In recent years, the real estate and infrastructure boom in China has stimulated a rapid development in the plastic doors and windows sector. The sector has now become an important pillar in China's plastics industry and significantly lifted its market share. But at the same time, the sector is also facing issues such as varied quality, lack of uniform industry standards and vicious competition.
Plastics industry overview
China's plastics industry has experienced rapid growth in recent years. According to China Plastics Processing Industry Association, during the "10th Five-Year Plan" period (2000-2005), total domestic supply of plastic construction pipes and plastic doors and windows to the Chinese market amounted to 1 million tonnes per year, achieving 45% and 20% market shares respectively. Due to their superior energy saving feature, plastic construction materials have now become the second largest pillar in China's plastics industry, with annual growth rate exceeding 15%. In North-eastern provinces and Inner Mongolia, 40% of the new buildings have installed plastic doors and windows, while the installation rates in Qingdao City and Dalian City are above 80%.
Positive factors for the sector
The following factors have contributed the rapid development of China's plastic doors and windows sector in recent years. First of all, the newly announced Catalogue Guidance for Foreign Investment Industries last year encourages foreign investments in plastic construction materials projects, such steel replacement and timber replacement materials. This has brought about an excellent opportunity for the plastic doors and windows sector, hence fast developments.
Also, the continued real estate boom and infrastructure investment surge have provided a huge demand market for plastic doors and windows. China currently has building construction projects of approximately 2.1 billion square metres per year, equivalent to the sum of European and American volume. There are about 500 million square metres doors and windows construction pipeline per year in China, four times of the European annual volume.
Third, according to the "11th Five-Year Plan" (2006-2010), in the next five years, China has to achieve construction energy saving target of 101 million tonne coal-equivalent. Therefore, total energy saving construction will exceed 2.16 billion square metres, including new construction and existing building renovation of 1.6 billion and 560 million square metres respectively. The energy saving materials and technologies market for these projects could amount to several thousand billion dollars, providing huge potential for energy saving and environmentally friendly plastic construction materials.
Issues in the plastic doors and windows sector
Firstly, the Chinese government has adjusted its foreign trade policy since 2006, and changed from encouraging exporting of plastic products to limiting their exports. From September 2006 to July 2007, China reduced its export rebates for plastic products from 13% to 5%. And in July 2007 the Ministry of Commerce and China Customs officially included plastic products into the export-restricted category of processing trade products. Since then, many plastics companies have significantly reduced their export volume, while importing of plastic products continues to rise.
Secondly, in recent years, international crude oil prices has been climbing and pushing up raw materials prices, causing a big blow to the plastic processing industry. On one hand, companies have to absorb cost pressure from upstream suppliers. On the other hand, the market for major plastic products are highly competitive, so it will be hard for plastic producers to pass on costs, hence searching for new profit growth points.
China's plastic doors and windows sector is big, but compared to other countries, their market shares are still relatively low in their home market. Their production output level is still low, while energy consumption is high. China's per unit energy consumption of residential constructions is currently 3 times of developed countries', while doors and windows energy consumption and air leakage of doors and windows are 1.5-2.2 times and 3-6 times of developed countries' respectively.
And home buyers' doors and windows consumption is still insufficient in China. Chinese home buyers normally focus on construction quality of the property, but pay much less attention to doors and windows. This is because most people don't have enough knowledge about doors and windows. And many people also consider doors and windows as supplementary products to the property, hence indifference to their quality. For an apartment valued at 10,000 yuan per square metre, the equivalent expenditure on doors and windows in developed countries would be 1,000 yuan, while it is only 300 yuan in China.
There is also a lack of uniform plastic industry standards in China. Currently China has not yet had a housing price-related doors and windows standard. The 5 major performance criteria for doors and windows, namely wind-pressure proof, air leakage, rain leakage, thermal insulation and sound insulation, are normally tested on individual samples, while the pass rates after being installed on properties are usually low. This is because most home buyers don't have the capability and means to test the 5 criteria on finished properties, and there are little regulatory restraints on the products. Therefore, many developers and builders may play tricks on doors and windows in order to save costs.
Finally, price competition within the sector is severe. As China listed plastic doors and windows as one of the key construction materials to develop, their production and applications have gained rapid growth in the last 10 years. But the development surge also created a supply surplus situation. At present, China's annual demand for plastic doors and windows is about 1.5 million tonnes, but their annual output already reached 3 million tonnes, resulting in vicious price-cutting competition. There are rampant product substituting and jerry-building practices in the industry, negatively impacting the reputation of plastic doors and windows. And the price wars have also lead to widespread losses among China's plastic doors and windows producers.
In conclusion, under the continuing real estate and infrastructure boom, there will be a huge demand market for plastic doors and windows in China. And the government's energy saving policy could also provide substantial investment value to this sector. But the sector is also affected by short to medium term issues, which need to be practically resolved, in order to improve producers' long term sustainability.
