According to a report released by the China National Coatings Industry Association, the entire coatings industry produced approximately 19 million tons coatings in 2016 and grew by 7.2 percent over 2015. It is also estimated that China’s total coatings output will for the first time surpass 20 million tons in 2017.  Entrepreneurship spirit and continuous innovations enable Chinese coatings companies to embrace the fierce market competition and actively meet the challenges brought about by new regulations and government policies unprecedented in the past. As a result of this, many Chinese coatings companies, especially large companies, achieved positive financial results in 2016.

Government policies press coatings companies with necessary support

Chinese local governments are upgrading their environment regulations continuously. For example, starting on May 1st, the Shenzhen government will apply the second phase of their hazardous materials limitation regulation, meaning solvent-based coatings and adhesives will be banned for use in home furniture products in Shenzhen.  This will have a huge impact to the home furniture industry in Shenzhen, a city which has many facilities of home furniture producers. Meanwhile, the Shenzhen government also provides financial support to the companies who will renovate their production line from using solvent-based coatings to using waterborne and UV coatings. The government financial support could be up to 40 percent of the production line’s total renovation cost.

Adaptation capabilities decide whether a coatings company succeeds or fails when facing competition

Regulation pressure puts small or medium companies in a more risky situation than large companies because large companies have more means to change production lines and get into new market segment whereas small- and medium-sized companies do not. Market pressure does not come from regulation alone. The fact that the prices of coatings raw materials were much higher in 2016 than they were in 2015 also put more pressure on these companies because of their weaker negotiation power.  So either these companies can adapt fast or win a niche market, or they cannot survive in this era of new competition.  And large coatings companies in China seem to adapt to this market environment pretty well and many of them achieved positive economic return in 2016.

Shanghai Kinlita Chemical Co., Ltd’s revenue for 2016 is 790 million yuan, increased by 12.5 percent over 2015, and their profit was 75 million yuan, increased by 13.34 percent over 2015.  Approximately 70 percent of Kinlita’s revenue came from its cathode electrophoretic coatings business and another 30 percent of the company’s revenue was generated by its primer coatings business. Of course, the prosperity of the automotive industry might be the major reason behind Kinlita’s good performance.

According to the statistics of the China Association of Automobile Manufacturers, China produced 28.1 million vehicles, an increase of 14.5 percent over 2015, and sold 28.02 million vehicles, an increase of 13.7 percent over 2015. Twenty four million passenger vehicles were produced in 2016, an increase of 15.5 percent over 2015. Automotive, real estate property and house refurbishing markets led to the entire coatings market’s quick growth in 2016, offsetting the negative impacts from some industrial sectors such as ship building.

SKSHU, one of the largest architecture and wood coatings companies which just went public in 2016, increased their sales to 1,221 million yuan in the first three quarters of 2016, an increase of 30.67 percent over the same period of 2015. Their profit increased to 52 million yuan at the same time, an increase of 14.25 percent over the same period of 2015. SKSHU invested approximately 300 million yuan to build a new production base in Chengdu, Sichuan province. Right now their first phase, which has a capacity of 200 thousand tons per year, has been put into operation and is focused on the production of emulsion paint and wood coatings. In addition the second phase of the production base is under planning and will focus on the production of coil coatings, mastic adhesives, etc.

Domestic market becomes more and more important for wood coatings producers.

According to a report from the China National Furniture Association, 78.94 percent of their members’ products were sold in the domestic market in 2016, a ratio increase from 74.3 percent in 2011. The prosperity of the domestic real estate market led to the growth of domestic home furniture market. The demand for home furniture, especially high-end home furniture, has been growing in recent years.  Dongguan Yangchen, a company previously focused on developing foreign markets, launched their own brand in 2008 in the domestic market. The brand’s revenue reached 3 billion yuan and its domestic sales for the first time surpassed its overseas sales in 2016.

After six years’ of straight growth, home furniture export decreased in 2016 by 9.38 percent compared with 2015. Vietnam and India posed big threats to China, especially for the American market; 34.06 percent of the home furniture exported overseas went to America, slightly increased by 0.09 percent. Tailor-made home furniture also took away the market share of imported products in some markets, and this trend is especially obvious in Germany.

International coatings players will compete with domestic coatings companies in the future

As some small- and mid-sized companies retreat from the market, large coatings companies are ramping up their capacities, a strategy that is also being utilized by some international players.

In February Sherwin-Williams started construction of a 79 thousand tons per year coatings facility in Nantong, Jiangsu province.  The facility, planned to be operational  in 2018, will have a total investment of 650 million yuan and produce 76 thousand liquid coatings and 30 thousand powder coatings when completed construction. In addition, PPG announced on March 1st that the company has completed construction of their new high functional coatings production line in their Wuhu plant, located in Anhui province. In addition, PPG also plans to invest $75 million to build new high coatings and PVC sealants capacities in Zhang Jiagang, Jiangsu province. The first phase of the project will have a capacity of 45 thousand tons of high functional coatings and five thousand adhesives and the second phase will put another 100 thousand tons of high functional coatings capacity to the plant.

Axalta and Nippon are also increasing their capacities in China. With large domestic and international companies both expanding their footsteps in China, the market competition will inevitably happen between them, head on sometime in the future.

International brands are well known and their technologies are proven in the long term in Western countries. But domestic brands have more advantages on forging close relationships with domestic company customers and quickly initiate marketing campaigns to tap into the fast changing needs of domestic consumers.  So the ultimate success will largely depend on a well designed strategy which will put together all the appropriate brands, customer services and technologies in the right place of the market. In another word positioning the product in the right market segment.