-Worth over $60bn, China's packaging industry is the second biggest in the world after the US. However, the astonishing pace of industrial development within this emerging superpower could see the US knocked off its packaging pedestal as early as 2015.
In 2009, like most of the industrial world, the Chinese packaging industry felt the brunt of the global economic crisis resulting in a subsequent decline in its export market. Sizeable domestic demand for packaging, however, managed to offset these developments and maintain the growth of the industry. An injection of financial stimulus packages announced by the Chinese central government also played a major factor in China's ability to avoid economic decline and maintain domestic demand. As a result, according to a study conducted by ICD Research, China is expected to rank first by 2015.
Growth in industry boosts 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 to 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 more than $100bn by 2015.
An increase in the average income of China's urban population, plus 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 with 60%-80% in developed countries, the market for processed food and beverages is set to grow rapidly.
Another key emerging end-use market with close ties to packaging 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.
"Given that 30% of China's food is processed, compared with 60%-80% in developed countries, the market for processed food and beverages is set to grow rapidly."
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 more than 12% in 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 regulations and safety
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 and have lead 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.
Reduced government incentives
China's entry to the World Trade Organization 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.