PETpla.net Insider 07+08 / 2012

REGIONAL MARKET REPORTS 11 PET planet insider Vol. 13 No. 07+08/12 www.petpla.net The comparison shows the enormous growth of the Chinese economy. The per capita income (GNP per capita) is increasing dramatically. At the same time, however, there is a clear gap i.e. the need to catch up in terms of per capita income by comparison with Europe and the United States. China – as the economists at the relevant institutes pre- dict – has a dazzling future before it and they are talking of a “major transformation by 2030“. The Asian Development Bank (ADB) forecasts a GNP of 21,700 billion US$ by 2030. Economic output and purchasing power are increasing. In addition, China is becoming the largest outlet for inter- national capital. ADB is talking of an epicentre of global growth in the 21st century. (At the same time, the bankers at ADB are leaving unanswered the question of whether our planet earth will still possess the necessary resources). China’s significance as far as the world economy is concerned is undisputed, it is endorsed in the econom- ics pages of the international press. The fact that differ- ences exist in the perceptions of the East (China) and the West (including Europe) as regards the pursuit of business interests and in particular as regards ”intellectual property“, likewise provides a field day for inventive journalists. With our PET industries in mind we at PETplanet Insider would remind readers of the statement of our report from 2007 which has lost none of its applicability: No enterprise that considers itself a global player can afford to ignore China. China is the largest and most important global PET market. Having said this, we will now turn to the subject of our article, namely the beverages sector in China and packag- ing; growth since 2005/2006; the situation in 2012 as we see it today and finally the forecast. There is no doubt that the explosion in macroeco- nomic growth in China has not left the beverages sector unscathed. Indeed the sector has been particularly marked and this has also caused ripples in the subsequent devel- opment of the PET industries. The parameters for positive development in the beverages sector are not difficult to define :  Economic growth;  The stable political system;  The large number of people and their increasing needs;  The consistently growing and consuming middle class;  The urbanisation (government programme that provides financial support to the rural population who work in the cities and raises the standard of living). All the above will boost people’s demand for beverages. In addition: The Chinese leaders have declared their intention to speed up commerce internally so as to become less dependent on export and on the unpredictable cycles of world commerce. Which means the promotion of prod- ucts manufactured in China and a focus on consumption by a growing middle class. Good times, therefore, for the beverages sector and its suppliers, also for the PET industries and, in particular, for the suppliers of the PET processing machines – as we shall discover in the course of our research. To enable us to understand what is happening here in China, what we need to do is to calmly compare sales and volumes in relation to beverages as well as packaging in 2005 and 2010 and allow this information to sink in. It was Shao Jin Rong, one of the directors of the bever- ages giant Wahaha in Hangzhou, which we had visited in 2006, who treated us to an impressive lecture on the very direct relationships between GNP, consumption of beverages, market share and the resulting requirement for machines from the point of view of Wahaha. To quote: “Experience shows that the beverages market is growing at a rate at least twice the speed of the gross domestic product.  GNP in 2012 up approx. 8%  Growth of beverages market up 2 x 8% = 16% Wahaha market share approx. 10%, i.e. Wahaha there- fore needs to participate in the growth to the tune of 1.6% A bottling line with an output of 40,000bph cor- responds to a market share of 0.05%. Assuming that the plants and all the systems installed at Wahaha are already working to full capacity, Wahaha will need to invest in 30 new lines each year and also in 30 preform systems in order to keep its market share of 10% – and that is what we are doing“. And it is only in this way – applying this formula – that it is possible to explain the investment fever that has gripped Wahaha in the last three to four years. Shao again: “… since 2008 we have bought almost 100 new preform injection moulding machines and similar or same number of combi lines for blowing and filling, just in order to maintain our share in the growing beverage markets …”. Shao was right in his assumption that the beverages market for both alcoholic and non-alcoholic drinks would see an annual growth of twice GNP. But Shao’s busi- ness – Wahaha’ soft drinks – has seen repeated growth of almost double of the considerable beverage percentage. Wahaha is only one of the very big boys in the Chi- nese beverages business. The other major players – including Ting Hsin International, Coca Cola Company, Nongfu Springs – have not been idle and have committed themselves to investing aggressively and no less enthusi- astically to a similar extent. Of course, China is not so transparent and straightfor- ward always and everywhere. It is however an amazing and sobering fact that the trends recorded in the market data have already become reality.