China Council for the Promotion of International Trade (ccpit) 2009 Preface

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Household Appliance Industry

Influenced by the financial crisis and many other factors, household appliance industry will meet great challenges in 2009. The output in 2008 followed the former periodic changes. But a big drop much faster than last year in the 4th quarter and an obvious decline of year-on-year growth showed that economic crisis started to affect household appliance industry. Household appliance sales in 2009 will show new features based on 2008. Insiders predict that given the fierce competition, both flat TVs and air-conditioners will encounter great sales difficulties. Price reduction and product upgrade will be the major measures taken by enterprises. In addition, customer demand will result in innovation of refrigerators and washing machines, and environment-friendly product will become the main force in the market.

2008 had seen an explosively booming flat TV market. In the intense competitions among producers, some intelligent, thin screen LCD televisions activated the market. Flat TV also met great challenges that the prices of LCD screens further up in the industry chain experienced changes that resulted in price dives of some domestic color TV and joint venture brand TV at the end of 2008. According to some analysts, price-cutting will probably become the main theme for color TV market in 2009 amidst fierce competition among producers. Industry insiders hold the view that panel price determined the final price of TV products since a panel accounted for the largest share of the cost of a flat TV. The panel price will keep going down on the whole. Meanwhile, enterprises down in the industry chain can solidify their price advantages via closer cooperation with manufacturers up the industry chain. Thus some new products with more integrated functions are predicted to be under great price fluctuation later this year. As a result, the price war in color TV market in 2009 will become fiercer than that in 2008.

As the government set more rigorous energy consumption standards for air-conditioners, it will be very difficult to find low-energy-efficiency air-conditioners in 2009. Pressured by more demanding energy consumption standards, many producers started to turn to frequency conversion air-conditioners. A shopping guide said that more demanding energy efficiency requirements would definitely increase the cost of frequency air-conditioners. On one hand, many manufacturers continue to take leading advantages of frequency air-conditioners and develop user-friendly products which can reserve more energy. On the other hand, they carve out frequency conversion market based on the existing technology and experience. Frequency conversion air-conditioners are believed to be going to make new breakthroughs in 2009. The stable demand of refrigerators and washing machines determines a stable market sales and slight price fluctuation. However, industry insiders are not sure whether the stable situation this year will continue.

    1. Paper and Paper Product Industry

In 2009, China's papermaking and paper product industries will face dual pressures of a demand drop and increasing competition. Neither supply nor demand outlook is optimistic. On one hand, paper demand growth will drop because of economic downturn; on the other, fixed-asset investment growth rate of paper industry in 2008 has maintained the same as in 2007. New capacity growth is expected to be larger according to average 1.5 year investment and construction period in this industry. Mismatch of demand and supply will lead to more severe oversupply in 2009. At the same time, the execution of New Discharge Standard of Water Pollutants for Paper Industry will raise the pollution treatment cost in the whole industry. All in all, 2009 will be a hard year for paper industry.

The year of 2007 saw a periodic rise of paper industry and paper product industry in China. The rise became more obvious in the first half in 2008. The statistics indicated a good performance in capacity utilization rate, major products' prices and sales of scaled enterprises. Paper enterprises were very optimistic about their future. However, from July on, a demand drop happened to some paper products and later to almost all kinds. The shrink became extremely obvious after Olympics. In October, 2008, actual monthly sales in vast majority of paper enterprises only reached half of one month in the first half year. Some negative factors such as productivity excess and sudden demand drop together drove major paper products' prices down and down. A sharp price decline of raw material, mainly paper pulp price, added fuel to the flames from October on.

In 2009, paper and paper product industry will encounter dual pressures of economic benefits and environmental protection, which will probably urge a great amount of small and medium paper enterprises in China retreat from market. First, profit deterioration makes enterprises retreat from competition initially. The current Chinese paper market is in a state of oversupply. Thus many small and medium factories in Shandong province and Zhejiang province etc. have stopped production temporarily not permanently. If these production cannot be restored in the coming half or one year, the possibility for permanent close is growing. Second is compulsory shut down by the government for sake of environment. According to the environmental protection organs, new Discharge Standard of Water Pollutants for Paper Industry will be valid from May, 2009. Discharge standard will be highly raised, which are far beyond the reach of most small medium enterprises. In June 2008, Ministry of Environmental Protection and General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China jointly issued Standard of Water Pollutants for Pulp and Paper Industry (national standards). In compliance with this standard, from May 1, 2009 on, the existing pulp and paper enterprises have to execute COD discharge standard of 150mg/L and papermaking 100mg/L while newly-founded enterprises have to follow 90mg/L, papermaking enterprises 80mg/L. It's a very high rise compared with 200mg/L, the average level of current Chinese papermaking industry. The environmental protection standard rise means a sharp growth of pollutants treating investment and cost. In China, only foreign and a few scaled enterprises basically meet the new discharge standard. Their investment on environmental protection shares 3-5% of total investment. Investment on environmental protection per ton will reach 150-250 yuan in accordance with 3500-5000 yuan investment per ton.

Owing to the shrink of China paper products export, scale enterprises will inevitably turn their eyes into domestic market which will lead to fiercer industry competition. However, the scale enterprises can benefit from the series of new policies. Measures such as value added tax reform, reduction of interest, industry access rise, implementation of new standards for pollutants discharge will accelerate small and medium enterprises to retreat from market thus help scale enterprises release capacity and expand market. Paper and paper products industry are expected to be much more concentrated in 2009, which may take longer time.

In summary, Chinese paper and paper products industry will encounter a demand growth drop, export order decrease, benefit decline and more environmental protection pressure. 2009 will be a hard year for Chinese paper and paper product industry.

11.4 Furniture Manufacturing Industry

Chinese furniture manufacturing industry has withstood the ordeal of the global financial crisis and maintained a fast growth in 2008. In face of a more severe situation in 2009, furniture manufacturing industry can keep the momentum only if furniture enterprises handle technology management upgrade, standardized construction and sustainable innovation. In view of macro environment, furniture industry development has many opportunities despite the pessimistic economic environment in 2009. First, domestic market demand for industrialization and urbanization remains the same. At present, their process is speeding up. The national government invested 4000 billion funds to enhance infrastructure construction and launched real estate lifeboat. Meanwhile, people's needs are growing. Demand for Residence improvement, wedding house and decoration improvement doesn't change. Government procurement demand is also great. Furthermore, tertiary industry in China accounts for a much smaller proportion than in developed countries thus owns much room. The secondary industry has a strong foundation and certain risk resistance capacity. Third, the government issues many supporting policies. The state council releases ten measures to expand domestic demand with a 4000 billion fund to support. It also promulgated six measures to ensure stable development of light and textile industry. Export tax rebate have been raised twice to be 13%. All these measures will have a series of positive impact on furniture industry.

In the second half of 2009, Chinese furniture industry will see a great change and probably a blowout. It will become a trillion industry by 2010. Research statistics in 2009 showed that more than half of Chinese furniture enterprises went bankrupt or half halted. Therefore, before favorable sales situation makes appearance in the second half of 2009, the first half year has to go through a hard period, especially in March and April. Some enterprises will be weighed down by many old problems. The blowout is predicted due to three pull factors: first, in view of consumption terminal, the first generation of furniture consumers who bought furniture in 1990s need to replace furniture; second, new generation of white collar including the only child have grown up and begin to buy furniture, composing a large consumption group; third, the acceleration of urbanization, especially 4000 billion investment stimulating domestic demand released by Chinese government which can also be considered an urbanization process, will pull large furniture consumption centered in secondary market. The furniture enterprises who can withstand the hard April and May in 2009 do will meet the second rise due to the above three factors. Other development opportunities for furniture enterprises in 2009 are as followed: design enterprises are expected to rise as a new force; professional furniture market research organizations will emerge because of demand; famous enterprises have more expansion space; market centre moves to countryside; and furniture manufacturing base is moving faster to north China. Furniture industry is expected to see bottom and warm up in 2009 or 2010.

China's furniture manufacturing industry in 2008 experienced a dramatic upheaval. But it withstood the test of global financial crisis and maintained a high-speed development this year. According to statistics by light industry information centre, during January to November in 2008, scale enterprises delivered output value of 263.204 billion yuan, increasing by 21.07% over the same period of previous year. Rate of production and marketing reached 97.89%. However, the statistics also displayed a disturbing sign that growth of Chinese furniture industry is declining monthly in the past year. The export volume kept growing partially because some orders in 2007 could only be finished in 2008. Therefore, overseas demand shrinking and orders reduction in 2008 will bring more difficulties to China's furniture export in 2009 especially in the first half of the year. It corresponds to general economic situation under profound influence of global economic crisis, shrinking foreign consumption market and restrained domestic consumption market.

11.5 Plastics Manufacturing Industry

In recent years, plastics industry is booming in China which has become a major plastics producing and consuming country in the world. Chinese plastics industry has formed a whole unity centered in plastic processing and supplemented by plastic synthetic resin, compounding chemicals, additives plastics processing machinery and moulds. Under the impact of global financial crisis, Chinese plastics industry is confronting unprecedented difficulties and challenges. Chinese plastics industry is going down from the previous boom, marked by the gloomy market demand, durative low price, huge stocks and operation rate decline widespread in the whole industry. The industry will meet challenges in 2009.

In the first half of 2008, Chinese plastics industry is booming with plastic products price rising due to crude oil price roar and even a new record of 147.27 dollars per barrel at one time. However, along with the sharp drop of global crude oil price and the spreading of global financial crisis in the second half year, plastics industry fell into downturn with depressing market demand, huge stocks and price decline. Plastics industry is closely related to terminal-consumers and sensitive to economic environment as a capital-intensive and trade-oriented industry. The major downstream industries of plastics enterprises, especially automotive and electronics industries are greatly impacted by the global financial crisis, which accordingly influences the whole demand for plastics industry to some extent. In addition, as the major plastics exporting country in the world, China is stricken in domestic plastic industry by apparent shrinking of plastics demand from overseas market.

In 2009, the world economy is still far from being satisfactory. Chinese plastics industry will probably be in trouble. First, plastic products are widely used in fields including electronics, automobile, agriculture, building materials and packaging. The market demand prospect worries as the global financial crisis spreading to real economy. Furthermore, some production capability overflows because of the rapid expansion of domestic plastic production capability in recent years. In such a depressing situation, either home or abroad, it's an inexorable trend for factories to reduce operation, eliminate some capabilities and for merger and integration within industry.

Second, the violent upheaval in crude oil market recently increases risks for plastics enterprises in cost and operation. Chinese plastics industry not only needs the support of national policies, but also urgently calls for self adjustment and transformation in order to maintain a long and sound development. First, exploit domestic market initially in concert with national policy to stimulate domestic demand. The worldwide financial crisis has spread to real economy. Overseas orders for export oriented enterprises are greatly impacted. Some plastics processing enterprises in China are forced to reduce or even halt production. Therefore, to properly move the focus into domestic market and actively develop domestic customers are efficient measures for plastics processing enterprises to deal with the gloomy overseas market. Second, abandon repetitive expansion mode at low level and enhance structure regulation to promote the whole upgrade of plastics industry. It's not difficult to find that in spite of the sluggish environment of the whole economy and plastics industry, some companies who follow high-end way and lead in technology still make relatively good achievements. Therefore in the current situation, the plastics enterprises shall take the chance to enrich the technical storage, improve technology content, and transfer the low value-added products to medium and high level to meet customer needs.

11.6 Other Industries

Leather Product Industry: in 2009, the world economy could hardly walk out of the shadow of financial crisis. Chinese government constantly issues various policies to pull domestic demand and keep a high economic growth. However, Chinese leather product industry is difficult to get better in this year especially the first half because of its high degree of dependence upon foreign trade. So the enterprises shall prepare well for the hard times. In the new century, Chinese leather industry has seen a huge excess of production capability and various non-standard companies flooding in the market. The leather market expansion produces demand foam. The crisis not only breaks the foam in leather market, but also rings out the alarm bell for capability oversupply at low level of Chinese leather manufacturing industry. On one hand, economic depression continues to decrease market demand and popularity; on the other, excessive expansion results in severe oversupply. Under the impact of demand foam burst, the professional market will be trapped in trouble for the whole year. New market will encounter survival difficulties and various locked retail investors are difficult to get out of trouble. Some professional leather markets and small size leather manufacturing enterprises lack of competence are expected to be cleaned out through this crisis. Objectively speaking, the crisis is an efficient purification of Chinese leather industry to create better production and operation environment for the surviving enterprises.

Daily Chemical Industry: taking advantages of the huge scale, growth potential and low market access threshold of Chinese daily chemical industry, all the world famous enterprises enter Chinese market for occupation. International leaders like P&G and Unilever have built up monopoly position in China by means of great power and years of market development. Chinese daily chemicals production is expected to maintain a stable growth in the coming few years. In 2009, annual average compound growth rate will float around 13.4%. Cosmetic market will develop faster than national economic growth speed, detergent market relatively slowly, while dental care product market stably along with people's attention to dental health. In 2009, the market scale will approach 200 billion yuan, increasing by 12.8%. From a general survey of daily chemical market in 2009, foreign enterprises will continue to take control of Chinese daily chemical market. China-based enterprises such as Nice and Liby tend to exceed the foreign ones in sales volume but lag behind further and further in brand value, corporation culture and vitality. The Chinese daily chemical mid-high end market is still tripartite confrontation by P & G, Uniliver and Johnson & Johnson. Low end market is occupied by national enterprises represented by Nice and Liby who are speeding up their steps into high end market. Along with the improving of people's life standard, demand for detergents is increasing constantly, driving the boom of detergent market. At present, detergents have become a must-have in people's daily life with more and more types towards environmental protection, functionalization, specialization and serialization. However, detergent industry growth in 2009 is expected to slow down owing to sharp upheaval of raw material price and the financial crisis. Thus, detergent industry is optimistic about the future market in 2009. Return and breakout are probably the two themes of detergents development this year. In addition to the return of corporation and sales concept in macro view, the retail price is also expected to return since the price of oil and other raw materials declines in the second half of 2009. Cosmetic industry maintains a rapid growth in China in recent years but will probably makes slow in 2009 without negative growth. A new pattern will take place as followed: natural cosmetics enjoy high favor among people; the middle aged and the elder have high demand; specialized cosmetic market is booming; child cosmetic market is rising; while sports cosmetic market is promising.

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