China’s Architectural Paint & Coating Sector: Tough Days Ahead

China has been the largest architectural paint and coatings market globally for a long time. A huge construction sector and existing housing stock means that demand of architectural coating products is expected to remain steady in the short, medium and long-term.

However, an unexpected slowdown in the country’s construction sector has put the brakes on the explosive growth of the architectural coatings sub-segment during past three years. Coatings World presents the impact of property slowdown on the Chinese architectural coatings sub-segment in this feature.

China’s architectural paint industry’s remarkable double-digit growth during the first 15 years of the century was fueled by its booming property sector, which flourished on account of a number of factors, including rapid urbanization, readily available credit and active land sales by local governments.    

Nonetheless, the housing frenzy eventually lost its momentum and resulted in heavily indebted property developers, exorbitantly high housing prices, and the emergence of several ghost cities.

These factors have dampened the demand of architectural coatings in 2023, and are expected to play a major role in the sluggish growth of architectural coatings in the country during the next two years.

Evergrande, once the largest property developer in China, reportedly owes more than $300 billion, much of it to individuals whose properties were never built.
Country Garden, China’s largest developer in terms of sales with approximately 3,000 real estate projects at various stages of development across the country, reported a staggering 35% year-on-year drop in sales in the first half of 2023. It incurred a net loss of $6.72 billion in H1 2023 as opposed to a net profit of $91 million during the same period a year ago.

In 2021, annual new residential housing sales totaled 1.57 billion square meters. In 2022, housing sales fell to 1.15 billion square meters as the default cycle started to worsen.
In the first seven months of 2023, housing sales totalled 0.58 billion square meters, 13% less than in 2022. Of the 56 billion square meters of residential floor space under construction, half is unsold at the moment. At the current run rate of demand, clearing this inventory could take three to four years.

These factors have had a major impact on the country’s architectural paint and coatings industry in 2023. Demand from the new constructions has been
very sluggish.

Repainting has emerged as an important sub-segment in architectural paint segment during the last decade. In the absence of robust architectural paint demand from new constructions, demand from this sub-segment is expected to play a key role in the growth of the Chinese architectural coatings industry.

However, a few industry stakeholders Coatings World communicated with are of the opinion that even in this sub-segment, Chinese consumers have been tightening their purse strings, wary of uncertainties in the elusive economic recovery. A general slowdown in the Chinese economy, first induced by extended lockdowns and later by tepid growth, has meant that a majority of house owners have deferred their re-painting exercise.

Chinese Architectural Paint Industry

Chinese architectural coatings producers accounted for a total volume of 7.09 million tons ($5.67) of architectural coatings in 2022, a dip of 0.7% as compared to 2021.
In 2023, the industry is expected to suffer a decline of nearly 3% in terms of volume.

Most of the key players in the decorative market – Nippon Paint, ICI Paint, Beijing Red Lion, Hampel Hai Hong, Shunde Huarun, China Paint, Camel Paint, Shanghai Huli, Wuhan Shanghu, Shanghai Zhongnan, Shanghai Sto, Shanghai Shenzhen and Guangzhou Zhujiang Chemical – are expecting a year of sluggish or negative growth in 2023.

The ongoing property crisis and forecasted slower economic growth in coming years are expected to have a major overhang on the Chinese architectural coating industry in the short and medium term. Credit rating agency Moody’s expects China’s economy to grow at a 4% annual pace in 2024 and 2025, well below the 6% to 7% average in the 10 years before the pandemic.

The architectural paint and coatings industry is still highly fragmented in China. Consolidation, which started during the mid of the last decade, led to a number of mergers and consolidations, but the number of architectural coating producers is still very high.

Multinational architectural paint producers are taking various approaches to increase their market share in the country. For example, in April 2023, AkzoNobel agreed to buy Sherwin-Williams’ Chinese decorative paints business for an undisclosed sum. The business has annual revenues of about €100 million. The acquisition was completed in August.

“Acquiring the Chinese decorative paints business from Sherwin-Williams will help us to deliver our growth ambitions in tier three to tier five geographical areas in China. This intended acquisition is a strong strategic fit and our current business is best placed to unlock the full potential, thereby offering new opportunities for employees and customers,” said AkzoNobel CEO Greg Poux-Guillaume.

The acquisition includes the widely known Chinese decorative paint brand Huarun, which Mark Kwok, AkzoNobel’s director decorative paints North Asia, said will strongly complement the company’s existing premium-focused Dulux product and give its customers access to a more diverse and stronger offering.