China's steady paint industry
BEIJING - The ownership structure of China's paint industry changed fundamentally in 2004 after the transformation of state-owned enterprises, the establishment of modern management systems in non-government enterprises and the entry of foreign enterprises. The industry has made rapid progress in the fields of operation mode, market development, technical upgrading and industrial readjustment. Due to changes of market mode and large price hikes of raw materials and energy, the operation of the paint industry has also changed significantly.
Total output of the paint industry came to 2.98 billion tons in 2004, an increase of 436,300 tons or 17.14% over 2003. The growth is higher than that for other industries. The output of oil paint was 1.847 billion tons, a year-on-year increase of 200,900 tons or 12.2%, some 5 percentage points lower than the growth of the industry as a whole. Oil paint made up 61.98% of the total paint output in 2004, 2.73 percentage points lower than the 64.71% in 2003.
Construction paint output topped 1.13 billion tons in 2004, an increase of 235,400 tons or 26.21% year-on-year, the growth being 9.07% points higher than the growth of the industry as a whole. The proportion of construction paint in total paint output has increased from 35.29% in 2003 to 38.02% in 2004. Thanks to rapid progress of urbanization and house construction, the day is not far off when construction paint and oil paint will have equal shares of the market.
Rapid development of the paint industry in 2004 has once again proved the linkage between this sector and the rest of the economy. So the argument that the paint market is dwindling is obviously incorrect, given the booming economy. The paint industry as a whole realized a sales revenue of 53.991 billion yuan (US$6.5 billion) in 2004, 11.043 billion yuan more, or up 25.71%, from the 42.948 billion yuan in 2003. The sales profit was 6.504 billion yuan, 64 million yuan more than the 6.44 billion yuan in 2003; and sales profit rate, 12.05%, as against 14.99% in 2003. Sales profit grew only 1.01%, obviously lower than the growth of sales revenue and 2.94 percentage points lower year-on-year. The drop in profit rate indicates that that sales costs of products and business expenses have increased.
The increase of product costs is a result of price increases in oil and chemical products, fueled by continuous rises in crude prices. The total cost of goods sold by the industry amounted to 43.487 billion yuan in 2004, accounting for 80.55% of the sales revenue. This is 2.73 percentage points higher than the 77.82% in 2003. Of the 10.066 billion yuan increase in the total cost of products sold in 2004, 8.594 billion yuan came from increases in sales, while 1.472 billion yuan came from an increase in unit product costs.
Increases of marketing expenses is another factor that has led to a slipping of sales profit rates. The industry spent 3.856 billion yuan on product sales in 2004, accounting for 7.14% of sales revenue - 0.27 percentage points higher than the 6.87% in 2003. Due to an increase of business expenses, the industry lost 30 million yuan in profit. Business management expenses and financial expenses of the industry were 3.371 billion yuan and 369 million yuan in 2004, accounting for 6.24% and 0.68% of the sales revenue respectively.
Analysis of the top 60 enterprises in terms of sales revenue of the industry shows their combined sales revenue was 23.065 billion yuan in 2004, 5.087 billion yuan more, or up 28.3% year-on-year and accounting for 42.72% of the total; sales profit rate was 24.43%, 4.28 percentage points lower than the 28.71% in 2003.
Total assets of the industry stood at 47.435 billion yuan in 2004 and total liabilities at 25.018 billion yuan. In comparison, total assets of the industry were 41.426 billion yuan in 2003, while total liabilities were 21.331 billion yuan. Comparing 2004 with 2003, total assets in 2004 increased by 6.009 billion yuan and total liabilities increased by 3.687 billion yuan; the asset/liability ratio increased 1.25 percentage points. The figures for 2004 show that enterprises have strong debt-paying ability.
The industry realized a gross profit of 3.208 billion yuan in 2004, paid 266 million yuan in interests and obtained loans 13.06 times the interests paid. In 2003, the industry realized a gross profit of 3.465 billion yuan, paid 275 million yuan in interests and obtained loans 13.6 times the interests paid. Deducting the sales cost of 43.487 billion yuan from the sales revenue of 53.991 billion yuan, the margin was 10.504 billion yuan in 2004. The net profit rate to sales was 19.46% in 2004, as against 22.18%, dropping 2.72 percentage points.
China now computes the net profit of the paint industry based on the amount of business income tax collected at the rate of 33%. The net profit realized in 2004 was 2.149 billion yuan, as against 2.322 billion yuan in 2003, and the net profit rate to sales was 3.98% and 5.34% respectively, dropping 1.36 percentage points. The average amount of total assets occupied was 44.431 billion yuan in 2004, compared with the net profit of 2.149 billion yuan, the net profit rate to assets was 4.84%. Net assets of the industry were 20.095 billion yuan at the beginning of 2004 and 22.417 billion yuan at the end of the year. Net profit realized in the year was 2.149 billion yuan and the net return on assets 10.11%.
Generally speaking, the profitability of the industry has dropped in 2004 as compared with 2003, but the earning power has remained the same, with the net profit rate to sales topping 20% and net return on assets exceeding 10%, a phenomenon that is rare for other industries. But market analysis also shows that the production costs of paint will keep increasing.
As the paint industry mainly serves other industries and sectors of the national economy, China has listed it as a processing industry instead of a manufacturing one. In the 11th Five-Year Plan, the development targets for the paint industry include: promote industrial restructuring and increase production levels; support brand products and enterprises and foster at least 10 large enterprises with annual sales volume exceeding 1 billion yuan each; establish a sound technical upgrading system; introduce a talent strategy to enhance the competitiveness of the industry as a whole; and encourage enterprises in coastal areas to invest in the central and western areas.
(Asia Pulse/XIC)
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