Based on the information released by the National Bureau of Statistics of China, we can see that China’s coatings market in 2014 grew by around eight percent last year over 2013. And the fact that China’s architectural coatings market is entering an era of single digit growth is not surprising to everyone, so some of the coatings producers have already begun to adjust their business strategies in China to meet this new challenge. And the architectural coatings market is revealing to us its new picture:

Not every market sector will grow slower than before

Architectural coatings producers used to invest heavily to promote their products towards the market segment of newly constructed buildings, but with China’s real estate market slowing down its growth in recent years, the market potential in this sector is not large enough to absorb the total production capacities (even growing) of the architecture coatings industry in China. Some major changes also happened in the real estate market as well, for example, the government’s latest action to support the real estate market is through purchasing unsold residential properties and converting these units into low-cost public housing. The real estate market in China is so critical and important and closely linked with so many other upstream industries that the Chinese government will not let it fall free.

Besides, the construction of public infrastructures such as highway and railway still attract huge investments. In 2014 the investments for the public infrastructure sector grew by double digits, apparently outperforming the real estate sector. And the momentum will be even stronger because public infrastructure and public housing will play an important role in the Chinese government’s plan to maintain GDP growth rate at seven percent in 2015 so as to control unemployment rates under a reasonable rate. Conversely, both public housing and public infrastructures provide new growth opportunities for some coatings producers in China.

Repainting market will grow 50 percent annually

Although the market demand for painting new apartments will not grow as fast as before, the demand coming from repainting old apartments is catching up rapidly at a very low base. It is estimated by an expert in Nippon Paint that no less than three million apartments in tier one cities, which include Beijing, Guangzhou, Shenzhen and Shanghai, need to be repainted. And this market sector will grow by 50 percent annually. Nippon Paint and AkzoNobel have started expanding their services in the repainting market with the hope of finding new sales growing areas.

Accurate marketing and efficient operations will be key factors to drive continuous growth

Facing even fierce competition and less positive business environment, different architectural coatings companies in China have adopted different business strategies to keep their sales growth from slowing down. Some companies reorganized their operations to better prepare themselves for the recent market change. For example, YIP’s Chemical, a leading coatings and ink company founded by an entrepreneur born in Hong Kong and whose total sales have surpassed 10 billion HK dollars, consolidated their household and architectural coatings, industrial coatings and resins into Bauhinia Coatings Group, with a new management core team assuming full responsibility. “Having set root in China for many years and having prepared ourselves accordingly, we are confident that we can enjoy the fruit of the country’s economic boom by leveraging our competitive edge. After consolidating and optimizing the core businesses of the Group, a streamlined management structure and a clear market position will further strengthen our overall competitiveness and synergies will gradually appear.” Tony Ip, chairman of YIP’s Chemical Group commented.

Some other architectural coatings companies choose to expand their production capacities in order to build economy of scale and introduce new coating products into the market. Guangdong UNZO put their 100,000 tons per year architectural coatings production lines into operation in the second half of 2014, and now the company can produce a variety of new architectural coatings, such as stone paint and multi-layer elastic coatings. Conversely, Shandong Puntium Paint is building their 500,000 tons per year water-based architectural coatings capacity since 2012. To achieve this target, Puntium is trying to get financing from the National Equities Exchange and Quotations, a new stock trade market focusing on helping the financing of middle and small companies in China. In fact, over 20 coatings companies are listed or are trying to be listed in the new stock trade market in China since the new market system was launched. 

While, other architectural coatings companies try to build closer business alliances with real estate companies. For example, Skshu recently signed an agreement of forming a strategic cooperation alliance with Gemdale, one of the largest real estate companies in China. The new agreement secures Skshu’s position as the exclusive exterior architectural coatings supplier for Gemdale real estate projects build from 2015 to 2017. The benefit for Skshu is secured business in three years with one of their major customers, and for Gemdale, probably low price and better service.

No coatings agency might be needed in the future

A new trend in China may be noted as a result of an internet-based decoration company that has aggressively entered the market in early 2015. ikongjian.com, also called Mi decoration in the market, the same name as the brand name of China’s fastest growing mobile phone(although denied to have real business relationship by the top executive of the mobile phone brand recently), has disrupted the decoration market order now. Ikongjian competes with traditional decoration companies with its low price (699 yuan per square meters) and fast working schedule, targeting mainly the customers of the millennial generation through its website. Now the construction materials producers, including coatings producers are paying close attention to the new market trend. If most of the customers buy in to this new service module, the coatings’ value chain and distribution channel will be rewritten soon.

The competition in China’s architectural coatings market will be even fiercer due to the slowing down of the real estate market. The advantage of foreign brands in the market is not to be swayed easily by relatively new domestic brands, so consolidation and M&A as a result of market competition might happen more frequently in the next two years in the architectural coatings industry. For consumers, this might not be a bad scenario.