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MARKET RESEARCH
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CHINA-DECORATING BUILDING MATERIALS-ISA980401

MARKET RESEARCH REPORTS: INDUSTRY SECTOR ANALYSES (ISA)

USDOC, INTERNATIONAL TRADE ADMINISTRATION

TITLE : DECORATING BUILDING MATERIALS

SUBJECT COUNTRY (IES) : CHINA

POST OF ORIGIN : GUANGZHOU

SERIES : INDUSTRY SECTOR ANALYSIS (ISA)

ITA INDUSTRY CODE : BLD

DATE OF REPORT (YYMMDD) : 980401

DELETION DATE (YYMMDD) : 010401

AUTHOR : CATHY WANG

APPROVING OFFICER : NED QUISTORFF

OFFICER'S TITLE : PRINCIPAL COMMERCIAL OFFICER

NUMBER OF PAGES : 25

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 1999. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES

SUMMARY

 China has one of the fastest growing economies in the world. There has been, however, an overall slowdown in growth of the construction market since 1992. Nevertheless, over the next 5 years, the overall construction market will grow at an estimated 15-20 percent rate. At the same time, the growth rate of decorating building materials remains at approximately 30 percent for the foreseeable future. Recently, China began housing reforms across the country, especially focusing on inland cities. With these reforms, the construction industry should become a catalyst for economic growth. In the next three years, China will invest another US 97 billion (8 trillion RMB) in infrastructure and residential housing construction. In the ninth five-year plan (from 1996 to 2000), the total floor space of housing under construction is estimated at 20 million square meters yearly. Additionally, China has about 2,000 deluxe hotels and restaurants with approximately 400 thousand rooms. Many of these hotels, built soon after China’s Open Door policy approximately 15 years ago, are undergoing renovation and will help the decorating building industry achieve double digit growth.

Guangdong's building material market is booming again in 1998 after a few years of slowing growth. Total fixed asset investment in Guangdong's building material sector rose to $2.42 billion (20 billion RMB) in 1997 from $1.45 billion (12 billion RMB) in 1992. Total output was estimated at $5.2 billion in 1997, 3.5 times the figures of 1993. In 1997, analysts estimated the growth rate of the building material industry will rise by 8 percent over the next five years.

 Guangdong's decorating building material industry ranks first in China. Guangdong province, as the leader in development trends for both domestic and foreign products, is China's most efficient decorating building material base. In 1997, the value of building materials’ imports was approximately $76.03 million. Currently, there are dozens of European, Japanese, South Korean and East Asian firms, with high and low quality products competing in the area, while only a few U.S. firms are present in the Chinese market. Potential demands for decorating building materials in China are immense. Although China has many domestic manufacturers of decorating materials, the industry does not possess advanced manufacturing technology. According to interviews with local decorating, engineering and design firms, as well as industry analysts, there are a great deal of opportunities for American firms to enter the market.

A. MARKET HIGHLIGHTS AND BEST PROSPECTS

1. MARKET BACKGROUND

During the early 1990s, a rapid growing economy and rising income levels fueled a boom in modern office building, as well as hotel and store construction. Most deluxe office and hotel construction continues to be concentrated in the newly expanding downtown areas in Guangdong. On the other hand, shop and department store construction is evenly distributed across new residential areas and downtown. New commercial constructions are being built well with high quality imported and domestically-produced decorating building products. In the meantime, aging department stores, shops, malls and office buildings already built in the downtown area with old interior and exterior materials are planning to remodel and renovate.

 Guangdong's decorating building materials' manufacturers and producers are more efficient than the rest of the country. Guangdong ranks number one in decorating building products consumption, number one in manufacturing, as well as first in import trading. In 1997, the province manufactured approximately 6 billion square meters of ceramic building bricks and floor tiles, as well as 12 million square meters of sanitary ceramic seats, for nearly 600 kinds of associated products. According to the provincial Building Material Bureau and the provincial Decorating Building Products Association, the total estimated market for interior and exterior decorating building products in Guangdong in 1997 was $6.05 billion (50 - 60 billion RMB) Sales potential is high for American decorating building products. There are also many opportunities for American joint or wholly-owned ventures in this rapidly growing market. A few Chinese companies are currently engaged in joint-venture activities with foreign decorating building material manufacturers. Some European and Japanese companies have opened their representative offices and sub-branches to directly compete in the Guangdong decorating market. Meanwhile, many other foreign producers have their goods sold via distributors and agents with flexible promoting policies. However, American products have only a small share of this market, and the Chinese are also in dire need of specialized technology and manufacturing expertise. There are many opportunities for U.S. manufacturers to enter the domestic manufacturing markets through both joint ventures.

Imports to the Guangdong market are predominately specialized, high-quality brands of decorating building materials. While generally receptive to American decorating building products, other foreign companies’ relatively low prices, good selling systems, and the presence of few U.S. company’s have limited U.S. export growth in this sector.

2. DRIVING FORCES BEHIND MARKET DEMAND

The driving force behind strong market demand for decorating materials is the central government's plan to increase the availability of privately-owned housing. As a result, Guangdong's residential sector has begun to develop and build top quality residential housing. According to the Guangdong Building Material Group, 250,000 new upscale residential units will be built this year. Being the country's largest base for decorative building materials, Guangdong has great influence on the entire China decorating market. In 1997, residential housing completed in Guangdong amounted to over 78 percent of the total built commodity housing in 1997 for all of China and was up 6 percent over 1996.

Under the nation's new housing reforms, Chinese will purchase their own apartment instead of receiving their housing from their work unit as was previously done. Currently, more and more Chinese are beginning to buy their own apartments. However, most apartments available today, whether either subsidized by their work unit or individually purchased, are empty and undecorated. Generally, there is no flooring, ceiling materials, sanitary wares, wall coverings, lighting fixtures, or kitchen cabinets.

Due to this common standard, people must outfit their new apartments before moving in by hiring a small contractor to purchase the materials or purchasing the materials themselves and completing the work. To decorate an apartment to modicum standard, each household will generally spend an average of approximate $7,260 to $8,460 (60 to 70 thousand RMB). For superior decorating materials, the average cost will be $24,000 (more than 200,000 RMB). For those buying a house, the costs can be even greater.

Today, approximately 250,000- 300,000 aging apartments and houses in Guangdong are in need of both interior and exterior renovation. The investment put into such remodeling differs according to each family's disposable income and savings. No matter how much money is involved in the project, the relative amount for each family is quite significant. Commercial construction is expected to grow significantly due to this growing need. Hotel expected to enjoy the highest growth rate in several years as foreign investors rush to renovate existing buildings. Numerous shopping centers, malls, offices and industrial constructions are also under construction, not only in Guangzhou, the capital of Guangdong Province, but also in other provincial cities.

Another factor contributing to Guangdong's attractive market potential is the Guangdong Construction Commission plans to invest billion(52.3 billion RMB) in establishing new sports centers and athletic villages, a Guangzhou Science & Technology center, several art galleries, broadcasting and newspaper buildings, the new Guangzhou Conference & Exhibition Center, as well as a number of historic memorials. These plans will foster high growth rates in top quality decorating materials in Guangdong.

The recent boom in high-quality construction has created large sales demand for various top-quality interior and exterior decoration materials, thereby stimulating the sales of decorating materials' superstores and small specialty shops, distributors and agents in Guangdong. There are thousands of such small specialty shops throughout the province competing with the superstores and wholesale centers. Yunfu, Shaoguan and Lianjiang counties are major marble and granite markets, of which Yunfu county is the biggest trading center. Foshan is the building and art ceramic and tile base in Guangdong. Guangzhou Nananlu Decorating Building Products Markets, Guangzhou Taikanglu Decorating Building Products Center, Guangzhou Decorating Hardware Market, and Guangzhou Taikang Decorating Building Products Center are examples of such speciality shops and markets located in Guangdong's capital city. Among which, the Guangzhou Taikang Decorating Building Products Center is outshining the competition by investing only in top-quality and well-known imported products. With its helpful & efficient services, and good management, the center has an outstanding reputation in the local market. It is opening a sub-center in Shanghai in 1998.

 

 As quality standards rise, builders & consumers have begun to lean toward foreign brand names, as the domestic decorating building materials manufacturers have not yet reached international standards. So importers and foreign-invested ventures only stand to gain from upcoming developments in this sector.

 

 

 

BEST PROSPECTS

 

 

 

Use of laminated glass and aluminum spacer bars (HS 7016.000 and 7610.000) is a growing trend for buildings nationwide. It is estimated that this trend will hold for another 10 to 15 years in China. It should be noted, however, that the Ministry of National Construction has issued a notice that laminated glass is prohibited for new building designs, as it brings ray pollution and associated problems. Domestically produced laminated glass does not currently reach international standards and lacks uniform color, transparency and tint; even the glass produced by joint ventures does not meet these standards. A wave of new and renovation projects have adopted such glass as major outdoor decorating material. There are three big domestic brands, all manufactured in Guangdong, with imported glass processing machinery and facilities. They are: Zhonghang (Shenzheng) company, Fangda (Shenzhen) company, and Jinhui (Nanhai) company.

 

 

Among building ceramic products, imported top-level ceramics (HS690400.0000) will account for the greatest demand in both local and national markets. Domestic products lack modern and suitable designs; both their clear and glazed surfaces still lag behind imports.

 

 

 

Marble and granite plasters (HS 2515.0000, 6802.000) are in demand by most luxury hotels, offices, shops and malls, deluxe apartments, public structures, as well as some private apartments. Domestically cut and processed items lack the specialized finish of high-technology processing. In addition, local natural colors and patterns are not as plentiful as those offered by foreign producers. It is estimated that the marble and granite market will remain large for some years to come.

 

Coatings (HS 3209.0000) are used for both interior and exterior decorating environmental coatings; at present, coatings are mostly used by hospitals, food processing plants (where the possibility of contamination is great), residential housing, schools, public works, medium and low standard office structures, and some luxury office buildings. The local market requires bacteria-proof, color-lasting, rust-proof, fire-proof, color changeable, washable, and glossy coatings. Materials should be available for cement, metal, and copper surfaces.

 

 

 

Almost all four-stars hotels, deluxe apartments, villas, and office buildings use imported wall coverings and wall papers (HS 481410.000). The demand is for a variety of designs & patterns for decorative effect. Among imported products, European and Korean materials are are currently in highest demand by the local market.

Wall and floor tile (HS 690220.0000) is one of the most widely-used materials for wall and floor decor in recent years in China.

Although some domestically-manufactured tiles have high quality and offer variable designs, luxury hotels, malls and high class apartments still choose imported tiles due to their renowned efficiency as well as greater confidence in their quality. Private consumers, however, make their selections solely based on their savings and income. End-users will favor big size, multi-color and art-priority ceramic tiles.

Chinese contemporary architecture designers have a preference for imported ceiling materials (HS 391810.0000, 391890.0000) in deluxe constructions and those structures built in the downtown area. In some cases, investors prefer to use domestically made ceiling coverings to reduce their construction costs. Currently, ceiling decoration is a requisite and necessary part of any renovation and newly built structure. Ceiling materials are divided into two levels. One level is for high - standard ornamentation. The other is for middle to low standard restaurants, hotel lobbies, office buildings, malls, department stores, and almost all private decorating jobs.

There is a wide and comprehensive range of architectural hardware(HS 691090.0000), including: hinges, supper bar for glass walls, door knobs, pinnacles, door handles for shower & bath, connectors, water & energy saving showers, brass flares, and compression & pipe fittings. As the demand for high quality decoration grows, construction firms and even private individuals are using imported architectural hardware for their projects. The demand for high-grade and new fixtures such as door & window fixtures, faucets, and drain pipes is immense. Despite imports being three times the price of locally-made products, they are still considered crucial for architectural efficiency by consumers today. Domestic products are not viewed positively and little record is held for either their quality or designs.

Guangdong is a big sanitary-ware and parts (HS 691010.0000, 73249.0000) base with strong technical and modern processing facilities (most important machinery is imported). However, the general situation of local manufacturers remains troubled by a lack of modern management experience, good quality control, and financial expertise. In the coming years, Chinese markets only request high-level products with good flush functions. Middle and low price markets are dominated by local and Taiwanese products. A few local products have reached international standards, yet people still put their confidence in the world's renowned brands.

There is a good market in the coastal cities and Guangdong Province for high-quality waterproofing materials(HS 44101.0000) This sector is recognized as an important area for the southern coastal regions' decorating building products market. Most private housing, and almost all residential buildings except private villas tend to use waterproofing materials for interior renovation. Thus, South China has a great need for such materials due to the high temperate climate of the region.

Domestic carpets and other textile floor coverings (HS 57030.0000, 57040.0000, 57020.0000, 57050.0000) currently have very little variety of design from which to choose. Construction agencies choose such products solely based on product quality. End-users tend to appreciate and buy American, European and Korean floor coverings and carpets; of these, European brands rank first.

Five star-rated hotels as well as individual buyers prefer imported wood doors and frames (HS 441820.0000) to local offers. American wood predominates in this sector. Glass doors, with such special features as insulation, aesthetic value, and sound proofing are becoming the choice of the moment for modern offices, shops, and malls.

Privates families are using aluminum and plastic windows (HS 392520.0000, 761010.0000) for renovation and decoration, which has lead to strong sales. Meanwhile, most middle and high grade hotels, office buildings, and public structures have begun to adopt aluminum doors and windows. Annual production capacity for this product has reached 300,000 square meters. Most recently, environment and energy-saving considerations are also playing a key role in the growth of the decorating building materials' industry. Windows and doors that utilize plastic materials will become increasingly important. The government is promoting plastic windows in decoration projects nationwide. In Guangdong Province alone, there are approximately 50 introduced production lines, with production capacity of 30,000 square meters per year.

The domestic market is saturated with low quality ceramic building bricks and glazed ceramic tiles (HS 690810.0000, 69041.0000, 690590.0000). The production and sales of glazed ceramic tiles' cubes are slowing down, while the production of middle and top level of solid and hollow ceramic building bricks as well as marble is increasing.

B. COMPETITIVE ANALYSIS

Chinese domestic manufacturers dominate the decorative products market. Imported products are significantly more expensive and sophisticated than domestic products. Chinese construction firms and some investors tend to be more price-sensitive than foreign or joint-venture contractors and avoid imported decorating products if possible. On the other hand, high grade hotel, luxury offices, shopping centers, malls, villas and public structures with Hong Kong or other foreign investment, still appear to favor imported materials.

Price, brand, quality, design, and after-sales service are decisive factors for contractors, architects and developers. The top ten foreign countries manufacturing high-standard products active in this market are Italy, the U.S., Germany, South Korea, Britain, Canada, Australia, Finland, Spain and Japan. While Taiwan, Singapore, Malaysia, and Indonesia dominate the mid-standard market. Some Chinese manufactured products are effective in competing with the middle and even high level markets. However, most domestic products are still only available at a low quality level. Foreign decorating materials are playing an increasingly important role in the growing strength of the Chinese decorating materials' industry.

American products having particularly strong market confidence and demand are laminated glass, aluminum spacer bars, sanitary wares and fixtures, wood floorings and coverings, architectural hardware, carpeting, and coatings. Most Chinese end-users say that American products are expensive, sometimes as much 20%-30% more when compared to similar products of Germany, Italy and South Korea.

Some Chinese end-users have said that they feel American products are not as well known as other foreign companies, which may be attributed to the lack of major U.S. participation in the market. Several Chinese companies complained that most American manufacturers set up their representative offices in Hong Kong, which create difficulties for those wishing to purchase from inside mainland China.

I. Domestic Production

In the past ten years, the decorating material industry in China has transformed to a more developed industry with larger scale production and more complete product categories. In spite of these changes, the industry still faces quality, technological and financial problems. The industry needs to increase its production capacity, level of technology and competitive ability by seeking manufacturing joint ventures, technology transfers and reform.

Families with higher incomes in major coastal cities appear to be interested in using imported decorating building materials, because they are perceived as more efficient and of higher quality, despite the greater expense. However, most households in China still prefer domestic products. The price of these products is generally 20% - 40% lower than its imported competitors, yet such domestic products' quality and categories cannot satisfy the sophisticated demand of modern projects. Still, local products dominate the national market. As the biggest base of national decorating materials, Guangdong is particularly high in various of decorating building materials produced with both foreign investment, and domestic factories. In addition, directly imported products play an important role in decoration projects nationwide. Approximately 80 percent of the domestic products market is shared between three major decorating material markets in Guangzhou.

Local officials are pushing the materials industry as one of Guangdong's "pillar industries" for the next few years. It's estimated that the decorating products market will witness several changes in the next two years. The following eight changes will be the most significant : 1) carpet and wood flooring is situated to capture the market and compete with previously popular ceramic tiles; 2) some construction agencies will tend to use traditional glazed facing tiles, glazed-tile decorative patterns, glazed pagoda and bricks, while private housing and public buildings will prefer to design in a more traditional Chinese way; 3) exterior coating products are beginning to be used as a substitute for building ceramic tiles to reduce costs and better suit the constant changing trends of exterior decoration; 4) the demand for high level sanitary ware and fixtures will be particularly strong and rise substantially during the Ninth-Five-Year-Plan - local governments intend to focus on improving the level of a work toward sanitary appliances by developing multifunction computer-controlled bathroom and sauna facilities; 5) kitchen decorating products will lead the way in the development trends as the standard of living rises; 6) due to a predicted increased in market demands lighting fixtures will develop from basic to deluxe styles; 7) nine types of glass are set to lead the future of the glass market: they include sterilizing glass, energy conservation glass, adjustable glass, light sensitive glass, heat resistant glass, solid glass, dioptric glass, white glass, and electroconductive glass; and 8) domestic wallpaper made from silk fabric, imitation yarn, as well as flax will compete with the previous multicolored wall coating, thereby boosting overall use of wallpaper - previously, wallpaper was at a disadvantage in the market because of its high costs and lack of waterproof versions. Recently, however, wallpaper seems to be making a comeback and has begun to compete with other wall coatings. New applications are increasing the use of wallpaper in commercial buildings, residential apartments, and hotels. The ninth five-year plan includes plans for improving the standards of finished products which are available for residential construction. These products include construction ceramics and finished doors & windows which are custom-designed.

2. Third-Country Imports

The top ten foreign countries distributing high standard products in this market are: Italy, the U.S., Germany, South Korea, Britain, Canada, Australia, Finland, Spain and Japan. The European Community, and the members of the European Free Trade Association, held approximately 60 to 70 percent of the import market in 1996-1997. South Korea ranked second in market shares that same year. Other countries and areas importing to the market include Taiwan, Hong Kong, Singapore, Malaysia, and Indonesia. These countries target mainly the middle and low-quality markets.

In various sectors of the decorating building materials market, Germany, Italy, Canada and South Korea lead the market over their American counterparts. These countries tend to exhibit a more active approach to business in China, greater understanding of the Chinese market, more flexible sales policies, and government support through both trade show participation and concessionary financing. At the same time, these nations are the main competitors for American companies in many decorating material sectors.

Italy, Germany, Australia and France are strong in the marble & granite, laminated glass, aluminum spacer bar and ceramic tiles markets, of which Italy remains by far the largest supplier to China of ceramic tile and marble. However, other countries are increasing their presence in both the ceramic tiles and the marble & granite sectors. There is strong competition for laminated glass and aluminum spacer bars in the basic coating, building ceramic, and marble outer wall markets. Because of their high price, high installation costs make them only used for deluxe structures.

Foreign competitors in the industry include: Armstrong (U.S.), Saflex Plastic Interlayer, G.James Industries (Australia), Emirates Glass (UAE), Wah Heng Glass (US), and Dupont Butacite Polyvinyl Butyral (PVB), the glass fiber of Central Glass Co. Ltd., Series XR of Courrtaulds Performance Films, Condo, Hanglas (South Korea), and Saint-Gobain (France). Ceramic tile, marble and granite are very popular flooring materials in China, especially in the coastal areas and big cities, and are used in both commercial and institutional construction, with its primary market being single-family housing. With modest growth in residential housing over the next few years, the demand for high standard ceramic tiles should stay relatively flat. The foreign competitors in marble and ceramic tiles are: Universal Marble (Malaysia), Kartas Marble S.A. (Greece), Gourlis Marble ( Greece), Bergamo Stone (Italy), Italian Graniti (Italy), S.E.L. Co Marmi .S.N.C. (Italy), Milano Fine Gres Porcellanato (Italy), Flaviker (Italy), Klingenberg, Keramchemie (Germany), Saint Galerie (Spain) and Ostara (Germany).

Rugs and carpets are currently the fastest growing sectors of the hotel and office construction furnishings market. Carpet and rug sales are expected to increase aggressively in the years ahead. Inevitably, with carpet and rug sales on the rise, third-country' competitors have entered the marketplace. The demand for higher-quality machine-made accent and area carpets and rugs has risen; popular suppliers are South Korea, Italy, Spain, Greece, Egypt, and Israel. These Third country producers quality and moderate prices appear to be wresting market share away from U.S. manufacturers. These products change rapidly with fashion changes, and provide a variety of shapes and sizes. Still, with its high-quality and good reputation, American carpets and rugs hold an important position in the Guangdong market. Most local and Hong Kong carpet and rug companies prefer distribute the U.S. products, even though they often have less fashionable and colorful designs. The following products are easy to purchase from local decorating markets, professional stores, and Hong Kong agents and distributors: VPI ESD (USA), Goodrich wall coverings & carpets, and Stock.

Canadian imports also compete with American products in the higher-quality wood flooring and finely-processed door markets. Guangdong has imported a large number of raw-material woods from Malaysia, Indonesia and Thailand through Guangdong Wood Import & Export Corp. and those companies which have import licenses. These wood products occupy the mid-level market. This market includes: Pergo Laminate Flooring, Union, Wilsonart Brand Wood Flooring, and Hartco Wood Flooring within the local flooring markets.

France, Australia, Japan and the UK, all have a strong share of the architectural hardware market. Their companies include: Lopio (France), Point, Lucky, Goal, Miwa, Showa, Dan, Winma, Ohtori Kiko, E-Z-Set, NHN, Yeha, Lamp, Centor( Australia), Hikari (Japan), Stanley (USA), Ives ( USA), National Guard (USA), Hillaldam Coburn (UK), Selleys (Australia), Elmes Door-handless, Union and Elite.

Many German, South Korean, and Italian companies entered the market much earlier than their American counterparts. Most of them set up representative offices and even sub-companies for liaison activities and to monitor of the performance of their domestic agents and distributors. With this method, they are better able to control their agents and distributors, adjust their business strategy to compete with the current competition, and conduct timely market research. In contrast, American companies prefer to sell their products to trading companies in Hong Kong, Singapore, Malaysia and Taiwan instead of selling directly in China. Inevitably, such companies find it difficult to control their agents and distributors in China. Meanwhile, they also lose valuable time in discovering and combating imitation products. Most products are represented by Hong Kong trading companies, which then pass the goods on to wholesale local stores who sell them to retailers in the local markets.

 

 

3. U.S. Market Position

 

 

 

Generally, U.S. products are not only competing in the high-grade market, but are at the high end of costs in that market. Sometimes, construction agencies will consider using a small volume of American products due to their reputation.

 

 

The major U.S. players in this market are: Kohler, Moren, Stanley, American Standard, Ives, National Guard, Armstrong, VPI ESD. Local governments welcome foreign companies which can bring advanced technology, first-rate managerial experience, manufacturing expertise and good training programs to their cities in Guangdong Province.

Although U.S. decorating materials are generally well-known in China for their superior quality and design, there are many barriers to local end-users purchasing these products directly from agents or distributors. They in general must buy from a third, or even a fourth-line agent. As a result, these excessive middleman costs definitely limit their selection and their ability to purchase American products. American companies normally rely on Hong Kong and Taiwanese trading companies to expand their market. Traditionally, this was an effective way to increase the market share for American products in China. Today, however, China has changed a great deal. Therefore, with so many recent changes and developments it is not only possible, but necessary to establish direct sales networks in China to get a stronger foothold in the market.

 

 

 

 

American products have a stronghold in the carpet & rug, architectural hardware, sanitary ware & fixtures, coating, laminated glass and aluminum spacer bars market. In order to win the competition, a few American companies have set up joint-ventures in Guandong province, as well as in Beijing and Shanghai for direct manufacture, like Kohler and American Standard. However, the need for establishing an regulatory authority to control the quality and standards for the market has been neglected by both local and foreign firms in China. In order to make profits, some agents sell at unusually low prices and often sell goods of extraordinarily poor quality. Naturally, such an unregulated market creates problems which affect the future of the American products. End-users' fears of being tricked into purchasing poor quality and imitation products eat deeply into companies' market share.

 

 

In recent years, U.S. producers have increasingly recognized the importance of Chinese business operations to enhance and maintain their competitive edge in China. This trend has increased as market uncertainties and changes have risen - emergence of new markets, rapidly changing market behavior, technological advances, short product cycles, and changing trade regimes. Nevertheless, many of the newly-arrived U.S. companies have little understanding of Chinese culture and the Chinese way to run business, which hamper their abilities to plan market strategies in the country. Some agents and distributors have also complained that the regulations and policies of American firms limit their ability to expand in the market and their flexibility to meet changing trends in demand. Some agents stated that they would like to represent the other foreign brands as they provide flexible and reasonable rules to their distributors and agents. Some end-users interviewed feel brand matters little if the products are all of similar quality. It is price, quality and after sales service that end-users focus on to make a decision. At present, end-users have expressed that it difficult to find many American products in most sectors of Guangdong's decorating materials markets. Also, very few American manufacturers participate in industry-related trade shows in China, a prime opportunity for exposure to the country's market.

 

 

C. END-USER ANALYSIS I

 

 

A. Principal Government End-users

 

 

 

The state and local government bodies still constitute a majority share of the consumers' audience. They are the biggest end users and are major investors in the real estate market. Major players in the Guangdong decorating materials industries include: (1) Guangdong Architectural Design and Research Institute (GDADRI).

 

 

 

Guangdong Architectural Design and Research Institute (GDADRI) is the largest and most authoritative institute on architectural design and research in Guangdong Province. The GDADRI comprises six civil engineering design offices, one municipal engineering design office, a computer center, construction budgeting office, project planning office and a surveying and an exploration team.

 

 

 

The institute has the authority to make decisions on which type of decorating materials are used in all of its construction projects. It also makes recommendations to contractors on suppliers to purchase for their own projects. GDADRI provides the following design and research services: architectural design planning, interior decoration, residential and commercial structure, bridge and highway engineering, water supply and sewage maintenance and design, electric supply engineering, air-conditioning design and engineering, economic analysis, engineering testing, engineering measurement assessment and rock engineering.

(2) Guangdong No.1 Construction Engineering Corporation

 

 

Guangdong No.1 Construction Engineering Corporation specializes in high-rise commercial and residential building construction, industrial and civil design, high-grade interior decoration design and engineering, mechanical and electrical equipment installation, and highway and bridge engineering. It is a parent company to 20 civil engineering subsidiary companies, three decoration companies and architectural design offices, one highway and bridge engineering company, an air-cooling engineering company, a mechanical and electrical equipment installation company, and a building materials experiment and quality test station.

 

 

 

 

Guangdong No. 1 corporation is the largest in the industry in Guangdong Province and also one of 500 largest scale construction enterprises in China. It has undertaken a number of large construction projects both at home and abroad.

 

 

 

 

  1. Private Sector End-users

 

 

Private sector end-users make up only a small portion of the decorating market. This situation will change as Guangdong province experiences economic growth and private consumer buying power grows. At present, some private construction engineering companies, previously small labor contractors, specializing in residential and commercial buildings, hotels, real estate, have formed stronger organizations than before, with good engineers, technicians, and flexible working systems. They are now available to compete with the big state-run construction companies in the coastal provinces. However, a lack of advanced equipment and financing hamper these smaller companies ability to win bids for larger and expensive projects. Thus, the private companies generally have to hook up with big state-owned companies, and even then only undertake a small part of larger projects.

 

 

 

Nonetheless, in some exceptional instances, private companies are still able to compete with state-owned companies. However, most private companies find it difficult to undertake the higher-quality decoration engineering projects in both provinces due to their small size. To reduce costs and better compete, they generally use domestic and lower-grade imported products.

 

 

 

 

C. End-user Indicators and Future Consumer Demand

 

Construction has become the catalyst for future economic growth and the pillar industry throughout the nation in the near future. In order to improve residential and working conditions, local governments are undertaking construction of "An Jun" and "Kang Ju" residential buildings from the end of 1995 to 2001. "An Ju" buildings are built for those lower-income families with a personal average residential area lower than 3 square meters. "Kang Ju" buildings aim for the mid-income families which must be built with new building materials, and higher decoration standards and better building locations than "An Ju" buildings. From 1995, the Ministry of National Construction started to promote new building materials which are recognized as energy-saving and low-cost materials including: concrete blocks (traditional building bricks are red brick), plastic windows and doors, plastic pipes, spray-on plastics finishes, and plastics-covered handrails. "An Ju" residential areas will be 1.32 million square meters, of which 84 million square meters has already been completed. It's estimated that the total new construction investment will reach approximately 6-10 billion RMB($ 0.7 to 1.2 billion) in Guangdong alone. The construction of commercial residences from 1996 to 2000 is estimated to be 710.66 million square meters. Meanwhile, approval for the construction of high class hotels and resorts has been suspended. In upcoming years, approximately sixty-three percent of the construction industry activity will be for new construction, twenty-one percent for additions, alternations, and reconstruction; eleven percent for maintenance and repair; and five percent is unspecified.

D. MARKET ACCESS

 

A. Import Climate

 

Import tariffs for decorating building materials are still high, even as Chinese Customs has already lowered the rate twice since 1997. In addition, imports are also subject to a 17 percent value-added tax (VAT). Import quotas and licenses are not applicable to most decorating products, but decorating material companies cannot direct apply to the Commission of Foreign Economic Relations and Trade (COFERT) for approval on imported products. Companies must request assistance from an import and export company and pay for their service as well as the tariffs. Of course, service rates differ according to their quality but they can sometimes offer their personal relationships as a part of their service, which can be invaluable to an importer's competitiveness, but a liability if such relationships are not good.

 

 

Tariffs on major decorating materials are below:

 

 

Building ceramics : 25%

 

 

Building ceramic bricks, tiles

Glazed ceramic bricks, tiles

 

 

 

Stone materials : 25%

 

 

Granite and its products, Marble and its products and other stones products Coatings (depending on types)

 

 

 

Wall paper : 15%

 

 

 

Carpets (depending on type) : 28% or 30%

 

 

 

Bathroom fixtures and facilities:

 

 

Ceramic 25%

 

Iron or steel 20%

 

Aluminum alloy 30%

 

 

 

Floor and wall paneling:

 

Aluminum structure 14% or 15%

 

 

 

Barriers to business include limitations on the right of foreign companies to access China's wholesale and retail markets and directly hire sales forces, as well as a lack of standards and quality control requirements. Lax enforcement of intellectual property laws, restricted access for foreign services, in addition to an inadequate system for dispute resolution are other frequently cited problems.

 

 

 

B. Distribution & Business Practices

 

 

 

A recent paper was published regarding temporarily establishing joint venture international trading companies in special areas from the Ministry for Foreign Trade and Economic Cooperation (MOFTEC). Special areas include the Pudong Special Economic Zone in Shanghai and the Shenzhen Special Economic Zone. A foreign company is only allowed to register a joint venture trading company within these areas. However, the approval procedures are complicated and go slowly. Actually, foreign companies are generally not permitted to directly engage in trade within China, other than the direct marketing of goods they have manufactured in China. Therefore, U.S. exporters generally must use a domestic Chinese agent for both importation into and marketing within China. The advantages of these Chinese companies are their familiarity with the local government structure and web of strong personal relationships inside the relevant Chinese government agencies.

 

 

 

 

US & FCS provides a special program, the Agent/Distributor Service (ADS), which is designed to help U.S. exporters find appropriate sales agents in China. This service should be ordered through a district office of the U.S. Department of Commerce. Alternatively, exporters can consider registering a representative office in China to develop their own agent network and promoting their products from within the market. Previously, U.S. decorating materials' exporters have always felt that language and cultural barriers, as well as differences in business practices and letter of credit difficulties were among the large obstacles to doing business in China. Therefore, they would often choose Hong Kong, Singapore or Taiwanese companies to be their agents or distributors for China markets. Therefore, most of China's imports of U.S. decorating materials have come through Hong Kong, Singapore or Taiwan. In recent years, however, as Chinas' educational system improves and it has begun to open to the outside world, many Chinese have been come effective partners for foreign exporters.

 

 

 

C. Financing

 

 

 

As of January 1994, Chinese companies are not permitted to retain any foreign exchange. However, they are normally able to obtain the foreign currency necessary for imports and approved foreign obligations, such as licensing fees, royalties and loans, by taking the relevant documentation to a Chinese commercial bank or other bank authorized to take part in an interbank foreign exchange market. In contrast, foreign-invested enterprises (FIE) are permitted to retain foreign exchange contributed to or earned by the enterprise.

 

 

On May 1, 1996 and August 23, 1996, the government reduced the overall interest rates on both company savings and loans. These reduced rates fostered growth in new fixed asset investment. The many sources of financing imports and investment which are available to investors in China include:

 

 

 

WORLD BANK: The World Bank, based in Washington, D.C., maintains a large loan program in China, primarily in key infrastructure industries such as transportation, power, energy, agriculture and the environment. It conducts procurement by rules of international competitive bidding through the China National Technical Import Corporation or the China National Instruments Import and Export Corporation. Tender announcements are published in the China Daily (English) and People's Daily (Chinese).

 

 

 

BILATERAL GOVERNMENT LOANS: One of the most intractable barriers to enhanced American trade performance in China is the predatory financial practice of many third-party foreign governments, many of which have active soft loan programs designed to support their country's exporters. U.S. firms, otherwise competitive on price and quality, sometimes lose contracts because they cannot compete with the low interest, soft loans offered by European and other governments in support of their exporters. Despite this, the U.S. Eximbank now offers a matching policy to potential customers and a full range of export loans and loan guarantees companies exporting products with at least 51 percent U.S. contents. For more information, please contact Exim Bank Asia/Middle East Branch at Fax: (202) 565- 3717.

 

 

 

Key Contacts

 

 

I. Guangdong Government Organizations and companies

 

 

 

Guangdong Construction Commission

Contact : Mr. Zhang San Jie, Vice president

Add : #305 DongFengzhong Rd., Guangzhou 510031

Tel : (86-20) 8313-3506

Fax : (86-20) 8333-5673

 

 

Guangdong Construction Commission

Engineering Division

Contact : Mr. Cheng Tao, Division Chief

Add : #305 DongFengzhong Rd., Guangzhou 510031

Tel : (86-20) 8313-3611 ext 3614

Fax : (86-20) 8333-5673

 

 

 

 

Guangdong Construction Commission

Building Materials Division

Contract : Mr. Chen Ying Song, Vice Division Chief

Add : #305 DongFengzhong Rd., Guangzhou 510031

Tel : (86-20) 8313-3611

Fax : (86-20) 8333-5673

 

 

 

Guangdong Bluesky Construction Development Corporation

Contact : Mr. Yu Lu Xi, President

Add : 5/F, Jida Tower, Dadao Rd., Guangzhou 510600

Tel : (86-20 8776-9388 ext 2588 or 8766-7788

Fax : (86-20) 8766-7788

 

 

 

Guangdong Building Material Corportation

Contact : Mr. Chen Sheng Nian, Vice Director

Add : #85 Liu Hua Rd., Guangzhou 510013

Tel : (86-20) 8667-8121

Fax : (86-20) 8667-8236

 

 

 

Guangdong No. 1 Construction Corporation

Contact : Mr. Liang Wei Xiong, Vice Director

Add : #73 Liu Hua Rd., Guangzhou 510013

Tel : (86-20) 8650-5409

Fax : (86-20) 8667-7507

 

 

 

China Construction Corporation - Guangzhou Branch

Contact : Mr. Dai Xian Jie, Senior Engineer

Add : Tianhe N., Rd., Guangzhou 510620

Tel : (86-20) 8754-2407

Fax : (86-20) 8754-2407

 

 

 

Guangzhou Construction Commission

Building Material Division

Contact : Mr. Li Da Peng, Vice Division Chief

Add : Rm 404, #3 Bldg., Guangzhou People's Government

Tel : (86-20) 8312-4856

Fax : (86-20) 8312-4957

 

 

 

Guangzhou Building Material Corporation

Investment Division

Contact : Mr. Chen Shao Qing, Vice Division Chief

Add : #10 1st Dongchuan St., Dongchuan Rd., Guangzhou 510100

Tel : (86-20) 8381-3405

Fax : (86-20) 8381-3307

 

 

 

Guangzhou Building Material Development Corporation

Contact : Mr. Liu Ji Ming, Director

Add : 11-14/F, Jiangong Tower, #4 Guangwei Rd., Guangzhou 510030

Tel : (86-20) 8319-7450, 8333-5062

Fax : (86-20) 83334-1110

 

Guangzhou Decorating Building Material Association

Contact : Mr. Jiang Rong Yu, President

Add : Rm608, Zhuhai Special Economic Zone Hotel, Guangzhou 510180

Tel : (86-20) 8332-2933 ext 608

Fax : (86-20) 8332-2933 ext 608

 

 

 

Guangzhou Construction Union

Contact : Mr. Yu Lu Xi, President

Add : 5/F, Jida Tower, Dadao Rd., Guangzhou 510600

Tel : (86-20 8776-9388 ext 2588 or 8766-7788

Fax : (86-20) 8766-7788

 

 

Guangzhou Special Economic Zone

Construction Development Corporation

Contact : Ms. Liu Lu, Section Chief

Add : 5/F, A Block, Administration Bldg., Special Economic Zone, Guangzhou 510730

Tel : (86-20) 8222-3459

Fax : (86-20) 8222-1389

 

 

 

Shenzhen Comfort Building & Decoration Materials Co., Ltd.

Contact : Mr. Zhou Xiao, Marketing manager

Add : 18/F, International Trust Tower, #7 Hongling M., Rd., Shenzhen 518001

Tel : (86-755) 559-8690, 556-7872

Fax : (86-755) 556-7909

 

 

 

Guangzhou Five Ram Decorating Engineering Corporation

Contact : Mr. Lin Jin Hai, Vice Director

Add : #3607 Liu Hua Hotel, Guangzhou 510015

Tel : (86-20) 8666-8800 ext 3688

 

 

 

Guangzhou Pearl River Decorating Engineering Corporation

Contact : Mr. Li Qiu Tong, Vice Manager

Add : #27 Huale Rd., Guangzhou 510060

Tel : (86-20) 8385-0380 ext 312, 8382-7297

Fax : (86-20) 8381-4680

 

 

 

Guangzhou Pearl River Decorating Engineering Corporation

Contact : Ms. Lu Wei, Engineer

Add : #27 Huale Rd., Guangzhou 510060

Tel : (86-20) 8384-2091

Fax : (86-20) 8381-4680

 

 

 

Guangdong Decorating Corporation

Contact : Mr. Ye Bu Zhun, Vice General Manger

Add : #101-103 Shuiying Heng Rd., Guangzhou 510075

Tel : (86-20) 8774-7560

 

 

 

 

 

 

Guangzhou No.2 Construction Engineering Co., Ltd.

Contact : Mr. Lin Liu Zhang, Eneiner

Add : #50 Fazheng Rd., Guangzhou 510045

Tel : 8337-2301

Fax : 8337-0483

 

 

 

Guangdong Construction Decoration Engineering Corp.

Contact : Ms. Zhang Shu Na, Vice General Manager

Add : 2/F, #12 Huanghua Rd., Guangzhou

Tel : (86-20) 8383-8016, 8383-8011

Fax : (86-20) 8380-0709

 

 

 

Guangdong Construction Design Institute

Contact : Mr. Xu Xiao Chuan, Engineer

Add : 6/F, #97 Liuhua Rd., Guangzhou 510010

Tel : (86-20) 8666-2933 ext 3306

Fax : (86-20) 8667-7463

 

 

 

Guangzhou Yunpu Nangang Special Economic Zone Corp. -

Guangzhou Yunpu Industrial Area Hongfu Real Estate Development Corp.

Contact : Mr. Li Ji Lie, Vice General Manager

Add : 2/F, Nangang Government Bldg., Huangpu, Guangzhou 510760

Tel : (86-20) 8223- 9496, 9223- 3046

Fax : (86-20) 8223-2773

 

 

  1. Guangdong Real Estate Companies

 

 

 

Guangdong Huatian Real Estate Development Corp.

Contact : Mr. Zhang Hong Jun, Director

Add : #4 Yongsheng M., Rd., Donghu W., Rd., Guangzhou 510100

Tel : (86-20) 8386-0081 ext 1418

Fax : (86-20) 8386-5065

 

 

 

Guangzhou Shunlian Real Estate Co., Ltd.

Contact : Mr. Cheng Wei, Office Manger

Add : 3/F, Jinxiu Bldg., #26 Shibeitongjin, Guangzhou 510080

Tel. : (86-20) 8716-5275, 8716-5278

Fax. : (86-20) 8777-9315

 

 

Guangzhou Huali Real Estate Consultant Co., Ltd.

Contact : Ms. Zhou Mm Hong

Add : 1/F, World Trade Garden, #54 Taojin Rd., Guangzhou

Tel : (86-20) 8357-8236, 8357-4531

Fax : (86-20) 8357-6891

 

 

 

Guangdong Tianhe Real Estate Development Co., Ltd.

Contact : Mr. Liu Bing, Engineer

Add : 2/F, #9 Lianquan Rd., Shahe, Guangzhou

Tel : (86-20) 8779-1394

 

 

 

 

Guangzhou Building Material Factory

Contact : Mr. Lao Bosen, Manager

Add : Heng Sha, Xijiao, Guangzhou 510160

Tel : (86-20) 8181-3403

 

 

 

Guangzhou Hardware Corporation

Contact : Mr. Feng Ju Dong, Section Chief

Add : 16-1, Huifu W., Rd., Guagnzhou

Tel : 8188-9518

 

 

 

Guangzhou Yueyang Construction & Decoration Engineering Corp., Ltd.

Contact : Mr. Xiong Hao, Marketing Manager

Add : 3/F, #79 Liwan Rd., Guangzhou

Tel : (86-20) 8183-3621, 8196-1580

Fax : (86-20) 8183-3621

 

 

 

Buildmart

Contact : Mr. Tilo Li, General Manager

Add : Taikang Plaza, Taikang Rd., Guangzhou

Tel : (86-20) 8338-2811, 8338-0923

Fax : (86-20) 8338-1082

 

 

 

Buildmart

Marketing Section

Contact : Mr. Simon Wang and David Young

Add : Taikang Plaza, Taikang Rd., Guangzhou

Tel : (86-20) 8338-2811, 8338-0923

Fax : (86-20) 8338-1082

 

 

 

III U S Government Contacts in China:

 

 

 

American Embassy Beijing

Commercial Section

Contact : T Benny

Add : 3Xiu Shui Bei Jie, Beijing, 100600

Tel : (86-10) 6532-6924

Fax : (86-10) 6532-3297

 

 

 

American Consulate General - Guangzhou

Commercial Section

Contact : Ned Quistorff, Principal Commercial Officer

Add : 14/F, Office Tower, China Hotel, Liu Hua Lu, Guangzhou 510015

Tel : (86-20) 8667-3983

Fax : (86-20) 8666-6409

 

 

 

U.S. Commercial Service- Shanghai Shanghai Center

Contact : Will Center, Principal Commercial Officer

Add : Suite 631, 1376 Naning W. Rd., Shanghai 200040

Tel : (86-21) 6279-7630

Fax : (86-21) 6279-7639

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