As China’s stimulus-primed economy rebounds, increased local emphasis on environmental and quality specifications is playing into the hands of foreign brands like PPG Industries and AkzoNobel.

“The whole industry is facing consolidation, changing needs from customers, and stricter environmental requirements,” said Mike Horton, head of architectural coatings and automotive refinish coatings for the Asia Pacific region at PPG. The firm calculates Chinese exterior and interior paint sales have both been growing at around 10% over the last four years.

China’s stimulus-funded construction blitz has similarly created demand for BASF’s coatings business. Hans-Juergen Becker, head of industrial and automotive coatings at the German-based firm’s operations in China said government vouchers dispersed as part of Beijing’s US$580M stimulus package to instigate rural consumption has driven BASF sales of coatings for white goods.

Mr Becker foresees growth holding steady in 2010. AkzoNobel spokesman Tim van der Zanden meanwhile said the company’s sales in China showed “encouraging growth” in June, ahead of other regional markets. Mr van der Zanden believes the company is on target for US$2bn sales in China by 2012, helped by 2008 price hikes for its products and a recent fall in input costs.

Other firms have similar confidence in the Chinese market. Shanghai-based Jay Kaiser, China product manager for DuPont coatings products, said, “there’s only been a slight dip in the rate of growth” in the company’s China sales. Local demand and specifications for coatings are both “moving fast on the heels of more developed markets,” said Mr Kaiser, partly because of the specifications demanded by the manufacturing operations of Western firms increasingly focused on thriving local markets.

Market consolidating

China’s paint and coatings market remains fragmented. Ten suppliers control only 40% of the market for architectural coatings, said Mr Horton. “This is very different from the USA, developed European countries and Australia where the top three to five companies have up to 85% of the market.” He said: “China is now going through what the US market experienced 30 to 40 years ago: from highly fragmented to more consolidated; and from lower-end price wars to competition in innovation, quality and branding.”
Mr Horton has been noting local and multinational companies merging to cut costs “and establish a greater basis for growth and bargaining power.” Similarly, explained Mr Becker, “BASF is always looking for suitable acquisitions, which will complement our portfolio in China.” The firm has the cash for acquisition, “and China is definitely a focus.”

AkzoNobel’s priority, said Mr van der Zanden, is integrating the local operations of ICI Paints, whose Dulux brand is one of China’s top three selling interior paints. A new technology centre, to open this year in the southern city of Ningbo (at a cost of €25M, or US$37M), will bulk up the company’s capacity in speciality chemicals for its paints business, said Mr van der Zanden.

Local players’ strengths may be in distribution and access to major local building projects. A new breed of synergised Chinese firms are producing as well as applying and selling architectural paints and coatings. A case in point, Beijing-based First Paint Manufacturing owns a decoration company, which applies company paint and coatings to landmark sites like Beijing airport.

Company marketing manager Wang Zi Ning points to strong sales of First’s environmentally friendly range of exterior and interior alkali-resistant paints and primers. Wang references projects such as Beijing’s vast Yangchun Guanghua neighbourhood of high-rise apartments, lathered in beige First exterior matt. Other company top sellers include ‘stone like paint’ and ‘marbled lines’ coatings for interiors.

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