korea ( 4 percent) and India
( 3 percent). The following graphs depicted
in Figure 2 and Figure 3 were last updated
in September of 2016 and are based on ac-
tual data through August of 2016.

We hear a great deal about the “im-
balance of Trade” between China and
the rest of the world. In fact, historically
speaking, China exports more material/
value than it imports. In August of this
year Imports to China unexpectedly in-
creased by 1.5 percent from a year ear-
lier to USD 138.54 billion, following a
12. 5 percent decrease in July while mar-
kets expected a 4. 9 percent fall. It was
the first increase in 22 months. In yuan-
denominated terms, inbound shipments
went up 10. 8 percent year-on-year,
compared to a 5. 7 percent decline in
the preceding month. Imports in China
averaged 483.67 USD HML from 1983
until 2016, reaching an all-time high of
1830.94 USD HML in March of 2013
and a record low of 16. 60 USD HML
in July of 1983. China’s main imports
are mechanical and electrical products
( 34 percent of total imports) and high
tech goods ( 23 percent). The country
is also one of the biggest consumers
of commodities in the world. Among
commodities the biggest demand is for
crude oil ( 6 percent of total imports),
iron ore (2 percent), copper and alumi-
num. Agricultural products account for
5 percent. China’s main import partners
are: The European Union ( 12 percent
of total imports, of which Germany ac-
counts for 5 percent), ASEAN countries
( 12 percent, of which Malaysia accounts
for 3 percent), South Korea ( 10 percent),
Japan, Taiwan and the US ( 9 percent
each) and Australia ( 4 percent). All data
reflected in the Imports into China are
reported by the General Administration
of Customs.
The following data provides a brief
overview of the current trade structure
that China has with the rest of the world.
Using the prism of the Chinese
Economy let’s take a look at the Chinese
Coating Industry. In many respects the
Chinese coatings market resembles the
microeconomic model of “perfect com-
petition.” In other words, there are over
eight thousand paint producers in China
with nearly identical business models
based mostly on third party formulation
knowledge. More importantly, no single
firm has pricing power, no one profits
and as prices and other types of sensitive
information from the West are discussed,
players can and do act very quickly in
their search for a competitive advantage.
Not surprising, participants in this mar-
ket view the industry as anything but per-
fect. Neither producers or customers are
happy with the current situation. China
has yet to evolve a PPG or AkzoNobel
By destination/origin (% of total)