Wednesday, 7 September 2011

China Packaging Opportunities and Entry Strategies

China has the second largest packaging industry is the world after the US, worth over US$60 billion and according to a recent study conducted by ICD Research, it is expected to rank first by 2015.

London – September 7, 2011 – In 2009, the Chinese packaging industry was adversely affected by the global economic crisis and a subsequent decline in its export market, although the domestic demand for packaging managed to offset these developments and maintain the growth of the industry. Financial stimulus packages announced by the Chinese central government were also major factors in China’s ability to avoid economic decline and maintain domestic demand.

As the world’s most populous country, with one of the fastest growing economies and a large export base, China has the twin advantages of both a strong domestic market and a sizeable export demand. While the rapid growth of the Chinese economy has necessitated the rapid development of the packaging industry in both the industrial and retail sectors, improvements in living standards and changes in consumption patterns have resulted in increased brand and quality awareness.

As a result of global economic recovery throughout 2010, several end-use markets, such as the food, beverage and pharmaceuticals industries, are expected to regain the strong levels of growth seen prior to the financial downturn. Consequently, the packaging industry is expected to increase in value to over US$100 billion by 2015.

Growth of food, beverage and pharmaceuticals industries increases demand
An increase in the average income of China’s urban population, and a shift in tastes and preferences towards western-style processed and packaged food are driving the growth of China’s food processing sector. Given that only 30% of China’s food is processed, compared to 60%–80% in developed countries, the market for processed food and beverages is set to grow rapidly.

Another key emerging end-use market is the pharmaceuticals industry, which is expected to record significant annual growth in the next five years due to increases in demographics, rural-to-urban movement, social progress and health sector reforms. This is expected to raise the demand for a range of packaging materials, such as glass bottles, PET bottles, strips and blister packs.

Use of plastic packaging expected to rise
Paper and board packaging is the single largest market sector in the Chinese packaging industry. However, plastic packaging has emerged as the fastest growing sector and is forecast to record a CAGR of over 12% the next five years. However, while metal packaging is also forecast to marginally increase its presence, the market share of glass packaging is expected to decline by 3% by 2015, as it is steadily substituted by plastic packaging.

New packaging regulations crucial to safety of Chinese packaging
In 2009, China became the world’s largest merchandise exporter, overtaking Germany for the lead position. In recent years, however, several reported cases of counterfeit and pirated consumer products, ranging from baby food and medicines to toys, causing death and serious ailment have damaged the reputation of the Chinese packaging industry. It also led to the recall of large Chinese product shipments by leading global retail giants.

In an effort to improve safety and hygiene levels, the Chinese government passed rigid packaging regulations and also enacted a new Food Safety Law to improve packaging standards. The move is likely to benefit the packaging industry, as major end-use industries are required to invest larger amounts in packaging to ensure the safety and authenticity of products.

Government incentives to decrease
China’s entry to the World Trade Organization (WTO) and the fulfillment of its obligations to ensure fair trade require the government to withdraw its subsidies or scale down its incentives to the goods and services industries, including packaging.

China’s central government has actively pursued a policy to develop the country’s packaging industry in order to support industrial growth. In the past decade, it has invested in equipment and technology, and has provided incentives in the form of subsidies, tax concessions and infrastructure facilities to improve and upgrade the capability of the country’s packaging industry.

A reduction in government support is expected to affect the cost advantages enjoyed by domestic packaging businesses, while attracting more foreign companies into specialist packaging, metal packaging and high-end equipment manufacturing.

To purchase the full version of the report, “The Chinese Packaging Industry – Market Opportunities and Entry Strategies, Analyses and Forecasts to 2015,” please click here.

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